Mandatory digital tax reporting for freelancers pushed back

Self-employed creatives will have more time to prepare for a switch to digitally reporting their earnings quarterly, after the government pushed back its plans to fully reform the income tax reporting system by two years.

The transition to Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA), which will see freelancers keep digital records and send quarterly summaries of their business income and expenses to HMRC using MTD-compatible software, had been mandated from April 2024 for all self-employed workers with a total gross income over £10,000 per annum.

But on Monday (19 December), the government announced the mandatory use of the software will now be phased in from April 2026 and will initially be compulsory for only those with an income of £50,000 or more.

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In a statement published online, the government said the changes are due to the “understanding that self-employed individuals are currently facing a challenging economic environment”.

The delay is likely to be welcome news for some freelancers, who will need to pay for MTD-compatible software to transfer onto the system.

Writing in Arts Professional in August, finance skills trainer David Thomas said the MTD-compatible software often costs in excess of £200 annually. He said the software is “slick and makes record keeping easy” but raised concerns some freelancers may struggle to afford it.

Further reviews pending

The government has announced a review into how self-employed people earning under £30,000 will be impacted by the reforms.

“Smaller businesses in particular should be able to experience the benefits of increased digitalisation of income tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this,” Financial Secretary to the Treasury Victoria Atkins said.

The result of the review will likely shape how long any freelancers earning under the £30,000 threshold will have to transition to MTD for ITSA. Under the current guidance, they have until at least April 2027 to transition.

Self-employed workers with an income between £30,000 and £50,000 will have to switch over to MTD for ITSA by April 2027, according to the government’s latest update.

This is not the first time the MTD for ITSA rollout has been delayed. Once penned for April 2023, previous delays have been attributed to the pandemic and “stakeholder feedback”.

HM Revenue and Customs Chief Executive Jim Harra says HMRC remains commited to the delivery of MTD “as a critical part of our strategy for digitalising and modernising the tax system”.

“We want to make sure we get this right and deliver it effectively”, he added.

“A phased approach will allow us to work together with our partners to make sure that our self-employed customers can make the most of the opportunities this will bring.”