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Making Tax Digital plans ring alarm bells for freelancers

28 July 2020

The government has unveiled the next steps for Making Tax Digital but self-employed workers are worried that it could make tax administration more complicated.

The gradual extension of HMRC's Making Tax Digital programme is designed to make it easier for businesses and people to pay tax and reduce avoidable errors and fraud.

But the Association of Independent Professionals and the Self-Employed (IPSE) has said that the government must not make tax even more complex for freelancers by increasing the frequency of reporting under Making Tax Digital (MTD).

At present, businesses above the VAT threshold of £85,000 are covered by the system, which requires them to keep digital records and provide VAT returns through software. Since it was introduced in 2019, more than 1.4 million businesses have joined the programme, submitting over six million returns. Over 30% of smaller VAT-registered businesses, who are not yet required to use Making Tax Digital, have chosen to do so voluntarily.

From April 2022, MTD will be extended to all VAT-registered businesses with turnover below the VAT threshold (£85,000), and from April 2023, it will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually.

Jesse Norman, financial secretary to the Treasury, said: "Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis. Making Tax Digital changes will affect the way that taxes are reported, not the level of tax that is collected. It will help to minimise avoidable mistakes - which cost the exchequer £8.5 billion in 2018-19."

The long lead-in time is designed to give businesses, landlords and agents time to plan. It also gives software providers enough notice to bring a range of new products to market.

However, IPSE has warned that more frequent tax reporting could be problematic for freelance workers.

Andy Chamberlain, director of policy at IPSE, said: "In pushing ahead with Making Tax Digital, the government must make sure it does not make tax even more complex for freelancers. In the plans for extending MTD, the government announced that it would consider making tax reporting more frequent. Although this would give the government a more accurate view of incomes, for freelancers, for whom every minute of admin is valuable earning time lost, this could be a significant added burden. The aim of MTD is to make tax simpler for taxpayers and HMRC: it's not clear to us how more frequent reporting will achieve this."

Written by Rachel Miller.

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