Making Tax Digital, or MTD for short, may have fallen under the radar since the COVID pandemic hit, but the government’s drive towards digital tax records and digital returns is still pressing ahead, albeit at a slower pace than initially outlined.
Here, we look at what changes are coming for the self-employed, in particular those operating in a Network Marketing or MLM business model.
What is Making Tax Digital (MTD)?
MTD is the government’s initiative to digitise tax administration. HMRC’s ambition is to make it more effective, efficient and easier for taxpayers to get their tax right. The hope is that tax and filing requirements digitally will avoid billions of pounds lost in avoidable tax errors each year.
Many businesses are already managing routine financial processes in a digital way, so managing their tax affairs digitally is the logical next step. Using a purpose-built accountancy software can help reduce errors in business records and give useful, real-time financial information that can help you make better business decisions.
The next step in the rollout of the MTD programme is the introduction of MTD for Income Tax Self-Assessment (MTD for ITSA). This will apply from April 2024 (for the 2023/2024 tax year), although sole traders are able to voluntarily join their pilot scheme from April 2022.
What does it mean for Network Marketers?
The majority of Network Marketers are self-employed and operate below the VAT threshold of £85,000 per year. Currently, self-employed Network Marketers pay their income tax bill after filing a self-assessment tax return via HMRC’s online portal by the end of January deadline.
If you are an unincorporated business or sole trader and have a total business income above £10,000 per year, MTD for ITSA will apply to you.
Here’s what you will need to do as part of the new rules:
- You will need to prepare quarterly updates for your income and expenses on a spreadsheet or MTD compliant software. You will then receive an estimated tax calculation to help you budget for your tax bill. This is a new requirement.
- You will need to prepare an end of tax year statement to finalise the business’s tax affairs by 31st January. This will replace the need for submitting a separate self-assessment tax return but will ask for the same information as the tax return.
Some parts of the MTD rollout have been delayed due to the pandemic. At the time of writing, April 2024 is earmarked as the go live date for MTD for ITSA so there is no urgent need for Network Marketers to change the way they’re currently managing their accounts and tax – although you may wish to consider it.
There are still some questions that will need clarifying, such as:
- Will there be a requirement to use digital accounting software, or will a bridging software or API-enabled spreadsheet be sufficient, as is currently the case for VAT registered businesses?
Regardless of whether you decide to act sooner or later, it is worth bearing in mind that a move to digital record keeping makes sense in today’s world.
Did you know we offer a bespoke accounting software called PRBookkeeping to help our clients on the way towards becoming MTD compliant?