(Photo: MadFishDigital via Flickr / CC BY 2.0)
UK freelancers are set for a major change in how they will go about managing their income tax as the UK government prepares for a brand new system called Making Tax Digital (MTD).
The new system, which is currently being designed by HMRC, is aimed at bringing the UK tax system in line with other UK government initiatives aimed at completely digitalizing how they communicate with their citizens.
In the case of the tax system, it means that self-employed individuals will be called on to report on their financial operations on a more consistent basis, thus giving HMRC a window into the financial operations of the 4 million-plus UK freelancers.
Currently, UK-based freelancers are required to file a self-assessment tax return on an annual basis, while under the new system, they will be able to file their income and expenses digitally on a more consistent basis via software that will communicate directly with HMRC’s online system.
While the first set of changes are set for April 2026 for those UK-based freelancers who earn more than £50,000 a year, in 2027, the threshold will drop to £30,000, then finally dropping to £20,000 in 2028, meaning that even if they avoid it at first, ultimately millions more people will eventually need to follow all of these new rules.
Freelancers will also be expected to keep full and comprehensive digital records of their finances. Unlike now, paper records and manual spreadsheets may no longer meet the requirements once the rules come into force, HMRC have indicated.
With the first stage due to begin in 2026, freelancers who may fall into the £50,000 category of earnings are being encouraged to consider switching to compatible accounting software ahead of time.