Making Tax Digital adds pressure on UK's freelancers and small businesses

In the UK, significant changes are being introduced to the self-assessment tax return process, particularly affecting freelancers and self-employed individuals. These changes fall under the new Making Tax Digital initiative, which mandates that those with a qualifying income of over £50,000 from self-employment, unincorporated businesses, or property rental must submit their income and expenses records to HMRC on a quarterly basis. This initiative requires the use of a digital platform recognized by HMRC, with the aim of making tax affairs more manageable for self-employed individuals and landlords while ensuring compliance with the tax obligations. The introduction of this digital initiative is expected to affect approximately 780,000 people in the first year, with projections indicating that this number could rise to 970,000 from April 2027. This change in the tax system has been described by officials, including Craig Ogilvie, HMRC's director of Making Tax Digital, as a modernization effort that is designed to help businesses work more efficiently and productively. However, there is a growing concern among experts and affected individuals that it may lead to increased administrative burden, further compliance requirements, and additional costs for small businesses. Critics, such as Matt Croker from Heligan Group, argue that while Making Tax Digital aims to streamline processes for HMRC, it may inadvertently add more stress to small business owners who are already navigating a challenging economic landscape marked by rising living costs. The changes come at a time when many freelancers are struggling to secure work and small businesses are dealing with financial pressures, making the timing of this new administrative requirement particularly difficult for those who should be focusing on innovation and growth. Furthermore, past assessments, such as those from the Public Accounts Committee, have indicated that HMRC may not be considering customer needs adequately in its overhaul of the tax system. Reports suggest that the costs associated with transitioning to Making Tax Digital could exceed potential savings by around £200 million annually. As businesses adapt to this new system, experts recommend that individuals start organizing their records, familiarize themselves with the required software early on, and create a habit of updating their records regularly. This proactive approach can mitigate some of the challenges associated with filing quarterly updates starting from next April.