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How best to make tax digital?
FROM 6 APRIL 2027 all UK freelances whose “turnover” is £30,000 a year or more will be required to file four tax returns a year using approved “Making Tax Digital” (MTD) software – as well as the existing main, annual returns each year after that. The Freelance asked members to share their views on the software that’s out there and we thank those who responded.
Tim Graham has been using FreeAgent, “which I get free through my business bank account, although it’s also available by subscription”. He would “happily recommend” it. “It connects to my bank account and makes it easy to issue and track invoices, reconcile payments, manage expenses and upload receipts. It also simplifies self-assessment by calculating your tax, allowing you to add other income and reliefs, and submitting your return directly to HMRC [His Majesty’s Revenue and Customs]. It’s Making Tax Digital ready and, after years of filing tax returns manually, I find it saves a huge amount of time and effort.”
FreeAgent offers a free trial and costs £95 for the first year, rising to £190.
Beware the beta test
A second member has a warning: “I discovered I had been opted in for the beta testing of 24/25 MTD, and only noticed this when I checked HMRC’s website and looked at the new MTD page – which told me I was overdue on all my submissions for the 24/25 tax year. So this is something other freelances need to be aware of.”
So she started looking for a free MTD tool. “Many of those listed by HMRC weren’t available yet at the start of this year. HMRC’s site is not helpful at all, and I felt very overwhelmed trying to understand the process. I first signed up for TaxHeaven, but I got put on a wait list.
“I then tried AbraTax, which seemed promising. I don’t have separate business and personal bank accounts, so I was looking for a tool that offered flexibility to manage my data in Excel rather than just brute-force connecting to my bank account and pulling all the data.
“I have found AbraTax good enough for my needs, although there is manual work involved, and I don’t look forward to having to remember to do this every quarter; What was disappointing was that AbraTax wasn’t free at all. The first submission was free, but then an alert flashed up asking me to pay for the second submission.
“I felt very frustrated as AbraTax had been marked as a free solution by HMRC. [This has been corrected.] I’ve just given in, paid and marked it as an expense, but I really am frustrated that this new process results in more costs and more work for freelances.”
AbraTax costs £5 a month.
Free and limited
A third member has been using the free version of Sage’s MTD-compatible package, currently called Sage Sole Trader, and accesses it through a web browser: also available as an app,
“It’s early days, but I think it’s going to work OK,” he says. But there are caveats. “Firstly, you can’t use traditional accounting, as it’s all triggered by when money hits your account, not when you issue an invoice – so they say you have to use ‘cash basis’ accounting to be able to sign up for it.” Under UK tax rules using cash basis restricts, for example, your ability to spread the cost of “capital items” over several years: see the Freelance Fees Guide.
And he gathers that “if you have two or more business accounts, you need the paid version. (I’ve added more than one credit-card account with no problems.)
“It is easy enough to connect it to your accounts: it uses an intermediary technology provider that logs in to your online banking accounts on behalf of the Sage software. You get sent a few six-digit codes to your mobile and have to faff about keying them in to different web interfaces. Roughly every 90 days it requires you to re-authorise the system to access your accounts, but it doesn’t tell you this. Re-authorising is quick and easy, however
“Once connected, the system shows transactions in ‘draft’ form, usually with a delay of 24 to 36 hours. You then click on the individual transaction and, using a drop-down menu, select the category it should go in. If, like me, you often end up making non-business payments from your bank or credit-card accounts, that’s not a problem: you just tag it as non-business and the system files it accordingly, and it doesn’t appear in your tax calculations. There is an option to split any transaction – for example between allowable and non-allowable expenses, as you might with a phone or broadband bill.
“The system uses a so-called ‘AI’ tool, which you only have limited access to in the free version. That takes a guess at what each transaction might be and suggests a category for it to go in. This is right about half the time. I would prefer not to have it at all, but there is no way of turning it off.”
Another FreeAgent option
A fourth member “followed advice from accountancy firm HW Fisher at an NUJ-organised seminar last autumn and opened a free Mettle business account, which includes a free subscription to MTD-compatible FreeAgent; both are owned by NatWest. There’s no financial cost, although switching bank account and learning how to use FreeAgent took time, although the latter is fairly easy and there’s plenty of guidance.
“Mettle and FreeAgent integrate with each other well, with a transaction in Mettle automatically appearing in FreeAgent. These will often be dealt with intelligently; for example a payment quoting an invoice number will automatically be linked to it. You’ll just need to approve this.
“A disadvantage with Mettle is it doesn’t accept payments from outside the UK, although it’s planning to add these. However, you can process payments in FreeAgent that are made to another account.
“I have now used it to submit my first quarter’s figures, and that was entirely straightforward. I’d already linked the Sage account to HMRC so it was just a matter of reading through the summary, feeling like it looked about right to me, then clicking ‘send’. One niggle is that it generates a figure for your estimated tax bill at the end of the year, but no calculation is shown. I’d be interested to hear whether other MTD systems give a calculation.”
Thanks and a renewed request
Once more, our thanks to these members: please describe your experiences to mtd@londonfreelance.org.
See the links below to UK government advice. We are alarmed at the number of software packages listed as having the ability to file an annual return “under development”.
Making Tax Digital for Income Tax for sole traders and landlords: step by step