Miss a deadline and HMRC starts building a compliance record on you – by next year missed deadlines convert into automatic £200 fines. There’s also a separate, escalating regime for anyone who is late paying their tax.
Making Tax Digital for Income Tax initially catches anyone who earned more than £50,000 from self-employment or property in the 2024-25 tax year. They must now report their income and expenses in HMRC-compatible software every three months, with filings due on 7 August, 7 November, 7 February and 7 May. They must file their annual return and pay any tax due – or claim back overpaid CIS deductions – by 31 January.
And it doesn’t stop there. From April 2027, those earning over £30,000 must comply with the rules
and from 2028 it will apply to those earning over £20,000, meaning the majority of subbies will eventually be caught. HMRC expects that eventually 2.9 million people will have to comply with Making Tax Digital for Income Tax.
Don’t get sold something you don’t need
The new system has whipped up a Wild West of conflicting advice. Self-styled MTD experts are pushing subbies towards expensive, inappropriate or unnecessary solutions.
Hudson Contract, the UK construction industry’s largest payer of subcontractors and the market leader in CIS compliance, has spent months fielding calls from concerned subbies. Its message is simple: while many of these changes might seem alarming, at the end of the day they should remember that the way they report tax is changing, but the way they run their business doesn’t have to.
Ian Anfield of Hudson Contract said: “Subbies should view MTD as an extra job that needs doing. They don’t need to change their accountant, set up limited companies or change their bank accounts. They just need access to our recommended app that keeps a record of income and expenses, can produce and submit a report every three months, and provide basic support to get started.”
He warned of three particular solutions being marketed. Incorporating as a limited company contractor to dodge MTD is usually the most expensive option, and can land clients with IR35 headaches. “Free” record-keeping tools bundled with business bank accounts often carry monthly account fees and some can’t record cash payments. Subbies should also watch out for reduced rate offers that jump in price after six months.
Sorted for £10 a month
Hudson compared the market and partnered with Grenfell James, a specialist accountancy firm, to provide a user-friendly tool that costs as little as £10 per month plus VAT. It is already proving popular with Hudson subbies for three reasons: it’s cheap, it’s simple and nothing else has to change. A subbie’s existing accountant, bank account and working arrangements can stay exactly as they are.
The government said Making Tax Digital is designed to “make it easier for everyone to get their tax right” and to help close a £5 billion tax gap in self-assessment tax revenue.
With Making Tax Digital, subbies who leave it to the last minute run the risk of HMRC penalties or overpaying for bad advice. Those who believe MTD applies to them should email Grenfell James at [email protected] and copy Hudson at [email protected] to get compliant before the first deadline of 7 August.
This content was supplied by Hudson Contract. Learn more..
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