Making Tax Digital: How To Keep Records In FreeAgent

Making Tax Digital (MTD) is HMRC’s new way of collecting income tax information from self-employed individuals, including CIS-registered workers. Instead of submitting an annual self-assessment tax return, you’ll need to keep digital records of your income and expenses, submit quarterly updates to HMRC using compatible software and complete an end-of-year declaration.

MTD is being introduced in stages. At present, it affects you if you earn over £50,000. However, in April next year (2027), the threshold reduces to £30,000 and in April 2028 it further decreases to £20,000, meaning that within two years, most CIS workers will be caught by the new rules.

Our Making Tax Digital service is designed to make the process as straightforward as possible. You simply keep your records up to date in FreeAgent, which is included in the package, and we’ll use that information to prepare your submissions on your behalf. We are a FreeAgent platinum partner and include the software in our service as we know from experience that it’s a great tool and very easy to use.

Using FreeAgent to keep accurate Making Tax Digital records

The key is keeping your records current. Rather than leaving everything until near the deadlines, it’s best to update FreeAgent weekly or monthly.

Recording your income

We would recommend having a business bank account to ensure your CIS income is kept separate from personal spending.

Your bank account can be connected to your FreeAgent account, so it’s easy to see income and expenditure. The connected bank feed does not allow HMRC access to any information you add to FreeAgent (they can only access the MTD submissions which we submit on your behalf). The connection is safe, secure and private between your bank account and your FreeAgent account, so you have full control of what happens to that data.

Once your bank account is connected to FreeAgent, you’ll need to explain income and expenditure, which is simple to do. Income can be registered in FreeAgent as ‘Sales’. FreeAgent will automatically populate your total income for the quarter in the ‘Income’ section of your MTD submission.

Image courtesy of FreeAgent

For expenses, you need to explain within FreeAgent what they were for by allocating payments into the correct expense category by going to ‘Type – Payment’ and selecting the relevant cost category. You can also create a manual record of any out-of-pocket expenses you’ve paid personally.

Image courtesy of FreeAgent

FreeAgent will automatically populate your total costs for the quarter in the ‘Expenses’ section of your MTD submission.

As a CIS self-employed worker, you can claim tax relief on expenses such as tools and equipment, work clothing and protective equipment, accounting fees, stationery and office costs among others. Recording expenses as they happen makes your records more accurate and means your quarterly submissions are based on up-to-date information.

Correcting mistakes

We’re sure you’ll find FreeAgent is easy to use, and our team is always on hand to help you. However, whenever you’re familiarising yourself with a new way of working, mistakes can occur. If any of your transactions have been explained incorrectly, you can either edit or remove the bank transaction explanations.

Keeping your records up-to-date

We’ll help you get the best out of FreeAgent; we want to help you use it so you don’t need to spend hours on bookkeeping. Setting aside just a few minutes every week or month to review your bank transactions, categorise income, record expenses, and upload any receipts will help ensure your records are always ready when it’s time for your quarterly MTD submission.

It also means we can prepare your submissions efficiently without having to chase for missing information close to the deadline.

As well as helping you stay MTD compliant, you can login at any time and get a clearer view of your income and expenditure, and a heads-up on any tax that may be due.

Not affected yet by Making Tax Digital?

Even if you’re not affected yet, starting to keep digital records now will make the transition much easier when your income band is within the MTD rules.

Find out about our MTD service for CIS self-employed workers or get in touch with our team today.