Changes to self-assessment, that every self-employed person needs to be aware of...

Tax Returns

Every small business owner and self-employed person knows that they need to submit a self-assessment tax return once a year. Some people are on top of this, submitting as soon as they can in April or May, whereas some business owners leave it to the last minute, and as late as the following January. This may be due to lack of time to allow you to keep on top of your bookkeeping and busy doing the day job, or just not getting into good habits and needing some assistance – Well, once a year may seem tiresome, but it’s about to get even more demanding on your time.

From annual to 5 a year

At the moment you are required to submit your self-assessment once a year, however this will be changing under new legalisation. You may soon be required to submit 4 updates of your income and expenses, in addition to your annual self-assessment tax return.

Making Tax Digital

You may have heard this term, or even MTD, but what is it?

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right. Making Tax Digital is making fundamental changes to the way the tax system works, looking to transform tax administration so that it is:

• more effective

• more efficient

• easier for taxpayers to get their tax right

Will it impact all small businesses?

Self-employed businesses and landlords with annual business or property income above £50,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2026. This has been pushed back several times, but this date looks likely to be the one that you will need to be aware of. From April 6th 2027 the threhold will drop down to £30,000 per year.

If this applies to you, then you will need to use software or bridging tools to keep business records digitally and send regular Income Tax updates to HMRC instead of just filing an annual Self-Assessment tax return.

HMRC have put in place some deadlines for making tax digital – so you need to be aware of your responsibilities, and how this could affect you. These may be subject to change, but we will look to offer some insight on the current plans for initiation.

Dates to remember

You will submit your 2023 to 2024 self-assessment in April 24 as normal – or no later than 31st January 2025. Then you will be required to provide digital updates as follows:

1. First report will cover 6 April to 5th July – due Aug 5th 2026

2. Second report will cover 6 July to 5th Oct - due Nov 5th 2026

3. Third report will cover 6 Oct to 5th Jan - due Feb 5th 2027

4. Forth report will cover 6th Jan to 5th April - due April 5th 2027

With your fifth and final full year end self-assessment tax return due after 6th April 2027, and submitted before end of Jan 2027.

This may seem a long way off, but you need time to prepare, select software for records management that fits with your needs, or a provider to help you meet this requirement. You’ll need to get into good habits with your records management and have processes in place to be ready for this.

Payments and penalties

You may be allowed to voluntarily pay your taxes as you go: the details are still being decided. Eventually, it is likely that you will be required to make four payments per year on account of tax – similar to PAYE deductions from monthly wages which are based on projected income.

As with before, HMRC will look to issues penalties and fines, however:

• There will be no late filing penalties for at least a year while the new system beds in

• After that, you will suffer penalties if you file your returns late

• Penalties already apply for errors in returns or documents – this will apply to all 5 submissions

• Late payment interest already applies and will continue

What to do next?

As HMRC are not providing their own software or bridging tools for this new process, this is something that you will need to source and possible pay for yourself. You can choose to source your own software that meets the requirements for MTD and digitally sharing your income tax information with HMRC. Or you can work with an accountant, who can offer assistance, either as full support, or a small fee for using the system that they have available for you to use.

If you would like to find out how StressLess Accountancy can assist you with this transition, you can call, text or email us today.

Mobile 07940 572 040

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