A Self-Assessment and Making Tax Digital Special
With the deadline for tax returns just a couple of weeks away, today we place a focus on supporting businesses in preparing for the Making Tax Digital campaign, and how to tackle a Self-Assessment if you’ve not had to submit one before.
Getting Ready for Making Tax Digital
With just 10 weeks or so to go until the new tax year, many businesses are preparing for the changes that Making Tax Digital (MTD) will bring. From April, sole traders and landlords with an income of over £50,000 will need to submit quarterly updates to HMRC.
It is estimated that around 900,000 individuals will be joining in April. If you are affected, this will be a major change and the earlier you can be prepared, the better.
Using approved software
MTD requires the use of software. Whether you are already a ‘digital native’ with your bookkeeping, or have not yet made the jump, it will be vital to make sure that any accounting software you use is HM Revenue & Customs (HMRC) approved for MTD use.
Use of software for keeping your accounting records can have benefits beyond helping you to comply with MTD. For instance, software can help streamline some of your work, make it easier to forecast your cash flow, help inform you in making financial decisions and help to reduce mistakes.
That means that when you are selecting accounting software, it is worth considering some of the other advantages it could give you and your business.
Registering for MTD
Based on your tax return information, HMRC will get in touch with you to let you know that you need to get ready for Making Tax Digital.
However, HMRC will not sign you up automatically. This is something you will need to do, and it is important that you do this in time.
Are there any exemptions?
There are some automatic exemptions from MTD. For instance, if you are submitting a tax return as a trustee or as a personal representative of a taxpayer who has died, there is no need to sign up for MTD. Generally, HMRC will tell you if you are automatically exempt.
In addition to automatic exemptions, there are situations where an exemption can be applied for. So, it pays to check whether your situation might mean you can apply.
What if your income is less than £50,000?
MTD is being given a phased introduction. MTD will become mandatory for sole traders and landlords as follows:
- 6 April 2026 – those with income above £50,000
- 6 April 2027 – those with income above £30,000
- 6 April 2028 – those with income above £20,000
It is possible to voluntarily sign up sooner if you wish.
Does MTD apply to partnerships?
Not yet, however, HMRC have advised that business partnerships will also need to use MTD in the future. The timeline for when this will happen will be set out at a later date.
Would you like help with MTD?
Choosing software can be a bit of a minefield, so if you would like support, we can offer you a tailored recommendation and any training you need. We can also handle your registration with HMRC.
If you would like ongoing help with bookkeeping, filling in the quarterly returns, or you just want us to handle the end-of-year return, please get in touch. We would be happy to help you!
New to Self Assessment Tax? Here’s an Explainer
If you are new to being self-employed or being a landlord, Self Assessment can feel like one of those jobs you know you should understand better, but never quite get around to.
When do you actually pay the tax? Why does January seem to be so expensive? And what on earth is a “payment on account”?
In this article, we’ll walk you through how Self Assessment tax payments work in practice, the key dates to watch, and how to avoid nasty surprises by planning ahead.
Understanding Self Assessment payments
Once your tax return is completed and filed, HM Revenue & Customs (HMRC) calculate how much tax you owe on all income you have earned outside of PAYE. Unlike tax taken automatically from a salary, you are responsible for paying the tax yourself. That is why knowing the deadlines is crucial.
For most people, there are two main types of payments to make each year:
- Payment on account – This is essentially a prepayment for your next year’s tax. When your tax bill for a year is over £1,000, HMRC will require you to make two equal payments on 31 January and 31 July. Think of it like a deposit on your tax bill.
- Balancing payment – This is the top-up for anything left over once your tax return is finalised and submitted. It’s due by 31 January following the end of the tax year.
For example, say your tax bill for 2023/24 was £3,000. You will likely have paid £1,500 on 31 January 2025 and another £1,500 on 31 July 2025 as payments on account. Then, if your tax bill for 2024/25 is £3,200, you will pay the £200 balancing payment on 31 January 2026. You will also pay a £1,600 payment on account against the next year’s tax bill on the same date, which means you would pay a total of £1,800 on 31 January 2026.
If you are new to Self Assessment, then you probably will not have made any payments on account for the first tax year that you file a tax return for. So, you will need to pay the full balance for the entire tax year on the 31 January following the tax year end.
In other words, if your tax bill for 2024/25 is £3,200, you’ll need to pay £3,200 on 31 January 2026. You’ll also pay a £1,600 payment on account against the next year’s tax bill on the same date, which means you’d pay a total of £4,800.
No wonder January can feel so expensive!
How to pay
Paying is straightforward once you know the methods.
These days most people pay online through their HMRC account by bank transfer or by debit card. You can also use the HMRC app to pay your bill through your bank’s app or by using online banking.
You just need the reference numbers to make sure the money goes to the right place.
Avoiding surprises
Late or missing payments can lead to penalties and interest charges, so planning ahead is essential. A good tip is to set up a calendar reminder so that you don’t forget to make the payment on time.
Keeping a separate pot of money for tax that you save each month can also prevent you from scrambling at the last minute.
If you need help completing your tax return or want advice on paying tax, please get in touch. We would be happy to help you!
See: https://www.gov.uk/government/news/65-rise-in-self-assessment-payments-via-the-hmrc-app