{"id":931,"date":"2025-05-06T07:37:00","date_gmt":"2025-05-06T07:37:00","guid":{"rendered":"http:\/\/portraitsbylorie.com\/?p=931"},"modified":"2025-05-07T16:48:43","modified_gmt":"2025-05-07T16:48:43","slug":"one-year-until-major-tax-change-hits-sole-traders","status":"publish","type":"post","link":"http:\/\/portraitsbylorie.com\/index.php\/2025\/05\/06\/one-year-until-major-tax-change-hits-sole-traders\/","title":{"rendered":"One year until major tax change hits sole traders"},"content":{"rendered":"

Heads up, sole traders<\/a>. HMRC has some important changes on the horizon, and they’re set to take effect next year.<\/p>\n

The initiative, called Making Tax Digital (MTD) for Income Tax, goes live in April 2026. It will digitalise record-keeping for sole traders<\/a> with qualifying income over £50,000. From 2027, those earning over £30,000 will also have to go digital.<\/p>\n

MTD is intended to make accounting faster and more efficient for businesses, supporting wider economic growth. But many small businesses are concerned that it may bring added financial and administrative burden.<\/p>\n

In this guide, we’ll explain what the changes are, why they matter, and what you need to do to stay compliant.<\/p>\n

What are the new rules for income tax?<\/h2>\n

MTD<\/a> is a government initiative to digitalise record-keeping and reporting. It will require sole traders (as well as landlords) making over £50,000 a year to use MTD-compatible accounting software to complete their Income Tax Self-Assessement (ITSA)<\/a>.<\/p>\n

Initially, MTD only applies to those whose gross income from self-employment (and property) exceeds £50,000 a year. From 2027, those earning over £30,000 will also be required to switch to MTD. From 2028, the threshold will then decrease to £20,000.<\/p>\n

The initiative also requires eligible businesses to submit tax returns quarterly, rather than annually. Keeping regular accounts will, in theory, help businesses stay on top of their cash flow<\/a>, as it’s closer to real-time reporting than a singular annual tax return.<\/p>\n

Regarding the changes, Jon Martingale, Head of Product Management at accounting software company, FreeAgent says, “By requiring regular quarterly updates, MTD encourages businesses to maintain up-to-date financial records, which leads to a clearer, more current understanding of their financial position.<\/p>\n

“This regular insight helps business owners spot growth opportunities, performance issues or overspending early, allowing for more informed decision-making and better cash flow management.”<\/p>\n

Digitalisation will eventually simplify the way companies keep accounts. But there will be a transitory adoption phase, which could create admin and financial pressure.<\/p>\n

“For businesses already struggling to keep on top of their finances, the move to more frequent reporting may create short-term friction and stress. There is a clear need for better education and communication to clarify what is expected and to support businesses through the transition,” Martingale adds.<\/p>\n

Given these concerns, the government has already previously delayed the initiative in 2022<\/a>. There is of course, a small chance the initiative could again be pushed back. But sole traders should not rely on this as it could risk their business being underprepared.<\/p>\n

What do sole traders need to do?<\/h2>\n

Start by checking when you’ll need to switch to an MTD-compliant process. As we’ve detailed above, higher earners (£50,000 and over) will be first to go digital.<\/p>\n

Eligible taxpayers are encouraged to get ahead of the curve and join the pilot program to adjust to the new way of working before it becomes mandatory. This may be a wise move, as there are also penalties for non-compliance beyond the April 2026 deadline.<\/p>\n

To support the transition to MTD<\/a>, you’ll also need to find a compatible accounting software<\/a> to automate the process of digital record-keeping. You might also want to speak to an accountant who can advise on the best course of action.<\/p>\n

Here’s a simple breakdown of your need-to-know deadlines:<\/p>\n

📅 6 April 2026<\/strong> is for self-employed individuals and landlords with annual business or property income over £50,000. From this date, affected individuals must:<\/p>\n

– Keep digital records of their income and expenses
\n– Submit quarterly updates to HMRC using MTD-compatible software
\n– File an end-of-year finalisation statement (replacing the current tax return process)<\/p>\n

📅 6 April 2027 <\/strong>is for self-employed individuals and landlords earning between £30,000 and £50,000 annually. The same rules apply as listed above.<\/p>\n

📅 6 April 2028 <\/strong>is for self-employed individuals and landlords earning over £20,000 annually. The same rules apply as listed above.<\/p>\n

Why it matters (and why you can’t ignore it)<\/h2>\n

This is more than just an admin update. MTD will entirely reshape the way businesses and sole traders handle finances. It’ll affect how you manage cash flow<\/a>, budgeting, and the types of software you use.<\/p>\n

Instead of an annual filing, you’ll need to keep your records up to date in real time. The benefit of this is that you’ll have a clearer idea of what you owe and when. But <\/em>it also means you’ll need to set aside funds to cover your tax bills more regularly.<\/p>\n

Add this to the potential new cost of implementing MTD-compliant accounting software, and the financial impact of the changes is clear. Additionally, be aware that there may be penalties for late or incorrect submissions.<\/p>\n

We advise starting by brushing up on self-assessment rules and exploring the best accounting tools<\/a> ahead of next April.<\/p>\n

“Early adoption means businesses can gradually transition their record-keeping practices, reducing the risk of last-minute compliance problems”, adds Martingale, who impresses the need for “a smooth transition when MTD becomes mandatory.”<\/p>\n

The post One year until major tax change hits sole traders<\/a> appeared first on Startups.co.uk<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Heads up, sole traders. HMRC has some important changes on the horizon, and they’re set to take effect next year. The initiative, called Making Tax Digital (MTD) for Income Tax, goes live in April 2026. It will digitalise record-keeping for sole traders with qualifying income over £50,000. From 2027, those earning over £30,000 will also…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"_links":{"self":[{"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/posts\/931"}],"collection":[{"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/comments?post=931"}],"version-history":[{"count":1,"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/posts\/931\/revisions"}],"predecessor-version":[{"id":932,"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/posts\/931\/revisions\/932"}],"wp:attachment":[{"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/media?parent=931"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/categories?post=931"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/portraitsbylorie.com\/index.php\/wp-json\/wp\/v2\/tags?post=931"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}