Accounting

During September’s Facebook Live, I provided a proactive session focused on moving beyond historical bookkeeping. I covered how to create a simple but effective budget for the upcoming tax year, the basics of cash flow forecasting to anticipate future shortfalls, and how to use these financial tools to make strategic business decisions, set realistic goals, and secure potential funding.  My objective was to empower business owners to move forward from reactive bookkeeping to proactive financial planning, using budgets and forecasts to set goals and control their financial future.

Beyond Just Recording History

When you are completing your accounts, you are looking at transactions that have already occurred and just recording that information.  When you budget and use cash flow forecasting, you are looking into the future and planning for how to make things happen.  It is the difference between looking in the rear-view mirror and looking at the sat-nav to see where you are going.

What is a Budget?

Budgeting looks at the financial direction of where a business owner wants to take their business.  It provides a financial roadmap for what a business wants to achieve for a particular period of time.

When you create a budget, you are creating a detailed plan of your expected income and expenses over a period of time (for example, the next 12 months).  It will include an estimate of income and expenses, expected cash flow, and expected debt reduction.  A business will typically re-evaluate its budget regularly.  A budget will give you a baseline which you can then compare actual results to in order to determine how they vary from the expected performance.  It can provide you with valuable insight into how your business is actually doing in terms of the cost of running the business, and you will be able to improve the day-to-day running of the business, as well as be prepared for any potential problems.

How do I create a Simple Budget?

Depending on the accounts software you are using, you may be able to create your budget by pulling the historical data through and pre-populating the budget based on that information.  However, you can create a very simple budget using spreadsheets.  There are many free templates online that can be used to get you started.  You will set up different sections on the spreadsheet to cover Income, Fixed Costs, Variable Costs, and One-Time Costs.  Each type of income/expense will be entered on its own row, with the figures going across the spreadsheet in the columns.

If you have been in business for a period of time, the best thing to do is to start with your historical data, so the previous year’s profit and loss statement.  It will give you a starting point for what figures to use.

The first thing you want to look at is your income.  Break it down into the different income streams you have – for example, different products, or different sales avenues (website, bricks and mortar shop, Amazon, Etsy), or different locations.  Estimate what your revenue will look like going forward, taking into consideration any seasonal changes, any recurring income that comes in from clients, and any future projects that you have planned.

The next thing to look at is the costs associated with running your business.  Some of these costs will be fixed – for example, rent, insurance, software fees, payroll-related expenses (National Insurance, wages) – any expense where the amount paid is the same for the time period you are looking at.  Variable costs will be things like stock, travel expenses, marketing costs, utilities – any expenses that fluctuate in both amount and how often they occur.

The last set of costs you want to look at are the ones that are considered a one-off or unexpected.  You would include things like purchasing equipment, moving office, legal fees, and equipment repairs. These are expenses that you have a contingency for, but may not necessarily happen.

When you enter figures into your budget, look at the historical data, but also think about the plans you have for the business.  For example, are you planning a big marketing campaign? If so, adjust the figure for marketing costs within the budget to see how it impacts your profit.  If you have seasonal changes, ensure that the figures for those months reflect that increase in sales or expenses. 

You want to ensure that you are setting realistic targets for your sales – be conservative with the figures you are hoping to achieve.  Remember, this is a budget, and not what will actually happen.  It is just a tool to help you identify where you perhaps need to cut spending, or increase it, for certain items to help you achieve your goals.

What is Cash Flow Forecasting?

To put it simply, cash flow is the movement of money in and out of a business over a specific period.  The profit of a business is not the same as the amount of money that you have in your bank account.  If you have a positive cash flow, that means more money is coming into the business than is going out and indicates that a business is healthy.  If you have a negative cash flow, you need to look at the spending patterns for the business and work out either how to increase the money coming into the business from sales or where you can cut back on the spending.  Understanding the cash flow of your business is crucial, as even a business that is profitable can still fail if it doesn’t have enough money in the bank to cover expenses.

The purpose of a cash flow forecast is to help a business owner predict any future cash shortfalls so that they can act before they happen.  It can also help to predict any future cash surpluses and allow you to plan for how to invest those funds or use them to grow your business.

To create a simple cash flow forecast, the first thing to do is to choose your planning period.  This could be weekly, monthly, or quarterly.  Plan as far ahead as you can based on your cash flow cycle and try to ensure your figures are as accurate as possible.

For each of the weeks or months in your time period, you will need the following information:

• The opening balances on your various bank accounts (main bank, PayPal, cash)
• The amount of sales you will have coming in (if some of the income isn’t regular, you can try to predict what it will be by looking at the figures from the previous year, if applicable) – ensure that you are putting the figures into the correct time period based on when the payments will clear in your bank account
• any money you receive from tax refunds, loans, interest, or grants
• a list of your expenses (rent, wages, stock, bank fees, loan repayments, utilities, advertising, tax bills)

After you have the information to hand, you can then create a cash flow forecast in a spreadsheet.  Enter the time period across the top of the spreadsheet, with each week/month being in its own column.  In the first column of the spreadsheet, put the names for each of your bank accounts in a row of its own, and then below that list each type of income and expense in its own row.

At the end of the section where you have your income, add in a new row and label it “Net Income”.  The figures in this row will be the total of all your income for that time period.  At the end of the section where you have your expenses, add in a new row and label it “Net Expenses”.  The figures in this row will be the total of your expenses for that time period.  For the final row, you want to have this figure be the “Opening balances”, plus the “Net Income”, minus the “Net Expenses”.  That figure will tell you whether you have a positive cash flow (you have more money coming into the business than you are spending) or a negative cash flow (you are spending more money than you have coming into the business). 

For each week/month, you want to enter the figures for the different income and expenses in the appropriate row and column. You will need to ensure that the “opening balances” for each of your bank accounts are updated for the beginning of each time period, as they will change.  The figures you enter into the cash flow forecast can be updated as and when they are needed.

You can find templates online to use for creating cash flow forecasts using spreadsheets, and depending on the accounts software you use, it might be able to create a forecast for you based on the information you have already entered into the accounts.

How do I use a budget and cash flow forecast for my business?

Once you have your budget and cash flow forecast set up, you can use the information to help you plan for the future. 

They can help you to set goals for your business – for example, you may want to start taking on staff, so by using the budget and your cash flow forecast, you will be able to determine when you will be able to afford to hire staff.  These reports are also helpful in determining whether a marketing campaign or a particular product has increased your sales.

If you are trying to secure funding for your business, a lot of banks and investors will ask for a cash flow forecast.  They want to be able to see whether you will be able to afford the repayments and whether making an investment in your business is a good idea.

Another way these two tools are useful is that they allow you to compare your actual monthly results with your budget, so you can see where there were differences and then work out why.  It can help to highlight if a particular product or service is no longer what your clients are looking for.

This month is the perfect time to plan.  If you’d like help setting up a budget or a forecast for your business, please feel free to email me.

During July’s Facebook Live, I discussed online business bank accounts and their savings spaces – what they are and how to manage them.

Managing “Pots/Spaces” in Online-Only Business Bank Accounts

Many business owners are now using online-only business bank accounts like Monzo and Starling. A key feature of these accounts is the ability to create “pots” or “spaces”—virtual envelopes within your main account to help you set money aside for specific purposes. These pots/spaces aren’t separate bank accounts; they’re part of your main account and allow easy transfers in and out at any time.

Common Confusion Around Pots/Spaces and Accounting

There’s often confusion among business owners and even some accounting software providers about how to handle transactions involving pots/spaces.

Most online accounting software supports Bank Feeds, where transactions are automatically imported from your bank account. If you have multiple bank accounts (e.g. current, savings), each one typically needs a separate connection.

However, pots/spaces in Monzo and Starling don’t have separate account numbers. They sit under a single main account. When setting up the bank feed, you may be given the option to include or exclude transactions involving pots/spaces.

Bank Statements and Pots/Spaces

Your bank may or may not provide individual statements for each pot/space. Even without formal statements, you can still view pot/space activity within your online banking dashboard. Regardless, you must record all transactions related to pots/spaces in your accounts. This ensures accurate tracking of funds—even though the money hasn’t left the business, it’s simply been allocated for a purpose.  It gives you a clear picture of what money you have in the business, and where it is.

A Simple Analogy

Think of a pot like a piggy bank.

You receive £20 and put £5 in your piggy bank and £15 in your wallet. You still have £20 total—it’s just separated for a reason. In traditional banking, you’d need a second account (like a savings account) to do this. Pots/spaces let you do the same, but within one account.

How to Record Pots/Spaces in Accounting Software

The easiest approach is to use sub-accounts:

• Create a parent account, such as “Bank Reconciliation.”
• Under it, set up sub-accounts like:
  • Bank Account 1234 (your main bank account)
  • Bank Account Pots/Spaces (to represent all pots)

Some prefer to create a sub-account for each pot/space, but if you frequently rename or close pots, using a single “pots/space” sub-account is simpler.

Recording Pot/Spaces Transactions

• If pot/space transactions appear in your bank feed, categorise them as transfers to or from the “Bank Account Pots/Spaces” sub-account.
• If they don’t appear, enter them manually based on your bank statement or transaction history.

Recording these movements ensures you can later show where money came from when it’s moved back into the main account—it’s not income, just an internal transfer.

Reconciling Your Bank Account

At month-end, reconcile the parent account (“Bank Reconciliation”). This will combine the main account and pot/space sub-accounts, giving you a full picture of your bank balance.

Note: This method works well in QuickBooks Online. If you use different software, check with your provider, bookkeeper, or accountant to make sure you’re capturing pot activity correctly.

If you have any questions about how to deal with the unique system for saving funds used by some online bank accounts, please feel free to email me.

During June’s Facebook Live, I discussed the penalties you could receive if you do not follow MTD ITSA regulations, and how to avoid them.

From April 2026, UK sole traders and landlords will have to start submitting their accounts information to HMRC every quarter, under Making Tax Digital for Income Tax and Self-Assessment.  Failure to follow the regulations correctly could lead you to receive penalties and fines. 

What is MTD ITSA?

MTD ITSA is HMRC’s initiative to digitise the tax reporting process for self-employed individuals and landlords.  It is designed to make the UK tax system more effective, efficient and easier for taxpayers. 

It is going to be a gradual process for those who have to start following MTD ITSA.  Sole Traders and Landlords with an income over £50,000 will need to follow MTD ITSA from April 2026.  Those with an income of over £30,000 from April 2027, and those with an income of over £20,000 from April 2028.  At this point in time, no announcements have been made about partnerships or limited companies.

Overview of Penalties for MTD ITSA

There is a new penalty system put in place by HMRC to support MTD ITSA, which has been designed to encourage sole traders and landlords to comply with MTD ITSA regulations.  It includes ensuring they are keeping accurate digital records, sending submissions on time, and making sure their accounts are accurate.  Understanding the associated penalties is crucial to ensure compliance and avoid unexpected fines.  The penalty system for MTD ITSA is separate from the penalty system for MTD VAT.  If you are VAT registered and also have to file under MTD ITSA, if you incur penalties for MTD VAT, these will not affect your penalties for MTD ITSA and vice versa.

There are several components to the MTD ITSA penalty system:

• Late Submission Penalties
• Late Payment Penalties
• Specific Penalties for Record-Keeping Failures

Let’s look at each of the penalty systems.

Late Submission Penalties

Late Submission Penalties are applied when a return has been submitted after the deadline, both the quarterly updates and the final declaration at the year-end.  For every late submission, you will receive 1 penalty point.  Once you have reached the threshold of penalty points allowed, you will receive a fine of £200.00.

The threshold of points is dependent on the submission frequency.  For quarterly submissions, the threshold is 4 points, and for annual submissions like the Final Declaration, it is 2 points.  That means if you accumulate 4 points for late quarterly submissions, you will receive a fine of £200.00.  For every subsequent late submission once you’ve reached the points threshold, you will be issued a further £200.00 fine.

If you have more than one business that needs to follow MTD ITSA, you will be required to file 2 separate quarterly updates and two separate Final Declarations.  The submissions will contribute to a single penalty point per quarter.  For example, if you submit both quarterly updates late, you would only receive one penalty point for the quarter.

The penalty points do expire after a certain time period and will reset to zero.  If you have accumulated penalty points, but have not reached the threshold, the points automatically expire after two years.  It is important to note that the two-year period starts from the month after you have received the points.  For example, if you receive a penalty point in May, the two-year period would start from June.

Once you have reached the point threshold, in order for the points to expire, you need to maintain a “period of compliance” before the points are removed from your records.  The “period of compliance” depends on the frequency of the return submissions.  During the “period of compliance”, you cannot have any further late submissions.  For Annual Submissions (the Final Declaration), it is a period of 24 months, and for quarterly submissions, it is 12 months.  Not only do you need to ensure you file all submissions correctly and on time, but all outstanding submissions from the previous 24 months must also be filed.  Once both conditions have been met, your accumulated points will reset to zero.

Late Payment Penalties

If you are late making a payment for your tax that’s due, you will be charged interest, and the amount depends on how overdue the payment is.

For the first 15 days after the payment was due, no interest will be levied.  However, if the payment is 16 days or more late, that is when you will be charged interest.  For payments that are between 16 and 30 days late, there will be 2% penalty charged on the outstanding tax amount.  For payments that are 31 days or more late, you will be charged an additional 2% of the outstanding tax due as of day 30, and then a daily accruing interest charge of 4% annually.

Other Types of Penalties

There are other penalties that can be levied by HMRC in relation to MTD ITSA.

This includes:

• A fine of up to £400 per return submitted through non-MTD-compatible Software (including using spreadsheets without MTD-compatible bridging software)
• If you aren’t keeping proper digital records, you will usually be issued with a written warning the first time, but for those who repeatedly fail to keep the proper records, a fine of up to £3,000 per failure for each tax period could be levied.  This isn’t a fine that is issued automatically.  It is for more serious cases.
• If you are failing to use digital links, ie. You are manually re-keying or copy and pasting data between systems, which breaks the digital journey; you could be fined anywhere between £5 and £15 per day
• If there are inaccuracies in the Final Declaration that lead to an understatement of your tax liability, a percentage of the lost revenue, anywhere from 0% to 100%, could be levied and is dependent on the cause of the inaccurate information

The fines and penalties could quickly add up if multiple infractions are committed.  For example, not keeping your records properly could lead to late quarterly submissions and an inaccurate final declaration.

Can a business appeal the penalties?

Like with any penalty HMRC issues, penalties and fines for MTD ITSA can be appealed.  There is no guarantee that HMRC will waive the penalties, but if you believe you have received them unfairly or have extenuating circumstances, you can use the reviews and appeals process.

How to avoid getting penalties for MTD ITSA

So, what can you do to avoid receiving penalty points or fines in relation to MTD ITSA?

There are a number of things that you, as a business owner, and your bookkeeper or accountant can do to ensure you do not receive penalty points or fines.

• Ensure that you enrol for MTD ITSA at the right time; If your income from self-employment and/or rental income meets the threshold of £50,000 in April 2026, make sure you are following MTD ITSA from April 2026 and filing your quarterly returns on time.
• Ensure that the software being used for your accounts is MTD Compliant, or any bridging software that is being used is MTD Compliant
• Maintain your accounts on a regular monthly basis so that the quarterly returns and the Final Declaration can be submitted to HMRC on time
• Make sure that your digital records are being kept properly and that all the correct information is being stored

By following these simple steps and keeping on top of your accounts, you will be able to mitigate the penalties you could face for not following the MTD ITSA regulations.

The introduction of MTD ITSA by HMRC is going to cause a significant change in how businesses report their income to HMRC.  Businesses that meet the thresholds will no longer be able to submit their information just once a year or be able to use software provided by HMRC.  By understanding the new penalty structure that makes up part of the MTD ITSA regulations, business owners will be able to avoid unnecessary fines.  By staying informed and starting to make changes to how your accounts are kept now, business owners will be able to navigate the transition smoothly and maintain compliance. Avoid a last-minute scramble and stay one step ahead of the curve.

If you have any questions about penalties for MTD ITS, please feel free to email me.

During May’s Facebook Live, I discussed how to keep digital records for MTD ITSA, what counts and what doesn’t count.

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is on the horizon, and if you’re a self-employed individual or landlord earning over £50,000 per year, this affects you from April 2026.

So, what exactly counts as a digital record for MTD ITSA, and what doesn’t? Let’s break it down.

What Is Making Tax Digital?

MTD is an HMRC initiative designed to make the UK tax system more effective, efficient, and easier for taxpayers. Under MTD, businesses must:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC via MTD-compatible software
• Submit a Final Declaration annually

Gone are the days of paper ledgers and spreadsheets – at least in their traditional forms.

Under MTD ITSA, an individual who is self-employed and is also a landlord will be required to submit separate submissions for each of the income streams.  This means they will be required to maintain two separate sets of digital records.  If the landlord has UK property income, as well as foreign property income, that information will also need to be kept separate and individual submissions will be required for the different types of property income.

What Does Count as a Digital Record?

A digital record is any financial data that is created, stored or transferred electronically.  Understanding what counts as a compliant digital record for MTD ITSA is paramount, as HMRC have set out specific requirements regarding the data that must be captured and the formats in which it should be maintained.

According to HMRC guidelines, digital records must include the following key pieces of information. 

For each transaction:

• Date of the transaction – this should align with existing tax rules for when income is recognised or expenses are incurred
• Amount (income or expense)
• Category/type (ie, Rent, repairs, utilities, sales, rental income)
• Supplier or customer name (where relevant)

Acceptable Digital Formats:

• Cloud accounting software (ie QuickBooks, Xero, Sage)
• Desktop software that can integrate or export data to MTD-compliant systems
• Mobile apps that record income/expenses and feed into MTD software
• Spreadsheets – only if they are linked to bridging software that submits the data to HMRC digitally (copying and pasting is not compliant)

Digital Links:

If you are using multiple systems, they must be digitally linked – not retyped or copied and pasted.  Examples include:

• Import/export via CSV
• APIs between apps
• Automatic bank feeds
• Cloud-based integrations

Digitising supporting documents like invoices and receipts is good practice and can help complete your accounts, but it doesn’t replace the core requirement of MTD ITSA.  The data about each transaction must be entered into approved MTD ITSA-compliant software or a compliant spreadsheet.  The software you use for recording your accounts information must be able to communicate digitally with HMRC for submitting the quarterly updates and the final declaration at year-end.

What Doesn’t Count as a Digital Record?

HMRC have laid out very clear information about what does not count as a digital record for MTD ITSA.  By following the guidelines about what does and doesn’t count as a digital record, you will ensure that you avoid penalties and ensure the integrity of your financial records.

Manual Records:

• Paper receipts, handwritten ledgers, or notebook entries (unless they are digitised and stored within a digital system). While you can use paper documents as supporting evidence of your transactions, you cannot use manual ledgers to keep your accounts.
• Manually typed summaries from a stack of paper invoices.  The data you submit to HMRC cannot be based on summary figures you have entered manually into your accounts, you need to ensure that all transactions entered are digitally recorded individually, unless you are allowed to use approved summarised records like Daily Gross Takings, which retailers can use.
• Totals written into a spreadsheet without a breakdown per transaction

Copying and pasting figures from one program to another (like manually entering totals into HMRC’s website or bridging software) is not compliant with MTD ITSA.  HMRC wants to see a digital journey from transaction to tax return.

Snapping a photo of a receipt is not enough unless that image is stored within a compliant digital system that logs transaction data (ie, AutoEntry, Dext, HubDoc, or accounting software receipt tools)

One of the most important things to remember is that if there is any break in the digital transfer of the data between the software and HMRC, it is not compliant with MTD ITSA.   You also need to ensure that any software you use to submit your returns to HMRC is compliant with MTD ISTA – whether that is using accounts software that connects to HMRC’s API, or using spreadsheets with recognised MTD-compatible bridging software.

Tips for Clients

Here are some tips for getting prepared for MTD ITSA:

• Get used to going digital now – even if you’re not affected until April 2026, getting used to ensuring your accounts are being kept digitally now will put you ahead of the game.
• Save receipts, but also make sure you log each one into your software.
• Ask your bookkeeper for tools that simplify day-to-day tracking (ie, Mileage logs, mobile expense capture).
• Keep your records up to date in real-time (or as near as possible) as this will help to reduce errors and stress.  If you consistently wait to have your accounts completed just in time to submit the quarterly submissions, you increase the risk of not getting all transactions entered into the accounts and making errors.  It also causes you extra stress as you may not remember what a transaction from 3 months ago was for, or receipts/invoices may have been lost.

Keeping digital records under MTD ITSA isn’t just about switching from paper to a computer; it’s about ensuring that your financial data flows digitally from the source transaction all the way to HMRC, with no manual breaks in the chain.

By getting systems in place now, both bookkeepers and clients can avoid a last-minute scramble and stay one step ahead of the curve.

If you have any questions about keeping digital records for MTD ITSA, please feel free to email me.

During April’s Facebook Live, I discussed how UK businesses and landlords should prepare for Making Tax Digital for Income Tax and Self-Assessment.

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is on its way — and if you’re a UK business owner, sole trader, or landlord, it’s time to start preparing. The new rules may seem daunting at first, but getting ready early can make the transition much smoother.

Whether you’re tech-savvy or still using spreadsheets, this guide breaks down what MTD ITSA means and how you can prepare.

What is MTD ITSA?

MTD ITSA is part of the Making Tax Digital initiative introduced by the government in 2015.  The initiative is designed to modernise the tax system by requiring digital record-keeping and quarterly reporting to HMRC.  MTD for VAT was the first stage, and now MTD ITSA is being introduced. 

Who will be affected?

MTD ITSA may apply to you if you are self-employed and/or you are a landlord with UK property income.

From April 2026, all self-employed individuals and landlords with a total income (either from business or rental income) of over £50,000 will need to:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC using MTD-compatible software
• Submit a final declaration annually.

In April 2027, all those with an income over £30,000 will be required to follow, with those whose income is over £20,000 to file from April 2028.

At this stage, no announcements have been made about partnerships or limited companies.

6 Key Steps to Prepare for MTD ITSA

If you are already keeping your accounts up to date on a regular monthly basis, then you are already a step ahead of the game.  Here are 5 tips to help you get prepared for MTD ITSA.

1. Understand Your Income Streams
   
   First, you need to work out whether your income puts you over the MTD ITSA threshold so that you can work out when you need to start submitting regular quarterly returns.  Combine all relevant income from your self-employment and/or rental income from being a landlord.  If you are close to the £50,000 mark, start planning now because you may be required to join the scheme in April 2026.
   
   
2. Switch to Digital Record-Keeping
   
   If you aren’t already using accounts software or spreadsheets to keep your accounts, now is when you need to make the move to start.  While you will be able to keep your records using spreadsheets, you will need to pay for additional bridging software to file your returns, so using MTD compliant accounts software like QuickBooks, Xero, FreeAgent, or Sage, to do your bookkeeping is the method I would recommend.  Not only will you be able to submit your quarterly returns without needing to use additional software, but you will be able to produce your financial reports, ensure all accounts are properly reconciled, and attach the proof for each transaction directly to the entry in the accounts.
   
   You will need to do the following:
   
   – Ensure you are using MTD compatible software
   – Record your income and expenses in real-time (or as close as possible)
   – Maintain digital copies of receipts and invoices.
   
   The earlier you start using software and getting into the habit of doing your accounts regularly, the easier it will be when it comes time to file through MTD ITSA.
   
   
3. Talk to your Accountant or Bookkeeper
   
   If you work with an accountant or bookkeeper, check with them to see if they are MTD-ready.  Ask:
   
   – Are they using MTD-compliant software
   – Can they support you with quarterly submissions
   – Do they offer training or transition support
   
   If you don’t have an accountant or bookkeeper, this might be a good time to find someone who is qualified and can help to ensure you are meeting all the legal requirements.
   
   
4. Get Familiar with Quarterly Reporting
   
   Under MTD ITSA, you will need to send a summary of income and expenses to HMRC every 3 months.  While HMRC won’t calculate your tax based on these updates, they will build a picture of your estimated liability.
   
   You will also be required to submit a final declaration at the end of the year (this will replace the traditional Self-Assessment return).
   
   Practice now by doing a dry run, especially if you are already using accounting software.
   
   
5. Make Sure You Have A Government Gateway Login
   
   You will need to ensure that you have your Government Gateway login details and know how to access your account.  If you are going to be submitting your quarterly returns yourself, you will need to use the login details to submit the information.
   
   If you are going to have your accountant or bookkeeper submit your quarterly returns, you will need to permit them to act on your behalf.  If you have both a bookkeeper who does your day-to-day bookkeeping and an accountant who submits your self-assessment, you can set your bookkeeper up to be a supporting tax agent just to submit the quarterly returns. 
   
   
6. Join the MTD ITSA Pilot (Optional but Recommended)
   
   HMRC are running a pilot program which is open to a small number of individuals and businesses.  Joining the pilot early gives you a head start, lets you test out your systems, and reduces stress when the rules go live.
   
   Talk to your bookkeeper or accountant to see if you are eligible to join the pilot.

Benefits of Being MTD-Ready

While it might seem like more admin, MTD ITSA could actually simplify your tax life.  The benefits include:

• Better visibility of tax owed throughout the year
• Fewer surprises at tax time
• Improved record accuracy
• Can help with cash flow management
• Easier collaboration with your accountant or bookkeeper

MTD ITSA is more than just a compliance obligation, it’s an opportunity to modernise your business finances.  By starting early, choosing the right tools, and getting professional support, you’ll be in a strong position to meet HMRC’s requirements and avoid last-minute stress. can ultimately lead to a more successful and financially secure business.

If you have any questions about how you can prepare for MTD ITSA, please feel free to e-mail me.

On Wednesday, March 26th, 2025, Chancellor, Rachel Reeves, delivered the 2025 Spring Statement with several important announcements for businesses. While no tax changes were announced, there are significant updates that may affect how you manage your tax obligations. Let’s explore what these changes mean for you.

Making Tax Digital is Expanding

HMRC has confirmed the phased rollout of Making Tax Digital for Income Tax and Self Assessment (MTD ITSA):

• From April 2026: Sole traders and/or landlords with an income over £50,000
• From April 2027: Sole traders and/or landlords with an income over £30,000
• From April 2028: Sole traders and/or landlords with an income over £20,000

If you fall into these categories, you’ll need to submit quarterly accounts to HMRC, plus a final year-end submission that serves as your self-assessment tax return. It is important to note that HMRC will not provide free somewhere for this – you’ll need to use approved MTD ITSA software for all your submissions.

HMRC will start contacting those who are eligible to file through MTD ITSA from April 2026 within the next couple of months.

HMRC hasn’t yet announced any dates for when partnerships or limited companies will be expected to follow MTD.

Who is exempt?

Several groups may qualify for exemption, including those without an NI number, trusts and charities, foster carers, and others. The full list of exemptions includes ministers of religion, Lloyd’s Underwriters, and recipients of specific allowances. If you are unsure about your status, we recommend checking with HMRC when they begin contacting eligible taxpayers in the coming months.

Increased Penalties for Making Tax Digital (VAT and ITSA)

Beginning April 6th, 2025, HMRC is increasing penalties for late payments under MTD VAT and MTD ITSA:

• 3% of tax outstanding where tax is overdue by 15 days; plus
• 3% where tax is overdue by 30 days; plus
• 10% per annum where tax is overdue by 31 days or more.

These increases are designed to encourage timely payments, so it’s more important than ever to keep on top of your tax deadlines.

HMRC’s Enhanced Debt Recovery Powers

For businesses and individuals who can pay but choose not to, HMRC will resume “direct recovery” of tax debts of £1,000 or more. They must leave a minimum of £5,000 across accounts when using this power. The government is also exploring automated collection methods for smaller tax debts.

Important Consultations Announced

Several consultations were announced that could impact businesses:

• Behavioural Penalty Reform – creating a new model for dealing with inaccuracies in tax submissions
• Tackling Non-compliant Tax Advisers – enhancing HMRC’s powers against advisers who facilitate non-compliance in their client’s tax affairs
• Improving Data Quality – exploring additional reporting requirements to help close the tax gap

Self-Assessment and Pension Changes

From the summer of 2025, employed individuals will be able to report family Child Benefit payments digitally and pay HMRC directly through PAYE instead of registering for Self-Assessment.

Two significant pension changes were also announced:

1. The automatic enrolment age threshold will drop from 22 to 18, with contributions calculated from the first pound of earnings.
2. The pension age will increase to 67 by the end of 2028, with an increase to 68 expected within the following two years of parliament.

What This Means for You

These changes represent significant shifts in how businesses interact with HMRC. If you’re a sole trader and/or landlord, you should begin preparing for MTD ITSA now, especially if your income exceeds the thresholds. The increase in late payment penalties also means it’s more crucial than ever to maintain timely compliance with your tax obligations.

For more comprehensive information, we recommend visiting the government website to read the full Spring Statement.

During March’s Facebook Live, I discussed the importance of clear and regular communication with your bookkeeper.

In the fast-paced world of business, financial clarity is essential for success. One of the most critical relationships a business owner has is with their bookkeeper. In the UK, where businesses must comply with HMRC regulations, VAT requirements, and payroll obligations, having open and transparent communication with your bookkeeper is more important than ever. Here’s why maintaining clear communication with your bookkeeper is crucial to your business’s financial health and success.

1. Ensuring Compliance with UK Regulations

HMRC regulations are constantly evolving, and businesses must stay compliant with tax laws, Making Tax Digital (MTD) requirements, and payroll regulations. A bookkeeper’s role is to ensure that all financial records are up-to-date and compliant with UK laws. However, without regular communication, they may not have the necessary information to file accurate returns, which could lead to penalties or legal issues. Keeping your bookkeeper informed about changes in your business operations ensures they can make the necessary adjustments in your accounts.

2. Accurate Financial Reporting

Timely and accurate financial reports are crucial for making informed business decisions. If a client fails to provide receipts, invoices, or transaction details promptly, the bookkeeper may struggle to reconcile accounts properly. Regular updates and a clear system for sharing financial documents ensure that reports reflect the true financial position of the business, helping owners make sound financial choices.

3. Efficient Cash Flow Management

Cash flow is the lifeblood of any business, and mismanaging it can lead to financial instability. A bookkeeper can help forecast cash flow trends and identify potential shortfalls, but only if they have access to accurate and up-to-date information. Keeping your bookkeeper informed about upcoming expenses, new revenue streams, or financial challenges allows them to provide better advice and support to keep your business on track.

4. Avoiding Costly Mistakes

Miscommunication or a lack of communication can lead to costly mistakes, such as missed tax deadlines, incorrect VAT submissions, or payroll errors. These mistakes can result in financial penalties and added stress for business owners. By maintaining an open line of communication with your bookkeeper, you can avoid these pitfalls and ensure your financial records are always in good order.

5. Streamlining Business Growth

A well-informed bookkeeper can provide valuable insights into business performance and financial trends, helping clients plan for growth. Whether you’re looking to secure financing, expand operations, or hire new staff, your bookkeeper can guide you on the financial feasibility of your plans. However, they can only do this effectively if they are kept up to date with your business goals and strategies.

6. Building a Trustworthy Partnership

Trust is key in any business relationship, and the one between a client and their bookkeeper is no exception. Open and honest communication fosters trust, ensuring that both parties are working towards the same financial goals. A bookkeeper who understands your business inside and out can become a valuable asset, offering strategic financial advice rather than just handling compliance tasks.

How to Improve Communication with Your Bookkeeper

To maximise the benefits of your relationship with your bookkeeper, consider implementing the following practices:

• Schedule regular check-ins: Monthly or quarterly meetings can help keep financial matters on track.
• Use cloud-based accounting software: Platforms like QuickBooks, Xero, and Sage make it easier to share financial data in real-time.
• Be proactive with document sharing: Provide invoices, receipts, and bank statements promptly.
• Discuss business changes promptly: Inform your bookkeeper of any major business changes, such as new contracts, loans, or investments.

Maintaining clear and open communication with your bookkeeper is not just a good practice—it’s a necessity – to ensure that you are meeting all of your legal obligations. By working closely together, businesses can ensure compliance, maintain accurate financial records, and make informed decisions that support growth and stability. Strengthening this relationship can ultimately lead to a more successful and financially secure business.

If you have any questions about how you can ensure you are communicating clearly and regularly with your bookkeeper, please feel free to e-mail me.

During February’s Facebook Live, I talked about how to close down a self-employed business in the UK.

Shutting down a self-employed business in the UK requires careful planning and adherence to legal and tax obligations. Whether you’re retiring, moving on to new ventures, or simply no longer wish to continue your business, following the right steps will ensure a smooth closure. Here’s a step-by-step guide to help you through the process.

1. Notify HMRC

The first and most important step is to inform HM Revenue & Customs (HMRC) that you are ceasing self-employment. You can do this by:

• Filling out the online form on the HMRC website via your Government Gateway account
• Calling HMRC and notifying them over the phone
• Writing a letter to HMRC with your details and closure request

You will need to provide HMRC with your National Insurance number and your Unique Tax Reference (UTR) number.  Once you notify HMRC, they will update their records and stop expecting future tax returns from you.

2. Submit Your Final Self-Assessment Tax Return

Even if you close your business, you still need to file a final Self-Assessment tax return by the usual deadline (31st January following the end of the tax year). Make sure to:

• Declare all income up to the closure date
• Deduct any allowable expenses
• Account for any capital gains or losses

If you’ve made losses, you may be able to offset them against previous years’ profits to reduce your tax liability.

3. Pay Any Outstanding Taxes and National Insurance

Before fully closing down, ensure that all taxes are settled, including:

• Income tax due on final profits
• Class 2 and Class 4 National Insurance Contributions (NICs)
• VAT payments (if registered for VAT)

If you have outstanding debts to HMRC, you may be able to arrange a payment plan.

4. Deregister for VAT (If Applicable)

If your business was VAT-registered, you need to:

• Submit a final VAT return
• Pay any remaining VAT owed
• Apply for VAT deregistration through HMRC

Failure to do so could result in fines or additional charges.

5. Inform Your Clients, Suppliers, and Banks

Closing your business means officially wrapping up any financial or contractual obligations. Make sure to:

• Notify your clients and complete any outstanding work
• Inform suppliers and settle any unpaid invoices
• Close your business bank account or update it for personal use

6. Close your PAYE scheme if you are an Employer (if applicable)

If you have staff, you will need to close your PAYE scheme and send the final payroll reports to HMRC.  Once you have submitted the necessary information to HMRC, you will also need to provide your employees with a P45 on their last payday, alongside their final payslip.  Visit the HMRC website here to learn how to stop being an employer.

7. Cancel Business Licences, Permits, and Insurance

If your business required special licences or permits, you should inform the relevant authorities and cancel them. Also, remember to cancel any business insurance policies to avoid unnecessary charges.

8. Keep Records for At Least Five Years

Even after closing your business, you are legally required to keep financial records, including:

• Tax returns
• Business accounts
• Invoices and receipts

HMRC may request these records in case of future audits or inquiries.

If you are using cloud-based accounting software, like QuickBooks Online, once you cancel your subscription you may only get 12-months read-only access to the data.  Before you cancel your subscription, make sure you have downloaded all the data so you have it to hand in case HMRC do an investigation.

9. Consider Closing Your Limited Company (If Applicable)

If you operated as a sole trader, these steps will suffice. However, if you were a director of a limited company, you may need to officially dissolve it by:

• Paying off all debts
• Filing a DS01 form with Companies House
• Informing HMRC about corporation tax and payroll obligations

Closing down a self-employed business in the UK is a structured process that requires notifying the right authorities, settling financial obligations, and keeping records. By following these steps, you can ensure a hassle-free closure and avoid future legal complications. If you’re unsure about any aspect, consulting an accountant or business advisor can provide further guidance.  You can visit this page on the HMRC website to learn more about how to stop being self-employed.

If you have any questions about how to close down your self-employed business, please feel free to e-mail me.

If you have any questions about how to close down your self-employed business, please feel free to e-mail me.

During January’s Facebook Live, I talked about how self-employed business owners need to handle their expenses and receipts.

Managing expenses and receipts effectively is one of the cornerstones of successful self-employment. Whether you’re a freelancer, consultant, or entrepreneur, keeping your finances organized ensures you can take full advantage of tax deductions, manage your cash flow, and stay compliant with financial regulations. Here’s a comprehensive guide to help you handle expenses and receipts like a pro.

1. Understand Why Tracking Expenses Matters

As a self-employed worker, every pound you spend on business-related activities can potentially reduce your taxable income. However, you need proper documentation to claim deductions and substantiate your business expenses. Failure to track your expenses can lead to missed opportunities for deductions or even issues during tax audits.

2. Separate Business and Personal Finances

The first rule of managing expenses is to keep business and personal finances separate. Open a dedicated business bank account and use a business credit card for all work-related purchases. This separation simplifies tracking, reduces errors, and makes it easier to prepare financial statements or tax returns.

3. Use Expense Management Tools

Leverage technology to keep track of your expenses. Applications like QuickBooks, Expensify, or other accounting software allow you to record expenses, upload receipts, and even integrate with your bank account for seamless tracking. These tools can generate detailed reports, helping you understand your spending patterns and prepare for tax season.

4. Know What Qualifies as a Business Expense

Understanding what counts as a deductible business expense is crucial. Common categories include:

• Office Supplies: Pens, paper, printers, etc.
• Home Office Deduction: A portion of rent, utilities, and internet if you work from home.
• Travel Expenses: Flights, hotels, and meals for business trips.
• Professional Services: Fees paid to accountants, lawyers, or consultants.
• Marketing and Advertising: Website hosting, social media ads, and promotional materials.

Check the HMRC website or consult a tax professional for a full list of deductible expenses.  You could also read some of the blogs I have shared on my website previously: “What expenses can I claim as self-employed” and “What expenses can I claim”.

5. Keep All Receipts

Receipts are your proof of purchase and are essential for claiming deductions. Follow these best practices:

• Go Digital: Scan or photograph physical receipts to ensure you have a backup. Many apps allow you to categorize and store receipts electronically.
• Organize by Category: Use folders or labels to organize receipts by type or month.
• Record Details: Write down the purpose of the expense on the receipt if it’s not obvious.

6. Track Mileage for Business Travel

If you use your personal vehicle for work, you can deduct mileage. Use apps like QBO, MileIQ or Hurdlr to track your trips automatically. Keep a log of dates, destinations, and purposes for each trip to ensure compliance.

7. Reconcile Regularly

Set aside time weekly or monthly to reconcile your expenses. Compare your receipts, credit card statements, and expense tracking tools to ensure everything matches. This regular habit prevents discrepancies and reduces stress during tax season.

8. Retain Records for the Required Period

Tax authorities typically require you to retain financial records for several years. In the UK, if you are self-employed, you must keep your records for 5 years after the 31^st of January submission deadline of the relevant tax year. Create a secure storage system, either physical or digital, to ensure you can access records if needed.

9. Work with a Professional

Consider hiring an accountant or bookkeeper to help manage your finances. Professionals can offer insights into optimizing deductions, staying compliant, and planning for taxes. They can also save you time and reduce the likelihood of errors.

10. Review and Adjust Regularly

Your business and expenses may evolve over time. Periodically review your expense management strategy and adjust as needed. For example, as your income grows, you might need more advanced accounting software or a more robust filing system.

Handling expenses and receipts as a self-employed worker doesn’t have to be overwhelming. By staying organized, leveraging tools, and seeking professional advice, when necessary, you can take control of your finances and focus on growing your business. Remember, the key is consistency and attention to detail—small efforts today can save you significant time and money in the future.

If you have any questions about how to handle your expenses and receipts if you are self-employed, please feel free to e-mail me.

During December’s Facebook Live, I talked about Self-Employed National Insurance Contributions and what self-employed businesses need to know about them.

Being self-employed comes with a unique set of responsibilities and benefits. One of the crucial aspects that every self-employed individual in the UK must understand is the National Insurance Contributions (NICs). Unlike salaried employees, self-employed individuals handle their own tax and National Insurance matters, which can seem daunting. This guide aims to simplify the process and explain what you need to know about self-employed NICs.

What are National Insurance Contributions?

National Insurance Contributions are payments made by workers and employers towards certain state benefits. These include the State Pension, Employment and Support Allowance, and Maternity Allowance, among others. For self-employed individuals, paying NICs is essential to qualify for these benefits.

Types of National Insurance Contributions for the Self-Employed

Self-employed individuals need to be aware of two main classes of NICs: Class 2 and Class 4.

1. Class 2 National Insurance Contributions

If your profits for the year are more than £6,725, you do not have to pay Class 2 NICs, as they are treated as having been paid to protect your National Insurance Records.  If your profits are less than £6,725, you can choose to make voluntary contributions to maintain your eligibility for state benefits.

The rate for Class 2 National Insurance contributions for the 2024/2025 tax year is £3.45 per week.

2. Class 4 National Insurance Contributions

Class 4 NICs are paid on your annual profits. The rates for Class 4 contributions are more substantial and are based on your profit margins.

For the 2024/2025 tax year, you will pay:  

  – 9% on profits between £12,570 and £50,270.

  – 2% on profits over £50,270.

How to Pay Your National Insurance Contributions

Paying your NICs as a self-employed individual is integrated into the Self-Assessment tax return process. Here’s a step-by-step outline of how it works:

1. Register for Self-Assessment: If you haven’t already, you need to register as self-employed with HMRC. This will give you a Unique Taxpayer Reference (UTR) number.

2. Complete Your Self-Assessment Tax Return: Each year, you must complete and submit your Self-Assessment tax return by 31 January following the end of the tax year.

3. Calculate Your NICs: Within the Self-Assessment, your Class 2 and Class 4 NICs will be calculated based on the information you provide about your earnings.

4. Pay Your Bill: You can pay your NICs along with any income tax due. Payments can be made online via bank transfer, debit/credit card, or through setting up a direct debit.

Keeping Records

Maintaining accurate and up-to-date records of your earnings and expenses is crucial. This ensures that you pay the correct amount of NICs and helps manage your overall financial health. Keep track of all invoices, receipts, and any other relevant documents.

Voluntary Contributions

If your earnings fall below £6,725, it might still be beneficial to pay Class 2 NICs voluntarily. Doing so helps maintain your eligibility for state benefits, particularly the State Pension, which requires a minimum number of qualifying years.

Consequences of Non-Payment

Failing to pay your NICs can have significant repercussions. You may lose your entitlement to state benefits and face penalties and interest on any unpaid contributions. Therefore, it’s vital to stay on top of your payments and ensure everything is up to date.

Seeking Professional Advice

Tax laws and NIC rates can change, and the nuances of self-employment taxes can be complex. It’s often a good idea to consult with a bookkeeper, an accountant or a tax advisor who can provide personalized advice based on your specific circumstances.

In conclusion, understanding and managing your National Insurance Contributions is a critical part of being self-employed. By staying informed about the rates, thresholds, and processes, you can ensure that you meet your obligations and secure your entitlement to state benefits. Remember, paying your NICs not only fulfils a legal requirement but also safeguards your future financial security.

If you have any questions about how self-employed national insurance contributions, please feel free to e-mail me.