MTD ITSA

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 September’s Facebook Live, I talked briefly about the requirements businesses in the UK have concerning storing their business receipts and provided some suggestions on how they could do this.

Keeping accurate and organized business records is essential for any business, regardless of its structure. Proper record-keeping ensures that you can efficiently manage your finances, comply with legal requirements, and provide evidence in case of audits or disputes. In the UK, different business structures have specific guidelines and best practices for storing business receipts. We will cover the key aspects of receipt storage for sole traders, partnerships, limited companies, and other business structures in the UK.

What are the legal requirements?

All businesses within the UK must store the paperwork relating to their business transactions so that if HMRC ever inspects, they can prove what each transaction is for.  They must store anything that relates to sales, income receipts, expenses, and purchase receipts. This information can be stored in either paper or digital format, as long as they are easily accessible and readable.  If you do store them digitally, make sure they are backed up to prevent data loss.  All documents should include the date, amount and the nature of the transaction. If your business is VAT registered, you need to ensure that you include all VAT receipts.

The length of time a business needs to store its records does depend on the type of business structure. 

• Sole traders and Partnerships must store their records for at least 5 years after the January 31^st submission deadline for the relevant tax year
• Limited Companies and Charities must store their records for at least 6 years from the end of the last company financial year they relate to

The records that are kept must be accurate, complete and updated regularly to reflect the true financial position of the business.

Failure to keep proper records can result in significant penalties. HMRC may charge fines or even conduct investigations if a business is found to be non-compliant. Therefore, maintaining accurate and comprehensive records is not just a legal obligation but also a safeguard against potential legal issues.

How can I store my records?

Back in the day when things were more paper-based, I would advise clients to have separate files for purchases and sales, as well as paid and unpaid.  In today’s world, a lot of information can be stored digitally – whether this is invoices/receipts that have been sent by e-mail, downloaded from an online platform, or you’ve scanned/taken a photo of them.  It makes it a lot easier to store the information, and share it with staff/bookkeeper/accountant, but also saves you space, paper, and ink.

Now, I advise clients to set up a digital file system to save documents in two different locations – your laptop and a cloud location.  The cloud location could be a shared location with your bookkeeper or accountant.  I use Bright Manager to manage my bookkeeping clients, and there is a document portal where I have clients upload everything I need to.  You could also use Google Drive, One Drive, Dropbox, or another cloud-based storage system.

I advise that you use a folder structure where you have a main folder for the tax year, then inside folders for each month, and inside those folders at least a folder called “Finished With” where you store any files you have processed, even if it’s just sharing them with your bookkeeper or accountant.  You can make the file system as simple or as complicated as you want – as long as you can find the information.

This is very relevant in terms of MTD for VAT, and MTD ITSA (when it comes into play).  It is extremely important for any VAT-registered business.  You need to be able to provide proof of each transaction – which HMRC could ask for.

A great thing about a lot of cloud-based accounts software is that you can attach files to a transaction in the software, meaning you have a third storage system and if HMRC want to see the proof for a transaction, you can just open it and show it straight away.

There are also several apps that can help with getting your purchase information into your cloud-based software, and these apps can also act as a storage system.  They allow you to take pictures of receipts, upload them, or even e-mail them, and then once they are processed, that information is sent straight to your accounts software.

Now that the records businesses need to keep can be stored digitally, it makes it a lot easier.  You don’t need to worry about physically storing all the pieces of paper and the space that takes up, or that the records will degrade over time.

If you want to keep physical records, it is important that you use a proper filing system, such as labelled folders or binders to organise all receipts by month or category.  This method is traditional but it is effective for those who prefer physical copies.  For added security, especially for essential documents, consider storing physical receipts in a fireproof safe.

Make sure you get into the habit of regularly scanning/uploading your receipts to avoid a backlog.  Set aside time each week or month to ensure all receipts are accounted for and stored correctly.  Ensure that if you have any staff involved in financial transactions they understand the importance of keeping accurate records and know the process for storing them.

By adhering to these legal requirements and employing effective storage solutions, businesses in the UK can ensure they are prepared for any financial scrutiny and maintain accurate financial records. This not only helps in legal compliance but also contributes to better financial management and decision-making.

If you have any questions about how you should be storing your business receipts, please feel free to e-mail me.

On November 22nd, 2023, Chancellor Jeremy Hunt, released the 2023 Autumn Statement. There were several announcements that will affect both businesses and individuals. I will cover the items announced that affect businesses. As more information is released, I will update the blog post.

1. Cut in National Insurance Contributions

Perhaps the biggest announcement to come out of the Autumn Statement, was that from January 6th, 2024, the rate for Class 1 Primary National Insurance Contributions will reduce from 12% to 10%. This will affect all employees with category letters A, F, H M and V with earnings between the Primary Threshold and the Upper Earnings Limit.

2. Cut in taxes for Self-Employed

From April 6th, 2024, Class 2 self-employed National Insurance Contributions will be scrapped – self-employed workers will no longer pay the contributions that have been a flat rate of £3.45/week.

It was also announced that there will be a reduction in the rate for Class 4 self-employed National Insurance Contributions from 9% to 8% on profits over £12,570.

3. Increase in National Living Wage

The National Living Wage will increase to £11.44/hour from April 1st, 2024. It will also apply to anyone who is 21 years old and up, instead of those over 23 years of age. The National Minium Wage will also see increases – for 18-20 year olds it will go up to £8.60/hour, for under 18’s it will go up to £6.40/hour, and apprentices will get £6.40/hour.

4. All other tax thresholds remain frozen

All other tax thresholds will remain frozen at their current rates. This will mean that despite the tax breaks, more people will be paying tax as they move up into the higher tax bands.

5. Business rates discount extended

The business rates discount of 75% for retail, hospitality and leisure businesses in England has been extended for another year.

6. “Full expensing” tax break made permanent

The tax break that allows companies to deduct spending on qualifying new machinery and equipment from profits all in one go has now been made permanent.

7. Changes to MTD ITSA

Changes to how MTD ITSA will work were announced during the Autumn Statement. Businesses and landlords with income below £30,000 will be exempt and the requirements for submitting quarter updates are going to be simplified. I will do a separate blog post about MTD ITSA once further details have been released.

You can read the official government document about the Autumn Statement here.

On December 19th, 2022, the government announced that Making Tax Digital for Income Tax and Self Assessment (MTD ITSA), is being delayed until April 2026. They have also changed the requirements for those who will be required to file accounts quarterly through MTD ITSA.

Previously, all self-employed businesses and landlords who had an income of more than £10,000 would be required to submit their accounts information to HMRC on a quarterly basis from April 2024.

Now, self-employed businesses and landlords who have an income of more than £50,000 will be required to submit their account information on a quarterly basis to HMRC from April 2026. Any businesses that have an income from £30,000 to £50,000, will not be required to submit their information until April 2027.

You can read the announcement by HMRC here.

Even though MTD ITSA has been delayed, it is still extremely important that businesses maintain their accounts on a regular basis instead of waiting until after the end of the financial year. So that a business can grow and business owners can make informed decisions about the business, they need to have an understanding of the financial position of the business. If the accounts are not completed until after the end of the tax year, the business won’t be in a position to save money through the year in order to pay the tax they might owe. There is also the important part of keeping an eye on your VATable income so that you know when you must register for VAT. If you discover after the end of the tax year, that you should have registered for VAT 7 months beforehand, that could cause a lot of issues for you.

It is also a good idea for those businesses who do not currently keep their records digitally, that they start to do this so that by the time MTD ITSA is in place, they are already in the habit of ensuring they have copies of all receipts digitally and don’t need to worry about if they have lost something.

When you keep your accounts on a regular basis, you are also less likely to forget what transactions are for.

There are many benefits of keeping your accounts up to date on a regular basis, and business owners shouldn’t just wait for them to be mandated to submit their information to HMRC quarterly before they start to get into those good habits.

If you would like further information about how to start keeping your accounts on a regular basis, please feel free to e-mail me.

During this month’s Facebook Live, I talked about how often a business should do their bookkeeping.

There is no hard and fast rule about how often a business needs to do its bookkeeping.  However, there are legal deadlines every business will need to meet, and these deadlines dictate how often you should do your bookkeeping.  There are also many other reasons to do your bookkeeping on a regular basis.

I am going to cover the legal obligations first.

VAT Registered Businesses

If your business is VAT registered, you will be legally required to file VAT returns with HMRC on a regular basis.  The frequency you will need to do this will depend on what HMRC have instructed you to do, but for most businesses, this will be on a quarterly basis.

There are some businesses, especially those within agriculture, that will be required to file monthly returns.

To file your returns, you will need to collate all your financial information for the business.  In this instance, especially if your business has a lot of transactions, getting your accounts up to date monthly, would be a very good idea.  It will help you to ensure you are able to file your returns on time and ensure they are accurate.  It will also help to give you an idea of how much money you owe to HMRC ahead of time so that you can plan for those payments.

CIS Contractors

If you are in the construction industry and must file CIS returns, you will need to do these monthly.  Therefore, it is a very good idea to work on your accounts either on a weekly basis or a monthly basis, so that you can get your CIS return filed on time with HMRC.

Sole Traders

If you are a simple sole trader who is not VAT registered, up to April 2024, you only have a legal obligation to submit your accounts to HMRC at the end of the tax year.  Even though you do not need to submit your accounts until after the end of the tax year, it is not advisable to only do them once a year.  I will cover the reasons why in just a little bit.

From April 2024, the legal requirements will be changing due to MTD ITSA (Making Tax Digital for Income Tax and Self-Assessment).  All sole traders, and those with rental income, who have a gross income of over £10,000, will have to file their accounts with HMRC on a quarterly basis. At this point, it would be a very good idea to ensure you are keeping your accounts up to date monthly.

Partnerships

Currently, partnerships that are not VAT registered, only have to file their tax returns after the end of the financial year.  The partnership return needs to be filed before the partners can file their self-assessments.  Like sole traders, it isn’t advisable to only complete your accounts when the return is due.  It is best practice to complete your accounts monthly.

From April 2025, general partnerships will be legally required to file their accounts through MTD ITSA on a quarterly basis.  Any partnerships that have corporate partners or are a Limited Liability partnership will not be required to file through MTD ITSA at this point in time.  Once this legal requirement comes into place, it makes it more beneficial to complete your accounts monthly.

Limited Companies

All limited companies are legally required to file a corporation tax return after the end of the tax year, and their accounts to Companies House 9 months after the end of the tax year.  It is not advisable to only prepare your accounts once a year but to complete them monthly.

There currently isn’t a set date for limited companies to file through MTD, but HMRC has said it will not come into force until at least 2026.  Once further information is released, I will share it across my social media platforms.

Best Practice

Now that I have covered the legal requirements for submitting accounts, I am going to go through reasons why getting your accounts up to date on a monthly, and sometimes a weekly, basis is so important.

Completing your accounts on a regular monthly basis will be beneficial to your business for a number of reasons:

• You have a better idea of the financial position of your business
• You can make more informed business decisions about the business such as can I afford to hire new staff or did that marketing campaign work
• You will have a better idea of how much tax you owe
• You will reduce your stress as you won’t be scrambling to get everything together all at once at the end of the year
• You have a better chance of knowing what a transaction was for
• You will be less likely to lose any small receipts
• You will be able to spot fraudulent transactions sooner
• It helps with your cash flow as you will know who owes you money and who you owe money too
• It makes it easier to spot any mistakes
• If you need to provide financial reports to a bank or other finance companies to raise funding for the business, you will be able to prepare the reports faster
• You can measure the performance of the business more accurately

Some businesses, especially if they have a high volume of transactions, would benefit by doing their accounts on a weekly basis.

If you would like further information about keeping your accounts up to date monthly, feel free to e-mail me.

During the July 2022 Facebook Live, I talked about why and when a business should appoint a bookkeeper.

Every business is different and is going to have different ways of doing things – so the answer to the questions “why should I appoint a bookkeeper?” and “when?” will depend on your specific circumstances.

Let’s look at the question of “when should I appoint a bookkeeper?”

If you have just started out with your business and your income and expenditure are relatively low, you may decide not to appoint a bookkeeper at this time.  However, six months down the line, your business has grown – you are trying to keep on top of orders, the marketing, replenishing stock, maybe even managing staff – as well as making sure the accounts are kept up to date.  You are struggling to find that work/life balance, so you decide now is the time to hire a bookkeeper.

As a qualified bookkeeper with 18 years of experience, I would actually advise that you get a bookkeeper right at the start of your business.  This doesn’t necessarily mean having them do the accounts, it could be that you have them provide you with support to ensure that you are accounting for everything correctly and over time you could then have them take on more of the bookkeeping tasks.

To help you to decide when to hire a bookkeeper, think about the following question: “do I really understand how to correctly record my financial information?”.  If you aren’t sure how to accurately record a transaction, it could end up costing you a lot of additional money in tax.  For example, I have had clients come to me where they have recorded transfers of funds from their main bank account to their savings account as income, which is incorrect.  This error, if I had not seen it and corrected it could have cost the client several thousand pounds in additional tax.

Software companies have also been quite clever in their marketing.  They have made it look like using the software is as easy as clicking a couple of buttons – but before you can click those buttons, you need to have an understanding of how to enter the information into the accounts correctly, so that the numbers appear in the right place in your accounts, which then provides you with an accurate picture of your business, allowing you to make informed business decisions.

Now, let’s look at some reasons why a business owner should hire a bookkeeper.

We’ve already touched on the fact that having a bookkeeper can help you to ensure your financial information is being entered accurately, but having a knowledgeable bookkeeper by your side can also help you to make sure that you are meeting all of the legal requirements a business has in terms of their accounts:

• Submitting VAT returns on time
• Using the correct VAT treatment for sales and purchases
• Making sure you have accurate records of all transactions
• Making sure the accounts are ready for submitting to HMRC and Companies House – this is going to be even more important with MTD ITSA coming into effect in April 2024

Another great reason to have a bookkeeper is that they can free up your time.  By having a bookkeeper to do the accounts, you can put the time to better use by working on promoting your business, helping your customers or being able to spend time with friends and family.  You will still need to provide all the paperwork to the bookkeeper, but the time you have spent and the stress you were under will be greatly reduced.

Do you know how your business is doing?  Can you afford to hire staff?  With the bookkeeper keeping the accounts up to date and ensuring they are accurate; you will have a better idea of the financial picture of the business.  By having a more accurate picture of the financial situation of your business, you will be able to make more informed business decisions that will allow you to grow the business and achieve your goals.

There are many other reasons having a bookkeeper is a good idea, but I have touched on some of the most important ones.

Having a bookkeeper, and even an accountant, working with you on your business as a team is a great collaboration that will benefit you as a business owner.

If you would like further information about why having a bookkeeper helps you with your business, or when you should hire one, feel free to e-mail me.

During the June 2022 Facebook Live, I talked about the differences between sole traders and limited companies.

What is a sole trader (self-employed)?

A sole trader runs the business as their own and owns everything the business has – the profit of the business is their income.  As you and the business are the same legal entity, you are responsible for any debt the business has.  You are also responsible for registering with HMRC as self-employed, filing a self-assessment tax return every year, paying tax on all the profits and paying your own NI Contributions.

What is a limited company?

A limited company is owned by shareholders and run by directors.  It is a separate legal entity.  Everything relating to the limited company is separate from your personal finances and the company is responsible for its own debt. Any profit the business makes belongs to the company, and it must file a corporation tax return at the end of the financial year.  The company must also file annual accounts with Companies House each year.

What other differences are there between a sole trader and a limited company?

Business Name – The name of a self-employed business is not protected.  There can be a lot of businesses using the same name as you, and you would not be able to do anything.  However, the name of a limited company is protected and that means that in the UK, there can only be one company by that name. It is possible that if someone sets up a limited company, and you have been running a self-employed business with the same name, they could require you to change it.  It is a very good idea to check the name you want to use for the business on Companies House to make sure it isn’t registered.  Some sole traders even set up a dormant limited company to protect their name. This is the link to the Companies House website.

Responsibility – A sole trader is 100% responsible for making all the decisions about their business and for ensuring all legal requirements are met.  This can be a good thing as you don’t have to ask anyone else for permission to implement an idea, but it can also be a downside.  As you are the only person responsible, even if you have staff, you still have to spend many hours making sure everything is running as it should, and you often have to wear many hats as you try to do everything. 

As there is usually more than one person involved in a limited company, though there are many sole-director companies, the decision-making and responsibility for the day-to-day running of the company is spread across more people.  However, if you are running a sole-director company, then like a sole trader, the responsibility relies solely with you.

Admin – There is a lot less admin involved for a sole trader.  You need to keep accurate records for your accounts, but you then only need to submit a self-assessment at the end of the tax year.  However, once MTD ITSA comes into play in 2024, you will be required to submit information to HMRC on a quarterly basis, though if your accounts are up to date it should be fairly straightforward.

A limited company, on the other hand, has a lot more admin to deal with.  At the end of the year, a Corporation Tax Return must be filed with HMRC, the accounts must be submitted to Companies House, and each director may have to submit a self-assessment tax return.  The company must also submit an annual return to Companies House every year, verifying the information on file.

Taxation – When it comes to being self-employed, as long as you have no other income, the tax side is relatively straightforward.  You will be liable for paying tax on any profit over the personal annual allowance, which for this tax year is £12,570.00.  For any profit between £12,571 and £50,270 you will pay 20%, for any profit between £50,271 and £150,000, you will pay 40% and for any profit over £150,000 you will pay 45%.  You will also need to pay Class 2 NI which you pay on any profit over £6725 which is £3.15/week for this tax year.  You may also be required to pay Class 4 NI which will be 10.25% on any profits between £9,881 and £50,270.  If you have profits of over £50,270 you will pay 3.25%.

If you are a limited company, things are a bit more rigid.  There are stricter rules about what allowable expenses can be claimed and directors cannot freely take money out of the business.  For every pence of profit, a limited company makes, in the 2022/2023 tax year they will pay 19% in Corporation Tax.  This rate will be going up to 25% for companies with profits over £250,000 from April 1^st, 2023.  If the limited company pays dividends to its shareholders, each shareholder will have to pay tax on any dividends received that are over the £2000 limit.  The amount of tax paid will depend on the individual’s income.  Each director may then also have to pay tax to HMRC when they file their self-assessment, depending on how they received money from the company, whether they have any other income and whether they received any dividends.

This is just a brief overview of some of the differences between a sole trader and a limited company.

If you would like further information about the differences between a sole trader and a limited company, feel free to e-mail me.