Getting prepared early on is something we always advise clients to do, and this proactive approach helps you to manage your financial obligations well before the January rush.

Do you need to file a Self Assessment tax return?

If you’re unsure whether you need to file a return, checking as soon as possible is essential to ensure you are prepared for the filing deadline.

As outlined by HMRC, you must file a tax return for the 2023/24 tax year by 31 January 2025 if you met any of the following criteria:

• You earned more than £1,000 through being self-employed
• You were a partner in a business partnership
• Your taxable income was above £150,000
• Capital Gains Tax was due on the sale of an asset
• You paid the High Income Child Benefit Charge

There are other situations where you may need to file a tax return, such as if you are a landlord or earned any untaxed income during the tax year.

If you are required to submit a tax return for the first time, you must register for Self Assessment by 5 October 2024.

In the case you are filing a paper return, it’s important to note you must do this before 31 October 2024. You should prepare for the shift to Making Tax Digital for Income Tax Self Assessment (ITSA), which will be implemented from April 2026.

This forms part of the move to digitise the tax system, with sole traders and landlords earning above £50,000 being required to file their tax returns using MTD-compliant software from April 2026. This will extend to those earning above £30,000 from April 2027.

You may be able to voluntarily register for MTD for ITSA early – you can check if you are eligible here.

Why should you file early?

The first day of the tax year, 6 April, saw a substantial number of filings, with nearly 70,000 people submitting their returns.

Filing early offers numerous advantages. It allows more time to ensure your return is accurate and complete, potentially avoiding common errors associated with rushed submissions.

If you’d rather take the pressure off yourself, our tax team can prepare and file your tax return for you, providing the peace of mind that you are fulfilling your tax obligations on time.

Preparing your tax return early with the support of an accountant can also help with budgeting, by providing early insight into any tax owed or refunds due.

To aid in managing finances, HMRC offers the option to set up a budget payment plan, allowing taxpayers to make incremental payments towards their next tax bill through direct debits.

Refunds on overpaid tax are processed sooner for early filers, and the status of these can be checked using the HMRC app.

As the year progresses, taxpayers are encouraged to take advantage of these options, ensuring a smoother and more efficient tax filing experience.

If you would like assistance with filing your Self Assessments or require specific advice, please contact us today.

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As a part of the Government’s broader strategy, MTD for ITSA aims to boost the UK’s tax system into one of the world’s most technologically advanced frameworks.

Currently, the focus is on individuals and unincorporated entities such as sole traders and partnerships. However, the Government plans to extend a similar MTD framework to limited companies and Corporation Tax in the future.

If your property portfolio and operations are incorporated as a limited company, it is important to start preparing for this upcoming requirement.

The system requires the use of digital software to manage records and send updates to HM Revenue and Customs (HMRC) for Income Tax. This includes providing an end-of-period statement and a final declaration annually.

From 6 April 2026 (or 6 April 2027, depending on your level of income), you will need to implement MTD for ITSA if you meet the following eligibility criteria:

• You are registered for Self-Assessment.
• You are not exempt.
• Your total qualifying income is above £50,000 (or £30,000 post-April 2027).
• Your income comes from self-employment, property or both.

From the above, you can see that this requirement varies based on your total qualifying income, including earnings from property.

If you are a landlord, MTD for ITSA introduces significant implications, particularly for those who pay Income Tax through employment and must also declare additional income via ITSA.

This dual reporting obligation increases the complexity of managing your tax affairs, requiring diligent record-keeping and periodic updates to HMRC.

Consulting with an accountant can provide expert guidance and ensure that your tax records and submissions are accurate and compliant with current regulations.

Additionally, an accountant can offer strategic advice on managing your tax liabilities and identifying potential deductions more effectively.

The challenges presented by MTD for ITSA

Landlords will encounter multiple challenges as they adapt to MTD for ITSA.

The shift from paper-based or basic digital records to a fully digital, MTD-compliant software system is significant.

Managing this transaction, along with the usual demands of property management, could significantly increase your workload.

You must familiarise yourself with new systems and processes and may incur hidden expenses, such as system upgrades, investments in compliant software, and potentially, new technology acquisitions.

These investments, both in time and finances, amplify the existing challenges faced by landlords.

How can cloud accounting make MTD for ITSA easier?

For our landlord clients who are concerned about the complexities of MTD for ITSA, we suggest utilising cloud accounting solutions. Here are some key benefits of using cloud accounting software:

• Compliance with MTD requirements: Allows you to maintain digital records and manage transactions online, ensuring compliance with MTD mandates.
• Access to real-time data: Provides immediate access to up-to-date financial data, crucial for making accurate and timely submissions under MTD for ITSA.
• Scalability: Adapts to changes in your portfolio size or diversity, requiring only an initial investment in technology and avoiding repeated costs.
• Error reduction: Enhances accuracy by reducing the likelihood of errors, helping to streamline the management of financial records.
• Effective financial management: Offers tools that help you manage your finances more efficiently and in real-time, facilitating better decision-making.

If you need recommendations on cloud-accounting software, please get in touch with our team today.

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But what is dividend income and when should you pay tax on it?

Essentially, when a company earns a profit, it can choose to redistribute a portion of these earnings to its shareholders in the form of dividends.

These payments can come from a variety of sources, including stocks, mutual funds, and investment trusts, and can be a great key component of personal finance for investors seeking income or growth through reinvestment.

However, HM Revenue & Customs (HMRC) is explicit in its requirement for individuals to report this form of income and has been cracking down on non-compliance recently.

In fact, in a recent letter campaign, they have been warning directors and company owners of their obligations.

In these letters, the business owners have been given the option to disclose information on any dividends that have not been declared or inform HMRC if they believe there is nothing more to declare.

Failure to do so (or providing inaccurate information) might lead to significant penalties, including fines and interest charges on the tax owed.

Below, we explore two scenarios. One in which you file your taxes via Self-Assessment and one in which your employer handles your Income Tax.

In both cases, there are specific requirements which you must adhere to in order to stay compliant with the law and avoid nasty repercussions from the taxman.

Who pays Dividend Tax and how much?

The good news is that if you earn less than £1,000 from your dividends, you don’t have to pay tax. (This threshold will fall to £500 in April 2024).

Above this threshold, however, your tax obligations are based on your Income Tax rates.

• Basic rate = 8.75 per cent
• Higher rate = 33.75 per cent
• Additional rate = 39.35 per cent

I report my taxes via Self-Assessment

For those who file their taxes through Self-Assessment, declaring dividend income is a straightforward process.

HMRC provides a step-by-step guide on how to include this information in your tax returns.

It’s crucial to be mindful of the deadline for submitting your tax return which will be 31 January 2025.

Keeping accurate and comprehensive records of the dividend income you have received throughout the tax year is essential for this and ensures you can report your income accurately and efficiently.

I don’t file via Self-Assessment

Not everyone in the UK is required to file a Self-Assessment tax return.

Individuals whose taxes are usually deducted at source, such as employees under PAYE, might not typically need to file.

However, if you receive dividend income and don’t usually complete a tax return, you still have obligations to meet.

You can declare this income by contacting HMRC directly to adjust your tax code or inform them about your additional income.

In some cases, receiving dividend income might necessitate filing a Self-Assessment tax return, especially if the amount received exceeds your tax-free allowance.

If this is the case, we suggest that you get in touch with an accountant at your earliest convenience.

I forgot to declare my dividend income, what should I do?

If you’ve omitted dividend income from your tax declarations in the past, it’s crucial to rectify this situation promptly to avoid possible legal/regulatory action.

HMRC offers a voluntary disclosure facility to encourage individuals to come forward and regularise their tax affairs.

By taking proactive steps to disclose undeclared income, you can minimise potential penalties and interest charges.

This process involves contacting HMRC, explaining the oversight, and following their guidance to pay any tax owed.

Potential issues with undeclared dividend income and how to avoid them

Maintaining compliance with tax obligations requires diligence and organisation.

Regularly updating and reviewing your investment portfolio and records can help you stay on top of dividend income declarations.

Consulting with a tax adviser can also ensure your tax returns are accurate and comprehensive.

To speak to a tax adviser, please get in touch with one of our team.

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Under the new regulations, digital platforms like eBay, Vinted, and Airbnb are now required to collect and report the earnings of their UK-based users to HM Revenue & Customs (HMRC) from the start of this month.  

This move is part of a broader effort to bring transparency to the burgeoning online marketplace and ensure compliance with tax obligations, but it could mean that you are liable for increased taxation or that you have been moved into a higher band of tax. 

For small business owners, the heightened scrutiny from HMRC should highlight the importance of proper financial reporting.  

While it has always been essential to file accurate tax returns, the automatic sharing of data between online platforms and HMRC adds a new layer of urgency.  

If your reported income does not align with the information that platforms will now be providing to tax authorities, you could be at serious risk of penalties and fines.  

Discrepancies, intentional or otherwise, could mean the end of your business or at least significant financial repercussions.  

Income Tax bands and higher tax brackets 

One of the most pressing concerns for small business owners in light of this legislation is the potential shift into higher Income Tax bands.  

As online sales and earnings become more transparent, businesses that were previously underreporting income might find themselves in higher tax brackets because their finances have become more transparent.  

If you think that your overall tax liability has been affected by the changes it might be time for a re-evaluation of your current financial strategies. 

Allowances and exemptions 

It is crucial for small business owners to be aware of the allowances that could influence their tax calculations.  

The trading allowance permits individuals to earn up to £1,000 annually without incurring tax.  

Additionally, the rent-a-room scheme allows up to £7,500 per year tax-free for those renting out a room in their own home through platforms like Airbnb.  

Understanding and utilising these allowances can be a strategic way for you to manage your tax liabilities effectively. 

An experienced accountant can help you navigate tax exemptions and determine which allowances you are entitled to.  

When to seek guidance on navigating these changes 

The complexities and implications of this recent legislation change should highlight the necessity for professional guidance for most businesses.  

For small business owners and online traders, an accountant can help you stay compliant and enhance your business’s financial health overall.  

A tax expert can provide valuable insights into managing your tax liabilities, utilising allowances effectively, and avoiding potential pitfalls as a result of the new regulations. 

So, rather than trying to muddle through the new regulations alone, speak to one of our team.  

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These amendments, particularly affecting the income thresholds for filing a Self-Assessment tax return, are poised to have a considerable impact on businesses and individuals alike.

Overview of the changes

Key changes to the Self-Assessment criteria include:

• Increased income threshold: Previously set at £100,000, the threshold for filing a Self-Assessment tax return has been increased to £150,000, effective from the 2023/24 tax year.
• Simplification of the high-income child benefit charge: Plans have been announced to simplify this process for employed taxpayers, allowing them to pay the charge through their tax code instead of registering for Self-Assessment.
• Removal of income threshold: From the 2024/25 tax year, the £150,000 income threshold for Self-Assessment will be removed entirely.

Implications for sole traders and the self-employed

The recent changes to the Self-Assessment criteria bring about specific implications for sole traders and self-employed individuals.

These alterations could impact the way you manage your taxes and financial affairs:

• Reduced administrative burden: The increase in the income threshold for filing a Self-Assessment tax return, from £100,000 to £150,000, and the eventual removal of this threshold in the 2024/25 tax year, could significantly reduce the number of self-employed individuals required to complete a Self-Assessment. This change is poised to decrease the administrative workload, especially for those whose incomes fluctuate around these thresholds. It means less time spent on paperwork and more time to focus on your business.
• Clarification on high-income child benefit charge: For self-employed individuals with children, understanding the high-income child benefit charge is crucial. The government’s plan to simplify this process, potentially allowing payment through tax codes rather than through Self-Assessment, could ease the administrative process for those affected. However, details are still pending, necessitating a need to stay informed and discuss the issue with your accountant.
• Potential confusion: The piecemeal introduction of these changes may lead to confusion, particularly for sole traders and self-employed individuals who manage their tax affairs independently. Understanding when and how these changes apply to your situation is crucial to ensure that you’re meeting your tax obligations correctly.
• Compliance concerns: With the criteria for Self-Assessment shifting, maintaining compliance becomes a more dynamic challenge. Sole traders and self-employed individuals must remain vigilant in monitoring their tax obligations. The change in thresholds could impact your tax planning strategies, especially if your income is close to the new thresholds.
• Impact on tax planning: These changes could also influence how you approach tax planning. For instance, with the threshold increase, some may find themselves no longer needing to file a Self-Assessment, potentially impacting how they manage expenses, pensions, and other tax relief areas.

Need for Professional Advice

Given these complexities, it may be more important than ever for sole traders and self-employed individuals to seek advice from qualified accountants or tax advisers.

Professional guidance can help navigate these changes, ensure compliance, and optimise tax planning according to the new rules.

Your accountant can offer:

• Expert guidance: Accountants can provide up-to-date advice on how the changes specifically impact your business and personal tax situation.
• Compliance assurance: They ensure that your tax filings are compliant with the latest HMRC criteria, helping avoid potential penalties.
• Strategic planning: Accountants can assist in strategic financial planning, considering the new criteria to optimise tax efficiency.

The changes to Self-Assessment criteria represent a significant shift in the UK tax landscape.

While they offer potential benefits in simplifying certain aspects of tax filing, they also introduce complexities that necessitate professional guidance.

For more detailed information on the Self-Assessment criteria, refer to HMRC’s Self-Assessment manual or use HMRC’s online tool to check your tax return obligations.

Alternatively, for tailored guidance on your Self-Assessment tax return, please speak to one of our team.

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However, annual Self-Assessment tax returns are a crucial part of staying compliant in the eyes of HM Revenue & Customs (HMRC) and avoiding fines or penalties.

The Individual Self-Assessment tax return, commonly known as ITSA, is usually the fundamental way in which Directors and senior management declare their taxes.

This is a requirement for individuals who have additional income outside of Pay As You Earn (PAYE) and you won’t be taxed twice on the income that you receive through traditional wages.

In this guide, we’ll delve into the intricacies of ITSA for limited companies and their directors and how to stay compliant with HMRC regulations.

Who needs to complete a Self-Assessment?

If you’re a Director of a limited company, you may need to complete an ITSA return.

This is especially true if you have other sources of income, such as rental income, dividends, or interest on savings.

Even if your income is solely through your limited company, it’s advisable to complete a Self-Assessment to declare any dividends you’ve received.

How to register for Self-Assessment

Before you can submit your tax return, you’ll need to register for Self-Assessment with HMRC.

This can be done online through the Government’s Making Tax Digital (MTD) for ITSA service and needs to be completed by 31 January 2024.

Once registered, you’ll receive a unique taxpayer reference (UTR) and be enrolled for the Self-Assessment online service.

What information is required?

The Self-Assessment form requires various details, including:

• Personal information
• Income from employment
• Dividend income
• Rental income
• Capital Gains
• Pension contributions

You should ensure that you have all the necessary documentation to hand, such as P60s, P11Ds, and any other relevant records.

An accountant can help you organise your documents and make sure you have all the relevant paperwork before you file your tax return, taking some of the stress off your shoulders.

Deadlines and penalties

The deadline for paper submissions is 31 October 2023, while online submissions must be completed by 31 January 2024.

Missing these deadlines can result in severe penalties. The fines increase the longer you delay, so it’s crucial to be punctual.

Again, this is something that an experienced accountant can help with.

Understanding and completing your Self-Assessment tax return is a vital part of managing your limited company’s finances.

By staying organised, keeping accurate records, and meeting deadlines, you can avoid unnecessary stress and potential penalties.

If you’re unsure about any aspect of the Self-Assessment process, seeking professional advice is always the best move.

Find out how we can streamline your Self-Assessment tax return process by getting in contact with one of our experts.

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Securely store your National Insurance number online

HMRC now offers the option to securely store your National Insurance (NI) number, aiming to streamline the tax handling process.

You can view your NI confirmation letter either online or via the HMRC mobile application, removing the need to wait for a physical letter, which could take up to 15 days to arrive by post.

Access to this feature is available through your Personal Tax Account (PTA) or the HMRC app. Once you are logged in, you can:

• Download and save a PDF version of your NI letter for future reference
• Keep a digital copy in your app wallet, such as Google Wallet or Apple Wallet, so you can access it without logging into your account again
• Print or distribute the letter directly from the platform

Understand your tax code

Introduced in December 2022 and updated in June 2023, this digital tool helps you decode the components of your personal tax code.

You can find your tax code on payslips, ‘Tax Code Notice’ letters or by signing into your Personal Tax Account.

The tool is particularly helpful for:

• Quickly confirming the accuracy of your tax code, avoiding unforeseen tax charges or rebate delays
• Clarifying the meaning of the letters in your tax code
• Offering advice on actions to take if your tax code appears incorrect
• Breaking down the tax obligations for self-employed individuals, residential buy-to-let landlords or partnerships on a weekly, four-weekly, monthly and annual basis

Instantly validate a UK VAT number

One significant development in HMRC’s digital offerings is the ‘Check a UK VAT number’ feature. This tool lets businesses instantly confirm the VAT numbers of other UK enterprises. Previously, the validation process was cumbersome and often led to delays.

Now, you can quickly ascertain the legitimacy of a business, thereby mitigating the risk of fraud, with just a few clicks.

Effortless Self-Assessment bill payments

The process of paying your Self-Assessment bill has been simplified with HMRC’s new online payment portal. This is especially advantageous for freelancers and small business owners, who found the traditional payment procedures time-consuming.

This tool lets you pay directly through HMRC’s secure portal, negating the need for external payment services and ensuring secure transactions.

Please note that the deadline to register for Self-Assessment online is 5 October 2023.

Download your VAT certificate with ease

The VAT certificate tool is another valuable addition. Gone are the days when you had to directly contact HMRC to obtain a copy of your VAT certificate.

Now, businesses can quickly download their VAT certificates from the HMRC website for compliance or audit needs.

Advantages

The main advantage of these online features is the efficiency they bring to tax-related chores. With these tools, you can handle these tasks much faster than was possible through traditional means.

Security is a top priority for HMRC, and these new digital services come with robust security protocols to safeguard your data and financial transactions.

These services are available at all times of the day, allowing you to tackle your tax obligations whenever suits you. This is great for businesses that function outside standard working hours.

As HMRC continues to innovate, we can anticipate even more user-friendly options in the future, making tax management less intimidating for all.

If you would like further details about how these online tools can help you, please get in touch today.

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If you are submitting a paper return the deadline is 31 October 2023.  

As we get closer to the date, you must have a firm grasp of the ITSA process to guarantee your business is not affected by setbacks or fines.  

Below is a guide to help you ensure a smooth and hassle-free tax return experience this tax season. 

Understanding your tax obligations 

As a sole trader, you are personally responsible for reporting your business income and expenses to HM Revenue & Customs (HMRC) through a Self-Assessment tax return. This involves: 

• Individual responsibility: Sole traders report their business income and expenses on their individual tax returns. 
• Simplicity: Generally, the process is more straightforward compared to the reporting requirements for other business structures. 
• National Insurance Contributions (NICs): Sole traders are required to pay Class 2 and Class 4 NICs based on their profits. 

• Payment on account: Sole traders may be required to make payments on account, which are advance payments towards your tax bill. 

Getting to grips with ITSA 

The Self-Assessment process involves providing HMRC with a detailed report of your earnings and expenses over the tax year.  

This is a meticulous process, and it is advisable to maintain a well-organised record of all your financial transactions to facilitate a smooth self-assessment. 

One of the perks of being a sole trader is the ability to deduct allowable expenses from your income, reducing your tax bill.  

Allowable expenses can include costs such as office rent, utility bills, and travel costs incurred exclusively for business purposes.  

It is wise to consult with a professional tax adviser to ensure you are maximising your allowable deductions whilst remaining compliant with the law. 

Making Tax Digital for Income Tax (MTD for ITSA) 

The UK Government has introduced the Making Tax Digital for Income Tax initiative to streamline the tax reporting process, making it easier and more efficient for sole traders to declare their incomes. 

Starting from April 2026, sole traders with a business income above £10,000 per annum will be required to report their income and expenses digitally every quarter.  

This initiative aims to provide a more real-time approach to tax management, helping you to keep on top of your tax affairs.  

It is advisable to familiarise yourself with digital record-keeping systems and software that are compatible with MTD for ITSA or discuss this development with your accountant to ensure a seamless transition. 

Submission deadlines  

We recommend starting the Self-Assessment process early to avoid a last-minute rush and potential penalties for late submission. 

• Paper Self-Assessment tax returns: 31 October 2023 

• Online Self-Assessment tax returns: 31 January 2024 
• Deadline for paying tax owed: 31 January 2024 

There are several rare exceptions to these deadlines, and you should always consult your accountant if you think they might apply to your business.  

Other types of small businesses 

While this blog focuses on sole traders, it is worth noting that there are other forms of small businesses, such as partnerships and limited companies, each with its own set of tax obligations and allowances.  

We will be posting several blogs in the coming weeks outlining the different responsibilities that each business structure is obligated to fulfil in its Self-Assessment.  

Seek expert advice 

Navigating the ITSA process can be a formidable task, especially for sole traders who are new to the process.  

However, understanding and efficiently managing your Self-Assessment tax return r can pave the way for a successful and compliant business journey.  

Remember, the key to a stress-free tax season is preparation and seeking the right advice.  

Our team of experts is here to assist you, offering tailored advice to help you navigate the tax landscape with confidence. 

To find out how our experts could streamline your Self-Assessment this tax season, get in touch.  

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