New Tax Rules For The Self Employed

In this blog we provide all the information that you need to navigate the new tax rules that are kicking in for the self-employed from April 2024!

If your self-employed turnover is more than £10,000 then these rules apply to you, and there will be more to file with HMRC from then on! Read on to discover how these changes will impact you…

What is MTD for Income Tax?

The MTD for Digital Tax system 2024, announced by HMRC, requires business owners to keep their records electronically and use compliant software to file quarterly returns to HMRC. Further, an end-of-year final submission must be submitted to completed to final the taxpayers returns for that year.

Currently, the implementation date of April 2024 is for the self-employed and landlords. 

However, if you’re in a partnership the MTD for income tax comes a year later (April 2025). Making Tax Digital for corporation tax (i.e. for limited companies) is also planned for the future and details will be announced as and when legislation is created.

The MTD for VAT system started in April 2019 and became compulsory from April 2022 for all VAT-registered businesses regardless of turnover. This means, if you’re VAT registered, you are meant to submit your VAT returns via MTD utilising MTD software.

Who is this for? 

• Self-employed individuals and landlords with a turnover of more than £10,000 – this threshold appears low and has chances of changing in the future, however, it stands at the current amount of £10,000 as of October 2022.

One thing to consider is that if you have two self-employments for example, the turnover threshold of £10,000 remains valid as your total turnover. When measured against the £10,000 pound threshold, your rental property and self-employment business’ turnover are combined. This means if you have self-employed turnover of £6,000 and rental income of £4,000 (before expenses) then you will be required to submit quarterly MTD returns from April 2024!

It is essential to emphasise the fact that this is the turnover amount and not the profit. Irrespective of whether you make a profit or not, your turnover will be taken into account and you’ll have to comply with the new rules.

What are the new rules?

If you’re still using paper, our recommendation would be to use a tool like Xero for your digital records keeping. We would also recommend getting a Xero expert to do it all for you, saving you the time and stress of having to reconcile all your data every 3 months.

At Satori Accounting, we can do all this inhouse for you in a more streamlined fashion with the help of other compatible apps and software in order to save you time and ensure total accuracy.

Consequences

With the introduction of MTD for income tax, the current taxation system has changed completely. You will now be required to record quarterly updates with HMRC, i.e., 4 quarterly filings annually. 

These changes make the process a tad more administrative and time-consuming. So, keeping your books updated at least monthly is essential to help manage these increased tax filings. 

If you’re working with our team at Satori Accounting, the first thing we recommend is a change of mindset. 

Get your bookkeeping done regularly to tell you how your business is performing and not just because the government are telling you to. Regularly means daily or weekly, certainly no less than monthly!

Deadlines

See the table below for quarterly tax filing information and deadlines:

Quarterly Period	Quarterly Deadline
6 April – 5 July	5 August
6 July – 5 October	5 November
6 October – 5 January	5 February
6 January – 5 April	5 May

Possible Concerns: Accuracy of Figures & Penalties

In terms of battling accuracy concerns, if you are updating/submitting your books on a regular basis (say, monthly), your records are likely to be accurate. 

Moreover, your accountant will likely make reasonable adjustments to your accounts to make the data as accurate and thought-out as possible, thus making your end-of-period statement as accurate as can be. 

Also, as this is a new system, there are no late filing penalties for the first year. The penalties will be given based on the number of points a business gets (on every late filing).

Kieran explored this topic in full in a recent, Satori Session Facebook live, which you can watch in full here  

If you are interested in learning how Satori Accounting can help you with your accounts and bookkeeping, book a discovery call with us today.