Recent changes to the Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) scheme could stand to impact 900,000 sole traders by the time it is fully implemented in 2028.
By this time, any sole trader who earns over £20,000 a year will be required to adopt MTD for ITSA.
Provided the global economy lasts long enough for any of us to be generating revenue by 2028, your business may likely end up being pulled in.
Even smaller businesses like gardeners, tree surgeons, and hairdressers are unlikely to slip beneath this threshold.
For those with slightly larger revenue streams, the changes may impact you sooner rather than later.
In April 2026, those with incomes over £50,000 will need to make the change, and by 2027, those with incomes over £30,000 will be forced to change.
Though the full implementation of this might seem like a way off, there is a lot to consider ahead of the change, and planning now will save you a headache later.
Efficient tax filing
The stated goal of HMRC is to make tax filing more efficient.
One of the ways that they are approaching this is with quarterly filings in place of the previous annual ones.
Rather than having to collate all of your financial records once a year, you will be expected to maintain them consistently all year round.
However, there are concerns from many that this will increase the administrative costs, especially on sole traders.
Seeking professional financial help and finding ways to digitise and automate your bookkeeping may be the most effective way to keep on top of your records and mitigate your risk of noncompliance.
Harsher penalties
With changing regulations comes a tightening of compliance measures, with harsher penalties being introduced as a way to ensure filings are completed on time.
Previously, HMRC charged two per cent of the outstanding tax if your filing was 15 days late and four per cent if it was more than 31 days late.
The Spring Statement revealed that the new late fees will be three per cent for the first 15 days, six per cent for the next 15 days after that, and ten per cent for anything after 31 days.
That ten per cent will really sting, and there is particular concern that smaller businesses who lack access to the same financial resources as larger companies will be more at risk of missing their deadlines.
The fact that there are now four deadlines to manage instead of one also greatly increases the risk that you will become non-compliant.
Now, more than ever, it is essential to seek professional financial help to avoid feeling the squeeze as the new measures come into force.
We can help you stay on top of your finances and filings to ensure that you do not end up on the wrong side of the deadline.
