Are You Ready for the Big Changes to Self-Assessment Tax Returns Under HMRC MTD Rules?

ksk-accounts
Jul 19
3 min read

Updated: Jul 20

The world of self-employment is always evolving, and keeping up with tax regulations is essential. Recently, HMRC has announced significant changes in how self-employed people will submit their Self-Assessment Tax Returns through the Making Tax Digital (MTD) initiative. Are you ready for what’s coming? Let’s break it down!

What is Changing?

Under the new MTD rules for the self-employed, submitting your Self-Assessment tax return will undergo a major transformation. Instead of making a one-time submission every year, you will now need to provide four quarterly updates detailing your business income and expenses. After the tax year ends, a final declaration will also be required to finalize your finances.

This change eliminates the frantic rush to organize your financial information at the end of the year! It emphasizes maintaining regular oversight of your finances, allowing you to make better decisions, keep track of your earnings, and manage your expenses effectively. For instance, businesses that switch to quarterly reporting may find it easier to identify trends in their cash flow, helping them make more informed decisions.

When Will It Affect You?

The MTD rules will roll out in stages based on your income levels:

From 6th April 2026: Applies to self-employed individuals with an income over £50,000 per year.
From 6th April 2027: Pertains to self-employed individuals earning more than £30,000 per year.
From 6th April 2028: Applies if your income exceeds £20,000 per year.

It's crucial to be aware of these dates to avoid penalties and ensure compliance with the new regulations. Missing these deadlines can lead to financial penalties of up to 5% of the tax owed, according to HMRC guidelines.

What Will You Have to Do?

These changes will require self-employed individuals to adapt their approach:

Maintain Digital Records: You’ll need to keep precise records of your income and expenses in a digital format. This shift will often result in less paperwork and a more organized approach!
Quarterly Updates: Each revenue source, whether from self-employment or property, will require quarterly updates to HMRC based on your reported income and expenses.
Final Declaration: At the end of the tax year, you must submit a final declaration to confirm your business income.
Utilize Digital Tools: Keeping digital records is mandatory! For example, using accounting software can help automate this process and reduce errors.

The Good News for FreeAgent Users

If you are already using FreeAgent, now is the time to celebrate! FreeAgent is recognized as one of the recommended software that aligns perfectly with HMRC's MTD requirements for quarterly submissions.

All it takes is linking your bank account to FreeAgent and managing all your invoices, expenses, and financial data within the software. This will ensure a smoother transition into MTD, allowing users to save on average up to 8 hours a month, according to user testimonials.

How to Prepare for the Changes

Get Familiar with Your Software: If you aren’t using FreeAgent yet, consider it now! Take the time to explore its features and capabilities that can simplify your accounting process.
Regularly Update Your Records: Make it a practice to frequently update your business income and expenses rather than waiting until the quarter ends. This routine reduces stress and ensures accurate reporting. For example, updating weekly can save you 15% more time than waiting until the last minute.
Seek Professional Help: Consider involving your accountant as a collaborator in FreeAgent. This provides you with real-time advice and the comfort of knowing your financial reporting is in good hands. An accountant can also help you capitalize on potential tax deductions, improving your overall tax situation.

Preparing for what lies ahead

Changes to how self-employed individuals submit their Self-Assessment Tax Returns are approaching with HMRC’s Making Tax Digital rules. While it may seem daunting, thorough preparation can make compliance straightforward.

Stay updated on your income thresholds, leverage tools like FreeAgent, and keep your financial records current. By actively engaging with these changes, you’ll not only manage the requirements more easily but also direct your energy towards what you enjoy most about being self-employed.

In the changing landscape of taxation, being proactive is key. So, are you ready to embrace the MTD changes? The future of your self-employment is in your hands!