Latest news with #selfassessment
The Independent
2 days ago
- Business
- The Independent
A new tax system is coming – here's what the self-employed and freelancers need to know
SPONSORED BY TRADING 212 The Independent Money channel is brought to you by Trading 212. Millions of sole traders and landlords have just months to prepare for massive changes to the tax system that take effect next year. From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will apply to sole traders and landlords whose combined gross income from self-employment and/or property exceeds £50,000 a year. If this applies to you, you'll need to keep digital records and use HMRC -compatible software to submit four quarterly updates and then a 'final declaration' to HMRC each year. This will replace the current self-assessment tax return. The Government claims MTD will 'modernise the tax system' and 'reduce the tax gap'. But critics says HMRC's communication on the subject has been woefully lacking, with the new regime set to cost freelancers and landlords time and money. Manase Mtopa, head of UK at accounting service Hnry, says: 'Filing of taxes used to be a free service completed annually, so introducing the need to use software quarterly will invariably introduce costs to the taxpayer. The self-employed are often paying for a business bank account and accountant already so this is an unwelcome cost.' Whatever your view, MTD is on its way and it's best to prepare now. Who is affected by MTD? If you're a sole trader and/or landlord with a qualifying income of more than £50,000 for the 2024/25 tax year, you'll need to comply with MTD from 6 April 2026. The threshold falls to £30,000 from April 2027, and then to £20,000 in April 2028. MTD has already been introduced for VAT-registered businesses. These firms will have a headstart when complying with MTD IT rules – but it will be a major change for other sole traders and landlords. I'm a sole trader. What do I need to do? From April 2026, everyone who falls under MTD will need to make quarterly digital submissions to HMRC. These will include a summary of income and expenses for each quarter, with deadlines on the 7th of the month after the quarter ends. No tax is calculated or payable at this stage – it's just reporting. By 31 January following the tax year end (i.e. 31 January 2028 for the 2026/27 tax year), a 'final declaration' becomes due. This will be similar to the current self-assessment return, but will be pre-populated with the income and expenses from the quarterly updates already filed. However, those entries will need to be adjusted for accounting and tax purposes – for example, disallowing elements of private use or capital expenditure. The payment deadline dates for income tax will remain the same as under the current self-assessment system: 31 January and 31 July each year. What software do I need? All submissions must be made through MTD-compatible software. You can either use 'bridging' software which submits data from spreadsheets to HMRC, or full-MTD compatible software which does everything. A list of compatible software providers is available on the website, including free and paid-for offerings from firms such as Coconut, 123 Sheets, FreeAgent and Xero. Arjun Kumar, founder of Taxd, says: 'There's a misconception that you have to use expensive, fully integrated software for this. The truth is, you can still use a simple spreadsheet for your digital records. 'However, software is the smart choice. It can connect directly to your accounts, automatically categorising everything and keeping you audit-ready. For those who are wary of that level of integration, 'bridging software' is the perfect middle-ground, it simply sends your quarterly data to HMRC without needing direct access to your books.' Are taxpayers ready for the new regime? A survey by accounting software firm FreeAgent found a worrying lack of knowledge about MTD – almost two in every five (39 per cent) survey respondents said they had never even heard of it. Jon Martingale, head of product management at FreeAgent, says: 'This lack of clarity seems to stem from the complexity of the changes and the varied ways people access information. While many are turning to software providers or accountants for support, our data shows that nearly 60 per cent still feel they haven't had enough guidance to fully understand what's coming.' Despite doing a thoroughly dismal job of publicising MTD, HMRC is introducing a points-based penalty system for non-compliance from April 2026. Each late quarterly submission earns one penalty point, with four points equalling a £200 penalty. Points expire after 24 months if compliance improves. 'This system is more lenient than immediate fines, especially for occasional mistakes, and gives taxpayers a chance to improve. However, for those who consistently miss deadlines, the fines can add up,' says Brad Wilkinson at accountancy practice Ascendis, 'Whether they're 'fair' is subjective. Some argue that the system is burdensome, especially for landlords or sole traders with simple tax affairs. Supporters say it encourages better compliance and brings tax in line with modern digital standards.' Sole traders and landlords can sign up to a HMRC pilot programme now – this will aid in getting to grips with the new system before April.
The Independent
31-07-2025
- Business
- The Independent
HMRC issues warning over late tax payments due today
HMRC has issued a warning to anyone who completed a self-assessment tax return earlier this year, as a new deadline looms. A self-assessment tax return must be completed by anyone who is self-employed or who receives income other than from their regular job, such as from a rental income, dividend or a side hustle. That helps to determine how much tax and National Insurance Contributions they must then pay on those earnings. While self-assessments must be completed annually by 31 January, a second mid-year payment must be made on 31 July, which goes towards the next tax year bill. That means payments made this month contribute to the final tax payment needed on your 2024-25 tax bill. Anyone who misses the 31 July deadline will see fines imposed at a high rate of interest – 8.25 per cent on any tax owed – with further penalties possible the longer non-payment continues. A full breakdown of who needs to make this payment and how to do so can be found online here, but HMRC impose penalties on those who miss this month's deadline, with interest accruing on the unpaid amount from 1 August. 'Prompt payment is important - if you continue to delay, the interest keeps adding up, potentially leading to a much larger tax bill,' HMRC told The Independent. Additionally, extra penalties can quickly add up if you leave the tax bill unpaid for longer. While the following apply only if the tax remains unpaid for 30 days or more, they will rapidly mount up: 5 per cent of the unpaid tax at 30 days Another 5 per cent at 6 months And a further 5 per cent at 12 months You do not need to wait until 31 January to pay your bill. You can pay via your HMRC Self Assessment account or by bank transfer, debit card, Direct Debit or the HMRC app. If you're struggling to pay, HMRC says it's best to take action early. You may be able to set up a Time to Pay arrangement online, allowing you to spread payments over a longer period. You can find more details here on what to do if you can't pay your tax bill on time.
Telegraph
30-07-2025
- Business
- Telegraph
How to hit this summer's tax payment deadline and avoid steep interest charges
If you complete a self-assessment tax return, then you'll be familiar with the fact that there's a deadline to file that return and pay your tax bill to HM Revenue & Customs (HMRC), which is January 31. However, you may also need to make a second payment by the end of July – called a payment on account. You're required to pay half of an estimated tax bill ahead of submitting your next tax return, and failing to pay on time means you'll be charged interest on the outstanding tax. Interest is currently set at 8.25pc. Here's what you need to know about this lesser-known second tax charge. What is payment on account? Who has to make payments on account? How do payments on account work? How to reduce payments on account Payments on account FAQs What is payment on account? For those who file annual tax returns through self-assessment, a payment on account is an advance payment you make towards your future tax bill. Rather than paying all the tax due through self-assessment in one lump sum after filing your tax return, your estimated payment is split into two. You pay half in January and half in July. A payment on account reflects what HMRC estimates will be half your tax bill for the current tax year. The amount is usually half of the previous year's bill, as HMRC assumes you will continue earning at the same level. Who has to make payments on account? Payments on account are for those who have previously paid a self-assessment tax bill of £1,000 or more and where less than 80pc of tax is taken through PAYE (Pay As You Earn). This mostly applies to self-employed workers – those who operate as a sole trader, partnership or even individuals who work as directors under a limited company. Those receiving a high income from savings and investments can also need to make payments on account if the interest from savings, dividend income and perhaps any rental income from property makes up more than 20pc of your income. Sarah Coles, head of personal finance at Hargreaves Lansdown, said: 'It could happen if, for example, you had earned income of £46,000 and you had savings of £250,000 outside an Isa making 5pc a year – compounding daily. Less than 80pc of your income would be taxed through PAYE, so you'd need to make a payment on account. 'If you had a specific plan to spend the money, you could apply to have the payment on account reduced, but if you planned to leave it saved or invested, you'd need to pay it.' How do payments on account work? By January 31, you will have paid the tax bill for the tax year ending April 5, the year before. You will also pay half of the estimated bill for the current tax year. Then by July 31, you need to pay the second half of the expected tax bill. Once you have submitted your tax return, the bill the following January will make up the difference between the estimate and reality, where you may be required to make an extra balancing payment, or you'll get a refund if you've overpaid. On that same day, you'll make the first payment on account for the next tax year – that is, half of what you're expected to owe for your next tax bill. It's important to put aside enough money for your tax bill for your self-assessment tax return as early as possible – especially if you're newly self-employed – to avoid any nasty January surprises. Example Let's say your bill for the 2024-25 tax year is £6,000, but it was £3,600 in 2023-24. You would make two payments on account of £1,800 each (£3,600 in total) on January 31, 2025 and July 31, 2025 towards this, since HMRC would assume you'd earn the same amount as the year before. Since your earnings increased, these payments wouldn't cover the amount of tax you owed, so you'd need to make a balancing payment the following January. That would mean that the amount due by midnight on January 31, 2026 is made up of a balancing payment of £2,400 for the 2024-25 tax year (£6,000 minus £3,600), and then the first payment on account of £3,000 (half your 2024-25 tax bill) towards your estimate for 2025-26. This means the total you will have paid is £5,400 by January 31 2026. You then make a second payment on account of £3,000 on July 31, 2026. If your tax calculation for the 2025-26 tax year ends up exceeding the total of your two payments on account, you'll need to make a balancing payment by January 31, 2027. How to reduce payments on account The payments on account system can be a helpful way of splitting up your tax bills into more manageable chunks, but if your earnings drop, or if you are about to start an employed role where more than 80pc of your earnings will soon be taxed at source, it can be galling to know you're overpaying and will have to claim a tax refund from HMRC. In this case, you may be able to reduce your payments on account, but you'll need to apply for a reduction from HMRC by following these steps: File an application online, or Fill in, print and post form SA303. Alternatively, you can ask your accountant to do this on your behalf. When applying, you must include the level of income you expect to receive over the coming year so HMRC can recalculate your revised payment. While you can apply to pay less, it's important to note that if your tax bill ends up being higher than expected, you will have to pay interest on the difference – so don't take these steps unless you're sure your tax bill will drop. If you don't reduce the payments and you end up overpaying, you'll get a refund, but no interest will be paid to you. Reducing your savings interest If income from savings and investments has resulted in the need to make a payment on account, there are other ways to reduce your tax bill. Firstly, if you haven't used all of your Isa allowance, consider moving assets inside an Isa wrapper to reduce your tax bill – and payment on account.
The Sun
08-07-2025
- Business
- The Sun
HMRC slaps huge £1,600 fines on 600,000 struggling families who don't even owe tax
We've explained how to avoid it in the first place TAXING TIMES HMRC slaps huge £1,600 fines on 600,000 struggling families who don't even owe tax HUNDREDS of thousands of low earners have been slapped with hefty HMRC fines, even though they don't owe any tax. Currently, individuals earning less than £12,570 a year do not pay income tax. 1 Those who are self-employed must complete a self-assessment tax return each year Credit: Getty Similarly, you are not liable to pay National Insurance contributions if your income or profits (for the self-employed) are below this threshold. However, those who are self-employed must complete a self-assessment tax return each year, even if they don't reach these earning thresholds. Failure to file this before the paper deadline on October 31 or the online deadline on January 31 results in an automatic fine. New data from a Freedom of Information request by think tank Tax Policy Associates (TPA) shows that over 600,000 people earning below the tax threshold were fined £100 by HMRC between 2018 and 2023. These fines start at £100 but can quickly spiral into thousands. If the fine isn't paid, penalties keep increasing, reaching over £1,600 within months. For those who miss deadlines year after year, the fines pile up, along with interest. One taxpayer, interviewed by TPA, was hit with over £10,000 in penalties, despite not owing a single penny in tax. The rules were changed in 2011, so penalties now stick even if no tax is due. At the time, campaigners warned this would create hardship for vulnerable people, but their concerns were ignored. Easy Income Boosters Money Making Tips You Need to Know Dan Neidle, from the TPA, said he had heard from "hundreds" of people affected, many struggling with serious physical and mental health issues. He said: "The Government should act, and stop the most vulnerable in society having their lives made harder by HMRC." The Government has promised to reform the system, capping penalties at £200 and removing the automatic £100 fine. However, these changes will only apply to high earners under the Making Tax Digital scheme, starting in 2026 for those earning over £50,000. There is still no timeline for low-income earners, leaving them stuck with harsher penalties under the current rules. The Low Income Tax Reform Group (LITRG) said this will create a "two-tier" system. Antonia Stokes, of the group, said: "LITRG would like to see HMRC speed up its roll-out, so that all taxpayers can benefit from the new penalty regime." Do I need to file a tax return? Self assessment is the system HMRC uses to collect income tax for some workers. For most employees, tax is automatically taken out of their wages, pensions, or savings through PAYE. But if you've got other types of income or are self-employed, you'll need to report it by filing a tax return. You'll need to send in a self assessment tax return if any of the following apply: You made over £1,000 from self-employment. You earned more than £2,500 from renting out property. You or your partner got High Income Child Benefit, and one of you had an annual income of over £50,000. You received more than £2,500 in untaxed income, like tips or commission. You're a director of a limited company. You're a shareholder. You're an employee claiming expenses over £2,500. You have an annual income of more than £100,000. How do I submit a tax return? Before you can complete and submit your tax return, you must have a so-called unique taxpayer reference (UTR) and activation code from HMRC. This can take a while to receive, so if it's the first time you're completing a self-assessment, register online immediately and ask HMRC for advice. To sign in or register, visit If you've already signed up for self-assessment, you can find your UTR in relevant letters and emails from HMRC. HMRC accepts your payment on the date you make it, not when it reaches its account - including on weekends. The deadline for filing your self-assessment tax return by post is October 31. If you miss the deadline by up to three months, you will be charged a £100 penalty. If you miss the deadline by over three months, you will be charged more. But don't worry. You can complete your tax return online if you don't send your paper form on time. The deadline for this was January 31, 2024. If you need to change your tax return after filing it, you can do so within 12 months of the original deadline. Filling in your tax return can seem daunting, but with our step-by-step guide, you'll have it sorted quickly.
The Sun
26-06-2025
- Business
- The Sun
Do you have a side hustle? Act NOW or risk huge fine after HMRC warning
HMRC has issued an urgent warning to anyone with a side hustle to act now or risk being hit with a big fine. Those earning money from an extra income stream, including online selling, have to submit tax returns through self-assessment. 1 Anyone earning more than £1,000 a year has to submit one - and the deadline to do it online for the 2024/25 tax year is January 31, 2026. If you've not registered for self-assessment before, you must register by October 5. Fail to do either of these things and you could end up facing a hefty fine from HMRC. Filing your self-assessment tax return after January 31 and just one day late will see you fined £100. You also face further fines of £10 a day after three months, up to a maximum of £900. Of course, the January 31 deadline to file your tax return is months away, but filing early can give a chance to budget for any taxed owed. You may be able to set up a Budget Payment Plan to help spread the cost of taxed owed too. National Insurance owed. Myrtle Lloyd, HMRC's director general for customer services, said: "Whether you are selling handmade crafts online, creating digital content, or renting out property, understanding your tax obligations is essential. "If you earn more than £1,000 from these activities, you may need to complete a self assessment tax return. What Does My Tax Code Mean? A Simple Guide to Your HMRC Letter "Filing early puts you in control – you will know exactly what you owe, can plan your payments, and avoid the stress of the January rush. "You don't need to pay immediately when you file – you have until January 31 to settle your tax bill." How to register for self-assessment and file a tax return If you're submitting a tax return for the first time, you'll need to register for self-assessment by October 5. You are taken through the process step by step via the Government website which is on You start by hitting the "Start Now" button at the bottom of the page. After you've registered, you'll be sent a Unique Taxpayer Reference (UTR) number in a letter, with instructions on how to set up your Government Gateway account. Once this is done, you'll be sent another letter containing an activation code. You use this to complete the set-up of your account and need to do this as soon as possible as the code will expire. HMRC says this entire process can take up to 20 working days. Once you've registered, filing a tax return online can be done via Make sure you've got your UTR number to hand. You don't have to complete your tax return in one go and can save your entry then go back to it later if you need to. Why do you have to submit a tax return on your side hustle earnings? In some cases, tax is deducted automatically from your wages or pension through PAYE. However, other forms of income, such as those from a side hustle worth over £1,000 are collected through self-assessment. This is where the person who owes the tax has to submit a tax return themselves. You also have to file a self-assessment tax return if you receive any other income from property, capital gains, or dividends. Do I need to pay tax on my side hustle? When you're employed the company you work for takes the tax from your earnings and pays HMRC so you don't have to. But anyone earning extra cash, for example from selling things online or dog walking, may have to do it themselves. Stephen Moor, head of employment at law firm Ashfords, said: "Caution should be taken if you're earning an additional income, as this is likely to be taxable. "The side hustle could be treated as taxable trading income, which can include providing services or selling products." You can make a gross income of up to £1,000 a year tax-free via the trading allowance, but over this and you'll usually need to pay tax. Stephen added: "The applicable tax bands and the amount of tax you need to pay will depend on your income."
