Like the proverbial bad penny, the end of the tax season has once again has crept up on us, with the self-assessment deadline having passed last Saturday. Regrettably, once again, over a million taxpayers missed the 31st January deadline for filing their Self-Assessment tax returns, resulting in all of them receiving £100 late filing penalties unless they have what is known as a ‘reasonable excuse’, such as serious illness.
And don’t forget, it’s not just the automatic one hundred pound fine, for up to three months you will be charged an additional £10 a day extra, and that’s every single day. If this doesn’t encourage you to finally submit your tax return, you’ll then be hit with an additional £300 fine or 5% of the tax due, whichever is higher. The costs then continue to escalate!
Changes to come
The big change is of course Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), which comes into effect on 5th April 2026, affecting the self-employed and landlords with an income of £50,000 and above. This is a subject I’ve written about at length in a number of Blogs in the last year or so.
Unfortunately, if you’re someone breathing a sigh of relief that you’re under the threshold, be warned, the turnover band for MTD for ITSA, reduces to £30,000 on 5th April 2027 and there is a final reduction to a very modest £20,000 on 5th April 2028.
So, within a couple of years or so, unless your business is very much part-time, you’ll be caught up in the MTD net. unless your income is purely from PAYE or pensions.
A big adjustment needed
The MTD bandwagon roaring down the tracks is going to be a huge shock for many taxpayers and may take many people some time to adjust, however, in the long run however, it is likely to make things easier for a lot of them.
This is because having to submit quarterly submissions to HMRC, will hopefully change the mindset of those individuals, who up to now have adopted the ‘mañana’ or I’ll do it tomorrow approach. MTD for ITSA will force these taxpayers to get their recordkeeping up to date more regularly than once a year in January. It is also likely to assist them budgeting for paying their tax, rather than waiting a whole year and then getting caught out in January when they discover what is due.
The principal reason why many individuals leave their record keeping and thus budgeting so late is down to human nature. For these taxpayers, as they have a ten-month period between the end of the tax year and January 3ist the following year, there is a tendency to think I’ve got months to do it and regrettably for many, it simply fades from their immediate memory.
The downside of course, is by putting off something that they’d rather not do until they reach the point when they’ve virtually run out of time, they may not have the time to sort out their receipts in time to submit their SA Tax Return by the due date of 31st January, which automatically results in the £100 fine.
So, if you are unable or unwilling to do the hard yards yourself, you can pay your local accountant to do the quarterly submissions on your behalf, but if you do decide that you’re up to the job yourself, you will need some form of specialised software to do so.
Software options
Software compatible with Making Tax Digital for income tax (MTD IT) is essential for compliance, but HMRC are not providing a free tool on their website to enable you to do so. So which package do you choose and before you do so, remember not all software is made equal.
Some software plans can actually take the work off your hands, automating repetitive admin and giving you more reliable data and reports. Unfortunately most of the cheaper and in a few cases, free offerings, require you to have some knowledge of the tax system.
When deciding on which software package to use, there are some important features to look out for. The first is does your software operate via a cloud-based systems, such as Sage or Xero. These type of packages not only mean you can get work done from anywhere, but importantly, they tend to be more secure. MTD submissions.
Of course, accounting software might not be the only technology you use, so the ability to integrate your MTD package with your existing bookkeeping system/software can save you lots of time by not duplicating tasks. For example if you take card payments you should opt for software that integrates seamlessly with your card payment provider, such as GoCardless.
Finally, when making your choice, you should simplify and standardise your MTD processes by opting for compatible software that supports both income tax and VAT, which makes life much easier. Also, on the subject of software, speak to your accountant before you buy, as he/she will need to be able to integrate the package you’ve opted for with their systems.
Accountant’s view
Much to my surprise, HMRC have published some reasonable advice on their website and have also provided a list of approved software suppliers, so go to:
https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax
And the very best of luck ladies and gentlemen.
