Forthcoming Budget, Self-assessment myths and update on MTD for Income Tax

Anticipating the Forthcoming Budget

At TAG Accountants, we are anxiously anticipating the end-of-October Budget. Many of our clients are understandably concerned about how this might impact their tax bills, and there is widespread speculation about the measures the Government may introduce to address the funding shortfall.

For those looking for an immediate insight into how the Budget may affect them, we invite you to join our free TAG Community Budget Webinar on Thursday, 31st October 2024, at 12:00 pm. You can register using the following link: Register for the Webinar.

This month’s article focuses on dispelling common myths around self-assessment tax returns and provides an update on Making Tax Digital for Income Tax as its proposed implementation date approaches.

Self-assessment – common myths

HMRC have recently sought to address some common misconceptions about who needs to file a self-assessment return before the 31 January 2025 deadline and clarify some of the most widespread myths.

Myth 1: No HMRC correspondence, so there is no need to file a tax return.

In reality, it is the individual’s responsibility to determine if they need to complete a tax return. You might need to register for self-assessment and file a return, including if you:

• are newly self-employed and have earned gross income over £1,000.
• earned below £1,000 and wish to pay Class 2 National Insurance Contributions voluntarily to protect their entitlement to State Pension and certain benefits.
• are a new partner in a business partnership.
• have received any untaxed income over £2,500; or
• receive Child Benefit payments and need to pay the High-Income Child Benefit Charge because they or their partner earned more than £50,000 (Note: this limit increased to £60,000 for 2024-25).

Myth 2: Tax has to be paid at the same time as filing my return.

This is not true – even if someone files their return today, the deadline for you to pay any tax owed for the 2023-24 tax year is 31 January 2025. It is better to prepare your tax well before this deadline, so you are aware of your tax liability long before the tax is due.

Myth 3: No tax is owed so no need to file a return.

It is possible that even if you do not owe any tax, you may still need to file a self-assessment return to claim a tax refund, claim tax relief on business expenses, charitable donations, pension contributions, or to pay voluntary Class 2 National Insurance Contributions to protect your entitlement to certain benefits and the State Pension.

Myth 4: HMRC will remove me from self-assessment if I no longer need to file a return.

Whilst HMRC do try to do this, it is only based on the information they have at the time, so it is important to tell HMRC if you have either stopped being self-employed or you do not need to fill in a return, particularly if you have received a notice to file a return. Otherwise, HMRC may keep writing to you to remind you to file a return and charge a penalty.

You may not need to complete a tax return if you have stopped renting out property, no longer need to pay the High-Income Child Benefit Charge, or your income has dropped below the £150,000 threshold and there is no other reason to complete a tax return.

Myth 5: HMRC is cracking down on people selling their personal possessions online and now requires a self-assessment return to be filed and tax paid on the items sold.

Despite recent speculation, tax rules have not changed in this area. If someone has sold old clothes, books, CDs, and other personal items through online marketplaces, they do not need to file a self-assessment return and pay Income Tax on the sales.

MTD for Income Tax – implementation draws nearer.

The mandatory rollout of Making Tax Digital for Income Tax (MTD for ITSA) is now scheduled to begin in April 2026, after numerous delays. The process will significantly impact on how businesses, self-employed individuals, and landlords are required to engage with HMRC. The system will require businesses and individuals to register, file, pay, and update their details through an online tax account, together with a requirement to submit quarterly returns.

It is important to begin to consider the use of accounting software that will be compliant and compatible with the HMRC system in preparation for the launch of MTD for ITSA in April 2026.

As per HMRC, the software must be able to:

• creating and storing digital records of your business income and expenses – note that you can choose to use spreadsheets supported by compatible software to do this.
• sending quarterly updates.
• submitting your tax return by 31 January after the end of the year; and
• receiving information from HMRC.

The MTD for ITSA rules will initially only apply to businesses, self-employed individuals, and landlords with an income of over £50,000 annually. MTD for ITSA will be extended to those with an income between £30,000 and £50,000 from 6 April 2027. A new penalty system for the late filing and late payment of tax under ITSA will also be introduced. We understand there are no plans to extend MTD for ITSA to smaller businesses with income below £30,000 or to Corporation Tax.

At TAG Accountants, we can assist you in selecting and setting up the right accounting software to meet the MTD for ITSA requirements. If you would like to see what our clients have to say about the excellent service they have received from us, please click on our testimonials link HERE.

Support from the TAG Accountants team, whenever you need it.

If you are concerned about the outcome of the Budget, sign up for our webinar (link in the above text).

If you are unsure whether you need to file a self-assessment tax return, contact us to discuss your situation.

If you need more information on MTD for ITSA or help with software compliance, book a meeting with us to get your questions answered.

There are always tax planning opportunities that can lead to real savings for our clients and their businesses, and our professional team is here to support you. We provide a range of services, including Tax Planning and Taxation Services, to help clients optimise their tax situations and also offer comprehensive advice on all aspects of accounting, including the provision of seamless project management via Outsourced Finance Services division.

With all this in mind, if you would like to explore how our experts can assist you, book an appointment with one of our tax specialists at TAG Accountants Group in Wolverhampton by calling 01902 783172, or simply click HERE to contact us via our website.

We look forward to hearing from you.