Do a mid-year business review to see if you’re on track

Most businesses will have goals that they want to hit by the year end, which is a good idea. If you know your destination, it’s easier to find the road to get there. But by doing a mid-year review, you can take a business snapshot to see if you are likely to meet those goals.

Most of us now use accounting software to deal with the Making Tax Digital regime, and this has another major benefit. Most of these systems will offer you options to check on various business reports throughout the year. So, you can see where your business is performing better or worse, and fix it.

QuickBooks, Xero, FreeAgent, or any other similar accounting system, will allow you to compare your income, costs and profits with the same period last year and see how healthy your business is. Things to consider are whether you’re selling more or less than last year, whether your costs are higher, and where your best profit margins are on different products.

You should also assess your cashflow, as that is the lifeblood of any business. See who owes you money, how quickly invoices are paid, whether you have sufficient cash to cover tax, wages, supplier payments, and upcoming bills. A business may look good on paper, but without cashflow, it can all fall apart very quickly.

Is there enough time to make changes?

If you do a mid-year business review, and you see things that could be done better, then you have time to make the necessary changes.

For example, you can also see anywhere you spend a lot of time without getting much return. This level of analysis will really help move your business to the next level. You can also check where you might be able to cut costs – lose unused subscriptions, review your prices to see if your margins are high enough, and chase any invoices that are overdue.

Setting monthly targets will also help you see on a more micro level whether your business is heading in the direction you want it to.

Let us help you

If you want some help with analysing your business at the half-year point, then please get in touch with us and we will do what we can to help you.

Making Tax Digital has arrived – here’s what you need to do

Making Tax Digital (MTD) has finally arrived, having gone live on April 6, 2026, and it is going to change the way those affected need to file their returns to HMRC.

If you are self-employed, receive property income, or both, and have total qualifying income from self-employment and property above £50,000 – remember this isn’t profit, it is income – then you are likely to be an MTD taxpayer. Your total income will include payments from multiple sources, which is especially relevant if you are a landlord with more than one property.

If you’re not sure whether you qualify for MTD, then you can always ask your accountant. In fact, even if you know you qualify, it would be best to speak to your accountant to make sure you comply with all the different changes that MTD brings. Many people think it is just a change in the way you need to file your tax returns. But there is more to it.

Choose your software

Quarterly updates are the big change for people affected by MTD, and this is facilitated by accounting software that allows you to send your quarterly updates directly to HMRC from your system. If you don’t already use accounting software that allows you to send updates directly to HMRC, then you will need to choose it quickly to make sure you don’t miss the first deadline. This will be August 7, 2026, which covers the period from April 6, 2026, to July 5, 2026, if you use standard update periods.

Once you have chosen your software, which could be FreeAgent, QuickBooks or Xero among others, then you also need to link your bank accounts to it, so your transactions are brought into your accounting software and you can reconcile all transactions in one place.

If you haven’t done any of this yet, or you’re still using spreadsheets to do your accounts, then you need to act fast. Making these changes sooner rather than later will give you the information you need, where you need it, when the time to file comes. And planning ahead is much better than trying to make these changes in a panic. Remember, you need to link all your business accounts, if you have more than one.

Why is this so important now?

If you haven’t done any of this before you need to send your first quarterly update, then you will be playing catch-up – and that can become uncomfortable. You need to make sure all the data is flowing as it should be, rather than trying to reconstruct it later.

For the same reason, you should check the data you have already included in your accounting software for your year end. You should check all your expenses are coded correctly, and that all your eligible income is included in the right place.

If you have any personal spending that has gone through the business, you will need to identify this correctly so it isn’t included within your business accounts. You should also make sure there are no duplicated transactions in the accounts, as that can give you errors that might be difficult to unpick later. The closer you can get it to being exactly right before you start your quarterly updates, the better.

Review your accounts each month

If you want to really keep on top of things and ensure you’re doing everything right, then reviewing your accounts each month is a good idea going forwards. Take a day each month where you know you have less work to do, and use it as an admin day where you review your monthly transactions and make sure they are correctly categorised.

The latest accounting software can help you keep on top of your expenses more easily, as you can upload images of your receipts in real time. Taking a snapshot with your phone camera and uploading this will mean you don’t have to go through shoeboxes full of receipts when you get to the end of the quarter. As they can be categorised as you go, you will save yourself a lot of time when you need to send your update to HMRC.

The other important thing to do is decide what your accountant will do, and what you will do when it comes to MTD. It might be that you want to do the monthly bookkeeping, but you ask your accountant to check it for you. Or you may want your accountant to do the monthly bookkeeping, but this is likely to increase your costs. So, have a discussion now before you need to send your first quarterly update, to make sure you know who is doing what. It can save confusion later.

You can find out more about MTD on Gov.uk.

Contact us

If you would like to find out more about MTD and whether you are affected, then please get in touch with us and we will explain what you need to know.

£50,000 a year earners and landlords need to get MTD ready

New Making Tax Digital (MTD) rules coming into force in April mean around 850,000 landlords and self-employed people earning more than £50,000 a year, which would be declared on their 2024/25 tax return, are required to register for MTD by April 6, 2026, if they haven’t done so already.

The new rules mean taxpayers must give HMRC records of self-employment and property income and expenses every quarter, rather than once a year. But they still only pay their tax bill once a year as they do now.

The quarterly submission deadlines are August 7, November 7, February 7, and May 7, with a requirement to submit a final tax declaration by January 31 of the following year, in the same way someone would approach a self-assessment submission now.

However, this final declaration, within which any adjustments to the records can be made, will replace the annual self-assessment return for those affected.

Why doesn’t everyone have to sign up in April?

HMRC is getting people signed up to MTD over time. While landlords and self-employed people, or sole traders, earning over £50,000 of qualifying income must join from April 6, those with qualifying income of £30,000 or more will join from April 2027, and those earning £20,000 or more of qualifying income will be required to join from April 2028.

By that final date, around three million people will have to send quarterly reports to HMRC through MTD for income tax. These taxpayers will have to submit their tax information to HMRC by using compatible and approved software packages, as HMRC does not provide this software. You can find out more about approved software packages at Gov.uk.

If you don’t comply with the rules of the new regime, you will accumulate points and eventually could receive an automatic £200 fine. You will get points for late filing and/or late payment. The points will stay on your account for two years, and after this they will be removed. Any taxpayer can apply for a digital exemption if they believe they are digitally excluded.

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If you think you might be affected by this change, then please get in touch with us and we will do what we can to help you.

Around 600,000 HMRC penalties paid in five years by people owing no tax

Around 600,000 late-filing penalties have been paid to HMRC in the last five years by some of the lowest earners in the UK despite them not owing any tax, according to Tax Policy Associates.

Missing the filing deadline of January 31 for a self-assessment tax return will generate a £100 penalty, but if people are unaware or unable to deal with this swiftly, then the debt can snowball into thousands of pounds. One woman with severe mental-health difficulties ended up being pursued by HMRC for £10,000, while someone else was forced into bankruptcy by HMRC, according to Tax Policy Associates. HMRC makes more people bankrupt in the UK than any other organisation.

Tax Policy Associates put in a Freedom of Information request asking HMRC about the issue and for information about how much those affected by these penalties earn, and the information it received turned out to be alarming.

Why is this happening?

Failing to file your tax return on time automatically generates a £100 penalty, even if there is no tax to pay. Sadly, the people being affected most keenly by these penalties are those who are least able to pay tax as their incomes are so low.

For example, 50% of the penalties being charged on earners in the first three deciles – the lowest earners in the UK – are being paid. This amounts to around £28m over five years, and is being paid by people earning so little they don’t even pay tax. In total, 902,242 non-taxpayers were sent penalties by HMRC over this period, but 305,044 of these were successfully appealed.

Part of the problem seems to be that HMRC doesn’t make it clear in the letters sent out to notify people of the penalties that they can have the penalty reversed if they can show they shouldn’t have been penalised, or that they don’t earn enough to pay tax in the first place and should not be filing a self-assessment tax return. The current personal tax threshold is £12,570, and anyone earning less than this doesn’t have to pay tax on their income.

However, if you earn just £1,000 as a self-employed person, you are obliged to file a tax return, and if you are charged the £100 penalty and don’t file your return or pay the penalty within 12 months, then you could face a bill of as much as £1,600, according to Tax Aid.

How can this be stopped?

The easiest way to stop this happening – and something that is being called for by tax experts such as the Low Incomes Tax Reform Group, Tax Policy Associates and Tax Aid – is for HMRC to change its policy. But until that happens, it is vital that low-income earners, along with everyone else, realise exactly what their rights are if they are sent a penalty notice by HMRC.

The problem is also exacerbated because it has become more difficult to contact HMRC to get assistance, which is a wider problem affecting all taxpayers, and now even tax agents, such as accountants. Anecdotal evidence suggests these dedicated lines to HMRC are currently harder to get answered, with long waits before a call is answered.

Changes to the rules are in the pipeline, which will see penalties limited to a maximum of £200. But the timing of the implementation for all taxpayers is unclear. This change, among others, will come in as part of the Making Tax Digital regime. From April 2026, this will apply to people earning £50,000 or more. From April 2027, it will apply to those earning £30,000 or more, and to those earning £20,000 or more from April 2028.

More fundamentally though, it is important for everyone to know – not just low earners – that if you have a penalty from HMRC which you believe is incorrect, then you need to appeal it. Whether you do that yourself or with the help of an accountant will depend on your personal circumstances, but never simply pay a penalty you don’t agree with.

How do I appeal an HMRC penalty?

When you get the penalty notice, you have 30 days from the date the penalty was issued to contact HMRC to appeal it. If you file your appeal online, then HMRC will receive it immediately, so you don’t need to worry about your appeal getting lost in the post. You can appeal online at Gov.uk.

Before you begin the appeal process, you will need:

• The date the penalty was issued.
• The date you filed your Self-Assessment tax return (if you have submitted it).
• The date you paid your tax (if you have paid it).
• Details of your reasonable excuse for filing your return late or not making your payment on time.

Source: Gov.uk

You can also ask your accountant to make the appeal for you, which for many people will be easier.

Contact us

If you want to find out more about whether your HMRC penalty notification is valid or should be appealed, or whether you need to file a self-assessment return if you don’t already, then please get in touch with us and we will explain what you need to know.

Tax simplification measures – do they go far enough?

The Government has revealed a package of changes designed to simplify the tax and customs system and to help deliver its ‘Plan for Change’. There are 26 measures included in the changes, plus two administrative measures to strengthen the “integrity of the tax and customs system”.

A further 11 measures are intended to bring changes to the tax system to ensure “it continues to be fit for the modern world”. The expectation is that the measures will reduce bureaucracy and increase efficiency at HMRC, so the state can become more “productive, agile and effective”.

The measures come after commitments in the Autumn Budget 2024 and the Spring Statement 2025 to bring forward these changes in Spring 2025.

What measures have been included?

The measures are relatively wide ranging, with too many to mention in a single article. But the key ones, which have been designed to help simplify the tax and customs system, are outlined below. You can find the full list at Gov.uk.

Employers and small businesses should see their administrative burdens reduced, as HMRC works to modernise its systems to improve the experience for everyone that deals with it, including individuals and sole traders. This push towards simplification should also extend to HMRC guidance and communications.

Capital Goods Scheme Simplification

Legislation will be laid before Parliament to remove computers from assets covered by this scheme, which will reduce administration as they would have previously had to adjust VAT recovery on these assets over a five-year period if the cost of them was more than £50,000 excluding VAT. Removing these from the measure means these calculations would no longer be needed.

The capital value expenditure of land, buildings and civil engineering work will also increase from the current level of £250,000 excluding VAT, to £600,000 excluding VAT. So, only projects above the new threshold would need to adjust VAT over the standard 10-year period, reducing compliance requirements for mid-sized capital projects.

Income Tax Self-Assessment (ITSA) Criteria Review

Previously, anyone with trading income above £1,000 had to file a self-assessment return. But under the new measures, the threshold for reporting trading income will be aligned with new ITSA reporting thresholds for property and ‘other’ taxable income, HMRC said, raising it to £3,000 gross. The Government claims this will remove the requirement for 300,000 taxpayers to file a self-assessment return, making it much easier for those with small incomes from side gigs, such as freelancing or selling online.

However, you may want to file a self-assessment return if you need to reclaim tax for work expenses, so speak to your accountant if you think you would still be better off filing if you’re in this position once the legislation takes effect.

Benefits in Kind must be dealt with through payroll from April 2027

The mandatory reporting of most Benefits in Kind through the payroll system of businesses was due to begin from April 2026. But following consultation with the Administrative Burdens Advisory Board, the Institute of Chartered Accountants of England and Wales and the Employment and Payroll Group, the “introduction of mandatory reporting and paying of Income Tax and Class 1A National Insurance contributions (NICs) on benefits in kind via payroll software” has been delayed by a year.

When the measure takes effect, company cars, private medical insurance, and gym memberships, for example, would need to be reported to HMRC through the payroll. Other benefits, such as employer-provided accommodation or interest-free or low interest loans from employers for things like rail travel season tickets, do not have to be included from this date, but can be included voluntarily if desired.

HMRC plans to further engage with how these rules will be applied so any disruption to employers is kept to a minimum, and the delay will give employers more time to prepare for the changes before they come into force.

These delays add to the announcement on January 28 that the draft Income Tax (Pay As You Earn) (Amendment) Regulations 2025, which were initiated by the previous Conservative government, will be scrapped. This saves employers from needing to add more detailed employee hours information to HMRC, which was due to begin from April 2026.

Getting National Insurance Contribution refunds to be made easier

HMRC is also in the process of reviewing the process for refunding National Insurance Contributions (NICs) under the Annual Maximum rules by streamlining the claims process and accelerating the processing time taken for each claim. This should make it easier and faster for people who are due refunds to access them.

Another NICs-related change is that the Government plans to enhance the Check Your State Pension forecast service, which helps people who need to fill in gaps in their NICs record by paying voluntary NICs. This builds on the Spring Statement 2025 announcement that from this summer, employees who become liable to the High-Income Child benefit charge, will be able to pay this directly through PAYE and will not need to file a separate self-assessment.

These are just a few of the measures that were announced by the Government in relation to increasing the simplicity of tax and NICs, but you can find out more about other measures at Gov.uk or by speaking to your accountant.

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If you want to find out more about the measures that have been announced, then please get in touch with us and we will do whatever we can to help.

Business compliance with HMRC costs firms £15.4 billion a year

Meeting tax obligations is costing UK firms around £15.4 billion a year according to the National Audit Office (NAO), the body responsible for scrutinising public spending, and it appears HMRC is underestimating these costs to taxpayers. This has a major impact on the profitability of UK businesses, especially during a period when Chancellor Rachel Reeves is focusing on ways to grow the UK economy.

In its latest report, The administrative cost of the tax system, the NAO is looking to make the costs of administering taxes more visible to all parties, to explore whether HMRC understands whether its administrative costs are high and/or increasing, and to establish how HMRC is working to reduce costs to taxpayers by improving efficiency and productivity. The NAO focused on the four taxes which create the highest revenues but also have the highest administrative costs. These are:

• Income tax.
• National Insurance Contributions.
• Corporation tax.

Frank Haskew, Head of Taxation, ICAEW, said: “This report highlights how the UK’s increasingly complicated tax system is saddling businesses and HMRC with extra burdens and costs, which are growing in real terms. The report also substantiates our concern that the cost to businesses of complying with their tax obligations is likely to be understated.”

What is the impact of these costs?

The NAO report highlights that compliant businesses are spending £6.6 billion in fees to agents, accountants and other intermediaries, £4.5 billion on items such as software to help them comply with HMRC rules, and around £4.3 billion on internal costs, such as hiring staff to do administrative work. Given there are 2,500 obligations across 27 policy areas, it is little wonder the costs are so high.

However, the NAO doesn’t believe that even these extraordinary figures show the complete picture, as it feels this underestimates the amount that businesses need to pay to comply with so many complex rules within the UK tax system. The figures don’t, for example, take into account all taxpayer obligations. And although HMRC has uprated these costs from research carried out in 2015 – but not since – into how much time businesses spend on tax administration, it hasn’t taken into account wider tax system changes made in the last decade.

However, the assessments of how tax policy changes impact taxpayers rarely estimate the costs of compliance for both businesses and individuals, the ICAEW said. Despite this, estimates show that HMRC is spending 15% more – or £563m in real terms – between 2019/20 and 2023/24 for administering the tax system. What this means is that HMRC spends an average of 0.51p for every £1 collected.

The cost to collect different taxes

The thing is, not every type of tax costs the same to collect. For example, income tax self-assessment (ITSA) was the most expensive to collect in 2023/24, at 2.14p per £1 collected. This is six times the amount it costs to collect income tax through PAYE.

Other costs are outlined in the table below:

Source: NAO analysis of HMRC data

Mr Haskew said: “If government is to make decisions around tax policy that properly takes into account the costs and burdens placed on businesses and HMRC, improved numerical analysis and statistics will be required across the board. A key first step would be a thorough review and update of HMRC’s standard model of the costs incurred by businesses when changes are made, which is now at least 10 years out of date.”

We can help you meet your obligations

If you want to know how you can reduce the costs associated with your compliance with HMRC requirements, then please get in touch and we would be happy to give you the guidance you need.

MTD to expand to income tax in 2026 – get ready!

The Making Tax Digital (MTD) regime is set to begin applying to income tax soon, and the first people to be brought into the regime will be the self-employed and landlords. Although April 2026, which is when relevant taxpayers must sign up to file digitally, sounds a long time away, it will arrive sooner than you think, and you need to be ready for the changes to avoid the chance of a penalty.

From April 2026, any self-employed person or landlord earning more than £50,000 a year from their self-employed income or property income, will need to sign up to the scheme and file their tax return digitally. Also, instead of filing once a year like you do now, you will instead be asked to send HMRC quarterly updates through compatible software. There are many different brands of software that would be suitable, so finding the right one for you is something you could start working on now in consultation with your accountant.

Even though the first sign-ups for MTD for income tax will be for those earning more than £50,000 a year, anyone earning income of more than £30,000 will also have to sign up to the regime by April 2027.

What if I earn less than £30,000?

If you earn less than £30,000 you can still sign up for the scheme voluntarily, but you will not be forced to join in these early stages. But there might still be some benefits to signing up early. Currently, HMRC is running a testing phase to find out how to make the expansion of MTD work best for the self-employed and landlords. This means if you sign up early, you may have a chance to help shape the outcome.

It will also help you to get to grips with the new system before you are obliged to use it, so you feel more confident in everything you need to do before the April 2026 or deadlines arrive.

You will also have access to a dedicated customer support team as an early adopter, who will help you understand and resolve any issues you have with filing under the new regime. Plus, you and your accountant would be supported through the process for your other tax affairs – including PAYE and self-assessment for the 2024/25 financial year.

How do I join up?

Around 780,000 people are expected to qualify to join the first phase of this round of MTD. The aim for HMRC is to improve record keeping, as you must file quarterly, and everything will be held digitally which should also reduce the number of errors on your taxes.

If you want to join up in this phase, then please contact your accountant and they can help you. They can sign up as many of their eligible clients as they want to, and this is the best way to access the new regime as you then have the backing and help of an expert to guide you through any problems. But if you want to sign up separately, you can do that providing you’re eligible.

To be eligible, there are various rules and regulations, so you need to check if any of them apply to you. These details are outlined on the Gov.uk website:

You can sign up voluntarily if (all the following):

• your personal details are up to date with HMRC
• you’re a UK resident
• you have a National Insurance number
• you have submitted at least one Self-Assessment tax return
• you’re up to date with your tax records — for example, you have no outstanding tax liabilities
• you use an accounting period that runs from 6 April to 5 April

You can also use an accounting period that runs from 1 April to 31 March, if the software you choose supports this. To use this accounting period, you must:

• select calendar update periods in the software before the first update is made
• make an adjustment at the end of your first tax year — so that your income and expenses from 1 April to 5 April are included in your tax return

If you sign up, during testing you will not be able to:

• claim carry back of losses
• change your accounting period
• change your accounting method

You cannot sign up voluntarily if you:

• have a High-Income Child Benefit Charge
• have a payment plan with HMRC
• are a partner in a partnership
• claim Married Couple’s Allowance
• claim Blind Person’s Allowance
• are currently, or are going to be, bankrupt or insolvent
• are an MP, minister of religion or Lloyd’s underwriter
• have income from being a foster carer or being in a shared lives scheme
• have income from a trust
• have income from a jointly owned property
• have income from a furnished holiday let
• are subject to a compliance enquiry
• use ‘averaging’ or other arrangements because your profits vary between years — for example, because you’re a farmer, writer or artist
• are signing up on behalf of someone else (unless you’re an agent) — this includes (but is not limited to) if you’re:
  • an insolvency practitioner
  • a nominee
  • a solicitor

Source: Gov.uk.

What software will I need to use?

There are many different types of software you can use to file digitally online, and some do not charge you to use them. But it isn’t as easy as just signing up to any software as which will suite you best will depend on what data you need to hold, how simple your tax affairs are, and how tech savvy you are.

All of the compatible software options can be found on Gov.uk, and while there are a few that are currently working, many more are being developed by some of the biggest names in online accounting. Again, you can ask your accountant for guidance on which would work best for you if you are unsure.

The new regime will mean more admin for those joining up, and collectively for everyone who is eligible and is earning more than £30,000, the cost of implementing the new regime is expected to be £561m as a one-off. But filing more regularly and keeping better records online is likely to help you with other areas of your finances too. So, there are additional benefits to signing up early.

Contact us

There are many aspects of the changes to the MTD regime that you may not feel comfortable with, but if you have any queries then please get in touch with us and we would be delighted to help you.

Keep good records to avoid a fine from HMRC

Keeping good business records is an essential part of running a business, but it is also a legal requirement when it comes to HMRC. To keep on the right side of the law, businesses and individuals should keep records of their income and expenditure for at least six years.

If HMRC decides to undertake an investigation into your tax affairs and you don’t have proper records, then you can expect a fine. So, to be sure you won’t face censure, you need to keep all your records in good order.

What information are we supposed to hold?

You need to hold various information, such as all the income and expenses you include on your tax return, receipts and invoices, and payroll records – if you have them – to verify the money and perks you have given your employees.

If you or your business is VAT registered – which is a requirement in the UK if you or your business has a turnover of more than £90,000 per year – then you will also need to keep the records of what you have put on VAT returns throughout the year.

In addition, you would need to keep a copy of other documents that support your financial transactions within your business, which includes things like your bank statements.

Why do you need to keep these records?

Holding these records will allow HMRC to review all the information you have put into your self-assessment or your company to check you have declared everything that should have been declared. But it also enables you to defend any investigations undertaken by HMRC if it believes you have tried to avoid paying tax.

You could receive a visit at any time from HMRC, whether you’re a business or an individual, and you would be expected to have your records up-to-date and available for inspection. But you will get notice in advance of a visit, and if you have an accountant then he or she will be contacted instead.

HMRC may ask to visit your home or business premises, or it can visit your adviser’s office if that is more appropriate. If you have a visit at your home or business from HMRC, your accountant or legal adviser can be present if you prefer. If you get a notification that the tax office wants to visit you, you may face a penalty if you refuse the visit or you don’t send information back.

There are some exemptions where a penalty wouldn’t be applied for refusing the visit, such as if you’re seriously ill or someone close to you has died. You can also ask HMRC to stop the check if you want to, but you will need to give them the reasons why if you don’t agree with it. You can also apply for alternative dispute resolution (ADR) at any time if you do not agree with HMRC’s decision or what is being checked.

You will be sent details of the results of the check by letter and if you have paid too much tax, this will be repaid, or if you have not paid enough tax, you will have to pay any underpaid tax within 30 days. Usually, you will have to pay interest on top from the date the tax was due. If you haven’t paid enough tax, you may also have to pay a penalty, but HMRC will consider how helpful you have been during the investigation. But if you disagree with HMRC, you can appeal a tax decision.

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If you get a notification from HMRC that you are going to receive a visit and you need our assistance to deal with this, then please get in touch with us and we would be happy to help you.

Common e-commerce mistakes and how to avoid them

Running an e-commerce business is easier now than ever before. There are a number of ways you can create an online shop without needing to understand coding, whether you want something off-the-shelf or something developed specifically for you. But getting the shop live is just the beginning of your e-commerce journey, and making sure you are managing your accounts and other aspects of your business well will be the key to success.

There are so many things to think about that it is easy to make mistakes when you are a newbie, so here we go through some of the common mistakes that e-commerce business owners make and how to avoid them.

Dealing with online payments

Getting paid is the ultimate goal in business, no matter what you are selling. When you take payments online, the number of choices you have to facilitate those payments is wider than you might imagine. Companies like Stripe, PayPal and Square, to name but a few, can all deal with the payments side for you, but the cost of doing so will vary between each. So, choose carefully because this will immediately impact your profit margin. But there is no point in using a payment partner that is cheap but will not allow you to take all forms of payment you need to.

You also need to think about two-factor authentication and PCI DSS 4.0 which came into effect last year. All of this can be dealt with by your payment services provider, or can be dealt with by you directly. But for most people, taking on this level of complexity in payments is something they would not want to consider. Without being aware of this and understanding how it affects your business, you could be setting yourself up for some serious trouble if you are not compliant.

Reconcile your accounts and identify which regions you are selling to

Depending on how much you are selling, you may need to reconcile your sales each day. This allows you to keep a close eye not just on your successful sales, but also sales that may have failed or were not completed at some point in the process. If appropriate, these can be followed up with marketing emails to get feedback and, perhaps, revive that sale.

By monitoring your sales, you can see which of your products are selling well, which are not, and where geographically your business is most successful. This is a key benefit of an e-commerce business – you can sell worldwide as long as you can deliver the products to customers in various countries. This insight can help you use your marketing spend most effectively too by targeting advertising to the areas where it is likely to have the most impact.

If you hold stock, that is inventory added to your balance sheet, but holding too much will reduce the amount of money you have to run other parts of the business. If you are just starting out, then holding excess stock can be a drain on resources, so keeping tight control of what is selling and what is not, and incentivising purchases for products that are not performing as well with discounts, for example, is very important.

Know your profit margins

Selling online reduces your costs significantly compared to having your own shop. But it can be easy to be so busy selling and marketing your business to get more sales that you forget to work out what your margins are.

Some of your costs will be fluid – for example if you sell more of a particular product, then ordering in bulk may reduce the amount you have to pay to source each item which increases your margin. But some will be fixed, such as design costs to produce clothing items.

By calculating the cost of producing every item – including the design, manufacturing, delivery and any other costs involved in getting the product to you – you will be able to tell which of your products make the most money for you. This means you can focus on promoting the highest-margin products to help boost your business, which is essential especially when you are first starting out.

We can help you

If you would like to know more about how to make the most of your e-commerce business, no matter what stage of the journey you are on, then please get in touch with us and we will be happy to help you get the most out of your business.

New VAT penalty regime – the changes explained

A new VAT penalties regime was brought in this month, and any firms or individuals missing their filing deadline from January 2023 onwards will receive penalty points even if there is no VAT due to be paid.

While this may sound more benign than getting a fine, persistent late filing could lead to more costs as the points add up. You will get one penalty point for each late VAT filing, and these points accrue for every late filing within a specific period. Once you or your business reaches the threshold of points for each time period, which varies depending on how regularly you have to file your VAT returns, you will then face a fine of £200.

How the points system works

The points threshold also varies depending on the frequency you file VAT returns, and how often within that period you file late. For example, if you file your VAT returns annually, the threshold before you get a penalty is just two points. So, filing late two years in a row would mean you hit your threshold and would face a fine.

If you file quarterly, you have a four-point threshold, and monthly you have a five-point threshold. You get a penalty point for each time you file a VAT return late, so if you file quarterly and have previously filed three returns late, then a £200 penalty would be applied if one more return is filed late giving you a fourth point and hitting the threshold.

Removing penalty points

If you do not reach the threshold for your penalty points, then your points will expire automatically and when this happens depends entirely on when your return deadline was. If your filing deadline is a date before the end of the relevant month, your penalty point for that period will expire at the end of that month 24 months later. If your deadline was the end of the month, then any points imposed for late filing will expire 25 months after that date, again providing you have not hit the threshold.

If you have hit the threshold, then you need to keep submitting returns on time for a set period to remove those points and prevent further financial penalties being applied.

How long do I need to comply with the VAT return deadlines to have my points removed?

The companies and individuals who have reached the threshold for points and been hit with a penalty need to file on time for a specific period to clear the points from their record. This is known as ‘the period of compliance’ and how long you need to comply will again depend on how often you file your returns.

For example, those filing annual returns will need to file two returns on time, so it will take 24 months, to clear their points. If you file quarterly, you will need to file four returns on time over 12 months to clear the points, and if you file monthly, then you need to file six returns on time over six months to return to zero points. In addition, you will also need to submit all outstanding returns for the previous 24 months.

However, there is also a new interest penalty imposed for unpaid VAT which will apply for accounting periods starting on or after January 1, 2023. The first penalty would apply if you have not paid the outstanding tax due within 15 days of the date it should have been paid. This would be 2% of the outstanding amount after this period, and if it remained unpaid for 30 days, then the penalty would be “calculated as 2% of the tax outstanding after day 15 plus 2% of the tax outstanding at day 30” according to HMRC. This typically will be a 4% charge at 30 days after the original tax due date.

If the tax is still not paid, then from day 31, a daily accruing penalty at 4% a year will begin to be added to the amount and will only stop when the tax is paid. HMRC will allow taxpayers to request a Time-to-Pay arrangement which will stop the clock on these penalties accruing by agreeing a schedule of payments to deal with the tax due.

You can find out more information about the points regime and any fines that could be imposed, along with how you deal with this points regime if you have a non-standard accounting period, at Gov.uk and about the interest penalties also at Gov.uk.

We can help you

If you have concerns about your compliance with the VAT filing regime, then speak to us and we will work with you to ensure you do not fall foul of the new rules.

MTD for ITSA delayed to April 2026 – what does this mean for you?

Making Tax Digital (MTD) has been on the cards for years now, with businesses already pushed towards dealing with their VAT this way. But plans to extend this for Income Tax Self-Assessment (ITSA) have been put on hold once again until April 6, 2026, eight years later than the original planned launch in 2018.

However, even when 2026 comes, the MTD for ITSA will be phased in rather than applying to everyone at once.

Who will have to go digital first?

The first people doing self-assessment who will need to go digital are landlords and the self-employed who are earning more than £50,000 a year. HMRC estimates that this will mean around 700,000 people are brought into the MTD regime at this point.

The next phase will kick in from April 2027, when landlords and self-employed people earning more than £30,000 a year will be expected to go digital – bringing another 900,000 people into the MTD regime according to HMRC.

What’s the plan?

Victoria Atkins, financial secretary to the Treasury, announced the delay in the House of Commons just before Christmas.

She said: “The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.

“That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.

“The government is therefore announcing more time to prepare, so that all businesses, self-employed individuals, and landlords within scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”

The needs of smaller businesses are going to be put under review to see how they can be helped to “fulfil their income tax obligations” Ms Atkins said in her statement. Once this review is complete and the various stakeholders – businesses, taxpayers, and their agents among others – have been consulted, the Government will outline further plans for MTD for ITSA, said Ms Atkins.

General partnerships will not be expected to go digital in 2025 now as previously expected, but they will see these changes brought in at a later date. But anyone who wants to sign up for MTD voluntarily before they are required to, has that option.

Contact us

There may be some benefits to using MTD earlier than you need to, but there could also be drawbacks for some people and businesses. If you want to find out more about the right decision for you, then please contact us and we will give you all the help, support, and information you need.

Last chance to make sure your business is ready for MTD

Companies and sole traders who have not yet finalised their plans to comply with Making Tax Digital are in the last chance saloon this month, and the very latest date you have to comply with MTD for paying VAT is August 7.

That is the latest date on which you will need to make your first – if you are not already doing this – MTD VAT return. So, if you have not already done so, you have very little time left to make sure you comply with this legislation.

Your responsibilities

Whether you are required to pay VAT – because your business turnover is above the £85,000 threshold at which you are required to register – or because you have voluntarily registered, you now must keep your records and file your returns electronically.

How do I file?

From April 1, you will need to have filed any VAT due through MTD-compatible software, which includes the likes of QuickBooks and Xero, among others. If you are not able to file your return this way, then HMRC can currently issue a £400 fine. But from January next year, HMRC is due to bring in a points system, which means you accrue points each time you miss a deadline. Once you hit a certain number of points, you will face a £200.

So, the best thing you can do is prepare yourself properly. If you have not sorted this out already, you really are running out of time.

We can help you meet your obligations

If you are not yet registered to deal with MTD through relevant accounting software, then we can help you. But there is no time to lose. Please get in touch with us as soon as you can, and we will do everything in our power to help you meet your filing deadlines.

MTD D-Day has arrived – here’s how to make sure you comply

Anyone filing VAT returns from April 1, 2022 onwards now has to file their return digitally as HMRC’s Making Tax Digital reaches its next phase.

All businesses registered for VAT – even if they have turnover below the threshold – must file their returns this way from now on. The premise for changing to the MTD regime is to reduce the number of common mistakes made, according to HMRC, and will save taxpayers time when it comes to managing their tax affairs.

However, it is also a key plank of digitising the UK’s tax regime, and MTD is likely to have increased revenue to HMRC thanks to reduced errors in both 2019 and 2020, said HMRC.

Sign up now if you haven’t yet

Nearly 1.6m taxpayers had already joined MTD for VAT as of December 2021, and more than 11m returns have already been submitted this way. Around a third of those businesses with a turnover below the £85,000 VAT threshold signed up before April 1, 2022 and “thousands more are signing up each week”, said HMRC.

Lucy Frazer, Financial Secretary to the Treasury, said: “Businesses using MTD are saving time on their tax affairs, streamlining their processes, and boosting their productivity as a result.

“[This is] our first move towards a modern, digital tax service – MTD makes it easier for businesses to get their tax right first time. There is a range of support and information available for those that need it – including accessible online content such as YouTube videos, GOV.UK help pages and HMRC’s Extra Support service.

“Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Those who do not join may be charged a penalty for failure to do so.”

Businesses must sign up before they send their next VAT return

Any businesses that have not yet signed up need to before they file their first VAT return after April 1, 2022. There are a number of software options that can be used, including free options for the easiest of calculations, or more advanced for more complex affairs, said HMRC.

A list of software compatible with MTD for VAT is on Gov.UK and there are webinars being run by HMRC for taxpayers who need more help and support on signing up for MTD to make sure they comply.

There are some exemptions

Some VAT-registered businesses can receive exemptions, primarily where it is not reasonable or practical for them to use digital tools for their tax. These include reasons based on age or disability, or a religious objection to using computers. But any other reasonable basis for exemption will be considered by HMRC. You can find more information on whether an exemption may apply on Gov.UK.

While you are waiting for a final decision, continue to file your returns as you usually do.

MTD for income tax 2024

MTD is being extended to 4.2m income taxpayers who are landlords, sole traders and partnerships from 2024. Anyone with business and/or property income over £10,000 will be brought into the regime then. So, it is worth starting to plan ahead with your accountant to make sure this transition is as smooth as possible.

Contact us

Please get in touch with us to find out how we can help you if you are yet to sign up for MTD. We can help you comply with the new rules.

ITSA registration

HMRC have published a call for evidence on the case for reforming the rules for registering for Income Tax Self Assessment (ITSA). The call for evidence is interested in hearing views on whether it would be beneficial to bring forward the deadline by which landlords and the self-employed must register for ITSA.

Current rules

Currently, there is no statutory obligation to register for ITSA; instead, the requirement is to notify HMRC where a tax liability exists. This must be done within six months from the end of the tax year in which the liability arose, i.e., by 5 October after the end of the tax year. This requirement is met by registering for ITSA. Where the taxpayer is self-employed, registering for ITSA also registers the taxpayer for Class 2 National Insurance.

If a taxpayer who is already within ITSA has a new source of income, there is no requirement to tell HMRC separately about that new source. Instead, it is reported on the self-assessment tax return.  

The notification window depends on when in the tax year the self-employment starts or the taxpayer becomes a landlord. For example, if you started your self-employment on 6 April 2021, you must notify HMRC (normally by registering for ITSA) by 5 October 2022 – a window of 18 months. However, if you start your self-employment on 31 March 2022, you still have to notify by 5 October 2022 – a window of just over six months. This is because the notification deadline relates to the tax year in which the trade started rather than the date on which the trade started.

Possible reforms

The call for evidence sets out options for a possible reform of the rules. The first option is to reform the existing requirement to notify rules so that the taxpayer is required to notify HMRC of the liability to tax within a set window after the source first arose. Potential notification windows of two, three or four months are suggested.

The second option is to remove the current statutory obligation to notify, and to replace it with a requirement to register for ITSA within a specified period after the start of the self-employment or property business. Alternatively, the obligation to register could be triggered once turnover reaches a certain level, for example, £1,000 to align with the trading and property income allowances.

HMRC may also explore ways in which third-party data could be used to identify those who have recently started in business so that they can be made aware of the need to register, if they have not already done so.

Get in touch

If you have recently started a business or become a landlord, please get in touch. We can help you register for tax.

Extension of Making Tax Digital for VAT

Making Tax Digital (MTD) for VAT is currently only compulsory for VAT-registered businesses whose turnover for VAT is above the VAT registration limit of £85,000. However, this is set to change from April 2022.

Extension to all VAT-registered businesses

Currently, if you are registered for VAT, but your turnover for VAT purposes is less than the VAT registration threshold of £85,000, you can join MTD for VAT voluntarily.

From 1 April 2022 onwards, MTD for VAT will become compulsory for all VAT-registered businesses, regardless of their turnover. If you are registered for VAT, your turnover is below the VAT registration threshold of £85,000 and you have not joined MTD for VAT voluntarily, MTD for VAT will apply to you from the start of your first VAT accounting period which begins on or after 1 April 2022.

Getting ready

If you will fall within the scope of MTD for VAT on or after April 2022, you will need to plan ahead. Under MTD for VAT, you must maintain digital VAT records and file your VAT returns using MTD-compatible software. HMRC publish details of compatible software packages which can be used.

You will also need to sign up for MTD for VAT.

We can help

We can help you get ready for MTD for VAT. Why not get in touch?

Basis period reform

HMRC have been consulting on the reform of the basis period rules in preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which comes into effect from April 2023. A consultation paper was published in July 2021, which sets out new simplified basis period rules. Comments were sought by 31 August 2021 on how best to implement the reforms.

Existing rules – the current year basis

Once an unincorporated business is established, it is taxed on the current year basis. Special rules apply in the opening and closing years of the business. Under the current year basis, the profits that are taxed for a particular tax year are those for the accounting period that ends in that tax year. Consequently, if the business prepares its accounts to 30 June each year, for the 2021/22 tax year, it will be taxed on its profits for the year to 30 June 2021, as this is the year that ends between 6 April 2021 and 5 April 2022.

Under the existing rules, some of the profits of the business may be taxed twice in the opening years. These profits are known as ‘overlap’ profits. Relief for the double taxation of these profits, known as ‘overlap relief’, is given when the business ceases, or earlier if there is a change of accounting date.

New rules – tax year basis

The reforms will mean that unincorporated businesses will be taxed on the profits arising in the tax year – i.e., the profits for the period from 6 April to the following 5 April. Where the business prepares accounts to 31 March, these will be deemed to correspond to the tax year (as will the preparation of accounts to any date between 31 March and 5 April).

If you prepare accounts to a date other than 31 March/5 April, you will need to apportion your profits so that they correspond to the tax year. For example, if you prepare your accounts to 30 June, for 2023/24, you will be taxed on 3/12^th of the profit for the year to 30 June 2023 (covering the period from 6 April 2023 to 30 June 2023) plus 9/12^th of the profit for the year to 30 June 2024 (covering the period from 1 July 2023 to 5 April 2024).

The tax year basis will apply from 2023/24, with 2022/23 being a transitional year.

Estimation of profits

If you have an accounting date late in the tax year and prepare accounts other than to 31 March/5 April, you may not have the second set of accounts available when you come to complete your tax return. For example, if you prepare your accounts to 28 February, for 2023/24 you will be taxed on 11/12^th of your profit for the year to 28 February 2024 and 1/12^th of your profit for the year to 28 February 2025. The accounts to 28 February 2025 will not be available by 31 January 2025, and you would be expected to file a provisional return, which would be amended later when the information is available.

This will create extra work, and HMRC are looking at alternative estimation approaches, such as making an estimate based on the profits for the quarterly updates submitted under MTD ITSA, extrapolating the profits for the ‘known’ part of the tax year, and allowing the final figures to be provided as part of the following year’s return.

To overcome this, you may prefer to change your accounting date and prepare accounts to 31 March/5 April. This will avoid the need for an apportionment calculation and reduce your workload.

Transitional rules

Transitional rules are needed to move from the current year basis to the tax year basis. The transition year is 2022/23.

For the transition year, the taxable profits for a business that does not have a 31 March/5 April year end will comprise the sum of:

• the standard component (which is the profit assessable in 2022/23 under the current year basis); and
• the transition component (which is the profit for the period from the end of the current year basis period to the end of the 2022/23 tax year).

Any historic overlap relief can be claimed in the transition year by deducting overlap profits from the result of the above calculation.

For example, if you prepare accounts to 30 June each year, for 2022/2023, you will be taxed on the profits for the year to 30 June 2022 (the basis period for 2022/23 under the current year basis) plus profits for the period from 1 July 2022 to 5 April 2023 (the transition component), less any overlap profits. The overlap relief will cover the period from the date on which the business started to the following 5 April.  

Spreading excess profits

In the transition year, your profits may be higher than normal. This will be the case if your transition component is more than your overlap relief. If you started your business some time ago, the impact of inflation may mean that your overlap profits are considerably less than the profits of the transition component, even if they both cover the same number of months. If your profits are higher than normal, your tax bill will also be higher, and you may pay tax at a higher marginal rate as a result.

To mitigate the effect of the transition year on cash flow, HMRC plan to allow businesses to elect to spread any excess profits in the transition year over five years.

Equivalence rules

As part of the simplification reforms, HMRC propose that the statutory rule which deems 31 March to be equivalent to 5 April in the first three years of a trade is extended so that it applies to all the years of the trade. This will mean that where accounts are prepared to 31 March, the business would not need to make small adjustments for the profits of the business to correspond to the tax year, which runs to 5 April. The consultation sought views on whether this equivalence rule should be extended to property businesses.  

We can help

Please talk to us about what the reforms will mean for your business, and what you need to do to prepare for the introduction of MTD ITSA.

MTD for corporation tax

The Government would like to hear your views on proposals for a new process for keeping records for corporation tax purposes and reporting tax information to HMRC, known as Making Tax Digital (MTD). Your comments will help ensure that the design makes it as easy as possible for smaller businesses to comply when the rules are introduced.

The consultation closes at 11.45pm on 5 March 2021.

Making Tax Digital – the next steps

On 21 July, the Treasury published a report, Building a trusted, modern tax administration system, which sets out the Government’s vision of what they wish to achieve in the next ten years. The vision comprises three elements – policy, systems and law and practice. The ‘policy’ vision means a progressive extension of HMRC’s Making Tax Digital (MTD) work, the ‘systems’ vision means exploring the appropriate timing and frequency for the payment of the different taxes and the technology infrastructure needed to support this, and the ‘law and practice’ vision means reform of the tax administration framework itself.

Extension of MTD

HMRC’s MTD programme is currently in the initial roll-out phase for VAT. Since April 2019, MTD for VAT (MTDfV) is mandatory for most VAT-registered traders whose VAT-taxable turnover is above the VAT registration threshold of £85,000. As a result of a recent Government announcement, the next phase will be to extend the scope of MTD to the VAT registered with turnover below £85,000 from April 2022 and then to introduce MTD for Income Tax for the self-employed and unincorporated landlords from April 2023.

MTD for VAT

MTDfV is compulsory for VAT-registered traders whose taxable turnover is above the VAT registration threshold of £85,000. Traders within its scope must maintain digital VAT records and file digital returns using MTD-compliant software. However, the requirement for digital links to be in place between all parts of process has been delayed by one year as a result of the COVID-19 pandemic and will now apply from the first VAT return period starting on or after 1 April 2021. A digital link is simply the transfer or exchange of information between software programmes without the need for manual input of data.

MTD for Income Tax

Businesses and landlords with annual business income chargeable to Income Tax of more than £10,000 will need to comply with MTD for Income Tax from the start of their first accounting period that starts on or after 6 April 2023. This will necessitate the keeping of digital records and the use of software to send in-year updates of their income and expenditure to HMRC, at least quarterly, instead of filing annual post year end information when submitting a self-assessment tax return.

In addition to the four ‘in-year’ updates, at the end of the accounting period the taxpayer will need to finalise their business income by filing a final adjusting submission and making a declaration that it combined with the earlier submissions is correct. The final declaration will replace the current self-assessment return filed after the end of the tax year.

More information about MTD for income tax can be found on the Gov.uk website.

MTD for Corporation Tax

HMRC are to consult later in 2020 on the design of the MTD system for Corporation Tax to ensure that the MTD process evolves to include limited companies.

Help and advice

We can help you prepare for and comply with MTD.

Making Tax Digital – soft landing extension

One-year extension for MTDfV soft landing

In a welcome response to COVID-19, HMRC has extended its digital links ‘soft landing period’ by twelve months to April 2021.

HMRC Email

In a widely distributed email issued on 30 March 2020, HMRC stated:

“We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges.

Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”

Digital journey

From April 2019, once those mandated to comply with VAT MTD have entered accounting data into their business’s accounting software, they have been required to transfer, recapture or modify that data using digital links. Effectively, once VAT data has been digitally captured the rest of its journey until the submission of a VAT return must be a digital journey, without manual intervention.

Soft landing

HMRC recognised that not all businesses would have digital links in place from day one and allowed a period of grace, the ‘soft landing period’. HMRC promised that, where businesses were trying to meet the statutory digital end to end journey during the ‘soft landing period’, the department would not impose penalties for non-compliance.

The effect of the ‘soft landing’ announcement meant that for the first year of mandation, businesses are not required to have digital links between software programs.

For most, MTD for VAT rules have applied from VAT period starting on or after 1 April 2019. Although there was a smaller group where mandation was deferred until the start of the first VAT return period on or after 1 October 2020.

What it means

All businesses mandated to comply with MTD for VAT now have until their first VAT return period, starting on or after 1 April 2021, to put digital links in place.

Given the coronavirus related troubles affecting practically all businesses in the UK, this extension to the ‘soft-landing period’ is another sensible easement that is to be much welcomed.