We’re well into the 2025 tax year, and in case you’ve been busy with other things (aka running your business), you might not have noticed a few of the big changes coming your way. A lot of these sole traders tax updates are made with MTD (Making Tax Digital) in mind. HMRC is hoping the policy will improve financial transparency (aka no shadowy corners for money naughtiness) and close the tax gap, i.e., reduce the gap between taxes owed and taxes paid. Ultimately these incentives will result in benefits for the average sole trader, but there may be a bit of work needed to comply.
Here are a few of the main events you need to be aware of as a sole trader and how you can navigate the adjustments with the professionalism of a busy barista in an American coffee chain.
Key Changes for Sole Traders Starting April 2025:
1: Mandatory Reporting of Trading Dates
Beginning this tax year, sole traders now need to report the exact dates they started or stopped trading in their self-assessment tax returns. Although this was previously optional, HMRC has decided to make this mandatory in order to improve information accuracy and compliance.
2: Align Business Tax Year with HMRC Tax Year
Sole trader taxable profit reporting now needs to match the UK tax year (April 6 – April 5). The official term is Basis Period Reform, this article from FreeAgent explains what a basis period is nicely. If you’re already in business, you should have completed your transition in the 2023/24 tax year. If you’re starting a new business, choosing a different year-end date from the UK tax year will make your tax returns more complicated to complete.
3: Making Tax Digital (MTD)
Starting April 2026, sole traders earning over £50,000 will need to submit quarterly updates to HMRC via accounting software. Those earning over £30,000 will need to start reporting in April 2027. In the long run this will mean simplified tax reporting, budgeting and payments, but if you haven’t switched over to a good cloud-based accounting software yet, it might be a very big job later.
What Sole Traders Can Do To Stay In Control:
1: Keep Detailed Records
It’s time to stop procrastinating and start arranging a fail-proof system of record-keeping. You’ll want to be taking special note of trading dates, keeping digital copies of receipts, invoices and bills.
2: Align Your Accounting Period
If you’re starting a new business, make it easy on yourself and choose March 31 or April 5 as your year-end. If you’re not sure, this might be the right time to reach out to a good accountant.
3: Go Fully Digital
Now is the time to fully embrace a digital accounting system. Get yourself a good, easy-to-use accounting software and learn how to use it well. Not only will it help with keeping amazing records, but it’s also a practical step to getting ready for Making Tax Digital.
4. Open a Business Bank Account
Make sure you have a dedicated business bank account that is linked to your accounting software. Only use this account for business income and expenses.
5: Ask a Friend
Bookkeeping and accounting can be a full-time job, never mind keeping up to date with policies and adjustments. We’ve been helping to manage small businesses and sole traders books for a long time now. We’re friendly, very good at what we do and ready for a call. Book a free meeting now.
Let us keep your books on the straight and narrow while you spend your time running a successful business.
