The landscape of tax and business regulations is changing, with initiatives like Making Tax Digital for VAT reshaping the way we report and manage finances. At Powered Now, we understand the importance of staying ahead of the curve. If your 2023/24 Self-Assessment Tax Return shows income near or above £50,000, expect a letter from HMRC in April 2025, and first up, we’re here to help.

From the impending rollout of Making Tax Digital for Income Tax (MTD IT) to significant shifts in company size thresholds, these changes will impact how you manage your business. We created this guide to demystify the updates and give you clear, actionable information so you’re fully prepared

Making Tax Digital for Income Tax and VAT (MTD IT): A Simple Guide

Inspired by the government’s push for a digitally advanced tax system, MTD IT is the next major step after MTD for VAT. It’s designed to streamline tax administration, making it easier for taxpayers to get it right.

What is Changing?

• Under HMRC’s Making Tax Digital initiative, individuals who previously filed an annual Self-Assessment tax return will now need to submit quarterly updates of their income and expenses online, followed by a final end-of-year declaration.

Who Will These Changes Affect?

• April 2026: Self-employed individuals and landlords with total income (turnover, not profit) exceeding £50,000.
• April 2027: those with income exceeding £30,000.
• Individuals with income above 20,000 will be included before the end of this parliament (by 2029 at the latest).
• Partnerships will follow at a later, yet-to-be-announced date.

What You Need to Do:

1. If you are using Powered Now, relax: We are currently working on an update to support these changes, so you can simply use Powered Now for everything and theres no need to buy any expensive accounting software. If you already have accounting software, we should be able to work alongside that too.
2. Digital Record Keeping: Start keeping digital records of all business income and expenses. Powered Now can help with this, or you can use other compatible software.
3. Quarterly Updates: Submit summaries of your income and expenses to HMRC every three months. Deadlines: August 7th, November 7th, February 7th, and May 7th.
4. Final Declaration: Complete a final declaration at the end of the tax year, confirming the accuracy of your updates and adding any necessary adjustments.

HMRC Letters and Preparation:

• If your 2023/24 Self-Assessment Tax Return shows income near or above £50,000, expect a letter from HMRC in March or April 2025.
• HMRC will send two types of letters: one to those expected to comply and another to those with turnover between £45,000 and £50,000.
• Keep an eye out for Powered Now emails, we are going to be getting in touch to help you through these changes.
• Remember, signing up to MTD IT is not automatic.

Less regulation from company and LLP Size changes

From April 6, 2025, new regulations will increase company and LLP size thresholds, hopefully reducing some regulatory hassle:

• The new thresholds are based on turnover, balance sheet total, and employee numbers.
• This could lead to exemptions from audit requirements and simpler accounting procedures.
• A transitional provision will be in place.

Other Key Updates

• HMRC Abandons RTI Hours Reporting: HMRC has scrapped plans to require detailed employee hours reporting through RTI, reducing administrative burdens.
• Employment Allowance Increase: Starting April 2025, the government will increase the Employment Allowance to £10,500 and remove the £100,000 NIC contributions threshold, enabling more employers to make a claim.
• New Tax Return Requirements: Sole traders starting or ceasing trade and directors of close companies will face new mandatory reporting requirements from April 5, 2025.
• HMRC Customer Service: Gibson Whitter contributed to a study on improving HMRC’s customer service, highlighting ongoing efforts to address client frustrations.

Powered Now: Your Partner in Navigating These Changes

We understand that these changes can be daunting. That’s why Powered Now delivers easy-to-use software to keep you compliant as these changes roll out. If you have any questions regarding Making Tax Digital, don’t hesitate to get in contact with us!

Disclaimer

• This article offers general guidance and does not constitute professional tax advice. Always consult with a qualified accountant or tax advisor for personalized guidance.