close
Get Started Today

Please fill out the form below and a member of our
team will be in touch with you soon.

    Tag: sole traders

    HMRC to introduce new penalty points system in 2026

    Posted on by Rebecca Campbell

    From 2026, HMRC is replacing the longstanding automatic fines for late tax filings with a penalty points system as part of its Making Tax Digital (MTD) reforms. The aim is to make late-filing sanctions more proportionate and fairer by distinguishing between occasional ‘slip-ups’ and persistent non-compliance.

    What’s changing

    Under the current regime, missing the 31 January Self Assessment deadline triggers an automatic £100 fine, which can escalate quickly with daily and longer-term penalties.

    Under the new system:

    • Each missed deadline earns a penalty point
    • A £200 fine is charged for each late submission once a set points threshold is reached
    • Points accumulate against each filing obligation and can expire after 24 months or reset after a period of good compliance

    This is designed to penalise repeated late filing rather than isolated errors and give taxpayers a clearer path to correct behaviour.

    Points thresholds

    The number of points required before a fine is charged depends on how often you file:

    • Annual returns: penalty at 2 points
    • Quarterly updates (MTD): penalty at 4 points
    • Monthly returns: penalty at 5 points

    For example, missing two annual obligations within two years would trigger a £200 penalty under the new regime.

    Rollout timeline

    • Pilot phase (early 2026): HMRC is already trialling the points system with a group of taxpayers as part of MTD voluntary testing.
    • First rollout from 6 April 2026: Applies initially to sole traders and landlords with income over £50,000 who must join MTD for Income Tax.
    • Full rollout from 6 April 2027:  The system extends to all self-assessment taxpayers

    Importantly, HMRC will provide a soft landing in the first year: penalty points will not be charged for late quarterly updates for the initial year of MTD for Income Tax implementation, giving taxpayers time to adjust.

    What this means for taxpayers

    If you are self-employed, a landlord, or otherwise subject to Self-Assessment:

    • One occasional late submission won’t necessarily hit you with immediate fines
    • Repeated late filings still lead to penalties – and a £200 fine will be incurred for each late submission once the points thresholds are reached
    • Good digital record-keeping and calendar discipline will be even more important

    Filing regularly using MTD-compatible software and meeting deadlines remains the most effective way to avoid penalty points altogether.

    Stay prepared

    From 2026, late filing penalties will be based on accumulated points rather than automatic fines. While this makes the system fairer for occasional slip-ups, repeated missed deadlines can still trigger financial penalties.

    Now is the time to review your filing processes, ensure your records are MTD-compliant, and put a plan in place to avoid points building up.

    Our team can help. Whether it’s assessing your current compliance, setting up effective digital record-keeping, or providing ongoing support, we can guide you through the changes and help you stay penalty-free. Get in touch to arrange a 1-1 discussion by emailing enquiries@pmm.co.uk.

     

    Nearly 3 million taxpayers to join Making Tax Digital – are you ready?

    Posted on by Rebecca Campbell

    HMRC’s latest figures reveal that nearly 3 million individuals with self-employment or property income will be required to comply with Making Tax Digital for Income Tax (MTD for ITSA) between April 2026 and April 2028.

    At PM+M, we understand that MTD can feel daunting for businesses and landlords alike. With deadlines approaching, now is the time to prepare — and we’re here to make the transition seamless.

    The phased rollout of MTD

    HMRC is introducing MTD gradually, based on income levels:

    • From April 2026 – Anyone with self-employment or property income above £50,000 must keep digital records and submit quarterly updates. This affects around 864,000 taxpayers.
    • From April 2027 – Those with income between £30,000 and £50,000 join the scheme, bringing in an additional 1,077,000 taxpayers.
    • From April 2028 – The final group, with income between £20,000 and £30,000, will be included, adding 975,000 more taxpayers.

    By the end of the rollout, around 2.9 million individuals will be within the scope of MTD ITSA.

    Who will be affected?

    HMRC data shows that large numbers of people will be drawn into MTD as thresholds lower:

    • More than 600,000 self-employed individuals and 260,000 landlords have income between £20,000 and £30,000 – they will join in 2028
    • Around 800,000 self-employed individuals and 182,000 landlords fall within the £30,000 to £50,000 band – they will be required to comply from 2027
    • Over 600,000 self-employed individuals, 118,000 landlords, and 141,000 people with mixed income already earn above £50,000 – meaning they are first in line from 2026

    This illustrates the scale of the change: it’s not just high earners, but also smaller businesses and landlords who will be affected.

    The digital readiness gap

    One of the biggest challenges is that many taxpayers are still unprepared for digital tax reporting:

    • 65% of those in scope currently use an authorised agent (such as an accountant)
    • Among taxpayers without an agent, 83% do not use software to submit returns
    • By contrast, most represented clients already use software – meaning those without professional support are the least prepared

    Why you should act now

    With nearly three million people moving to MTD, waiting until the deadline could put you at risk of non-compliance, unnecessary penalties, or administrative headaches. Transitioning early gives you time to:

    • Get comfortable with digital record-keeping
    • Adopt MTD-compliant software
    • Ensure you’re submitting updates correctly and on time

    How PM+M can help

    We provide tailored solutions to make your MTD journey stress-free:

    • Software setup + training – we’ll recommend and implement the right digital tools for your business
    • Quarterly submissions – we can manage updates directly with HMRC, keeping you compliant
    • Ongoing support – from troubleshooting software to tax planning, our expert team is here year-round

    Whether you’re a sole trader, landlord, or running a small business, we’ll ensure you stay ahead of the curve.

    Join us at our MTD drop-in days

    To help you prepare, we’re hosting two free drop-in days where you can speak directly with one of our MTD specialists about any queries you may have – no appointment needed.

    Thursday 25 September – Blackburn office (New Century House, Greenbank Technology Park, Challenge Way, Blackburn, BB1 5QB)

    Tuesday 30 September – Bury office (First Floor, Sandringham House, Hollins Brook Park, Pilsworth Road, Bury, BL9 8RN)

    Both sessions run from 10am to 4pm. Throughout the day, our team will be on hand to answer your questions on how MTD for ITSA will affect you, what digital records you’ll need to keep, the software options available, and how to make the transition to cloud accounting as smooth as possible.

    These events are open to everyone – whether you’re a sole trader, landlord, or part of a finance team – so feel free to drop in for a brew and a chat.

    Don’t leave MTD until the last minute

    The shift to digital tax reporting is one of the biggest changes in decades. With phased deadlines already set, the sooner you act, the smoother the process will be.

    Contact PM+M’s MTD experts today to discuss how we can help you transition to Making Tax Digital with confidence. Email enquiries@pmm.co.uk for more information.

     

    Basis period reform – how could it affect me?

    Posted on by Rebecca Campbell

    What is the Basis Period Reform?

    The basis period reform is a significant change in the way unincorporated businesses report their profits to HMRC via self-assessment.  The changes will affect businesses who do not currently draw up accounts to 31 March or 5 April each year.  Those businesses will start to pay tax on the profit between 6 April and 5 April each year, instead of the profit from the accounting period ending in the tax year.

    There is a transitional period, which is the 2023/24 tax year where additional profits will have to be taxed to bring individuals in line with the tax year.  From the 2024/25 tax year, all unincorporated businesses will report profit between 6 April to 5 April each year, regardless of their accounting year end.

    You may wish to change your accounting year end to align to the tax year to avoid apportioning profits from two accounting periods each year.

    Why is the Basis Period Reform being introduced?

    HMRC are introducing the rules to align more accounting year ends with the tax year in a move towards a digital tax system.  The reform aims to simplify and standardise the reporting of trading income for unincorporated businesses via self-assessment.

    Who will be affected?

    The reform will affect:

    • Sole traders, partnerships and LLPs who do not currently have a 31 March to 5 April accounting period.
    • Trading trusts and estates
    • Businesses starting on or after 6 April 2024, as their profits will be taxed on a tax year basis each year

    Sole traders and partnerships with a 31 March to 5 April accounting year-end will not be affected unless they have unused overlap relief.

    The rules do not apply to limited companies.

    How will businesses be affected?

    For the 2023/24 transitional year, all unincorporated businesses will need to report the profit of their normal accounting year end, plus the profit to the 31 March 2024 or 5 April 2024.

    The impact of this means extra profits could be taxable and due for payment to HMRC by 31 January 2025.

    To help with cash flow, there are reliefs available to spread this extra profit (known as transitional profit) over 5 years after deducting any overlap relief available to you.

    Overlap relief

    Overlap profits can arise in the first few years of trading or following a change in accounting date, which are essentially profits which have been taxed twice.  The overlap profits, known as overlap relief, must be offset during the 2023/24 transition year or they will be lost.

    Transition period and key dates

    • 2023/24 tax year: transition period for adjusting to the new rules
    • 2024/25 tax year: new rules fully in effect, requiring all businesses to align their reporting with the tax year

    Get in touch

    If you have any questions on how to report overlap relief in your 2023/24 tax return, or have any questions about basis period reform, get in touch with the PM+M tax team by emailing enquiries@pmm.co.uk.