Self-employed tax changes: more tax returns, higher business rates and other reforms

Tax reforms are on the way for the self-employed, including changes to business rates and tax relief. Here's everything you need to know.

What tax changes are coming for the self-employed?

Tax changes are coming into force for many self-employed people.

One of the most controversial is the introduction of Making Tax Digital, which lays on extra tax returns throughout the year. Though this reform has dominated the headlines, there are a few others to watch out for too.

Here’s what to expect if you're self-employed.

What is Making Tax Digital?

Making Tax Digital is, as its name suggests, a digital tax account to help self-employed people and small businesses keep their tax records online.

Most businesses will be expected to report their income and expenses quarterly rather than annually.

It has technically been launched already, with HMRC inviting a small number of businesses to trial the software.

Those who have a turnover over the VAT threshold (£85,000) will start on April 2018 while those whose turnover is above £10,000 and below the threshold will be introduced in April 2019.

Self-employed people and landlords with a turnover of less than £10,000 a year are exempt from the new regime altogether.

But it has come under fire for creating more work for the self-employed. Those who earn £85,000 or more will have to file a staggering five tax returns per year. That’s on top of regular VAT returns.

Accountants think that the regime will mean that self-employed people will be facing tax deadlines most months of the year, which will result in days of lost work per year.

Groups from the creative arts, farmers, residential landlords and small businesses across other sectors have attacked the plans and their rapid implementation, even with the recent Budget concession for those with a lower turnover.

The Federation of Small Businesses said that HMRC had grossly underestimated the costs and that this new regime should operate on an ‘opt-in’ basis.

However, HMRC says the regime will be put in place alongside technologies that’ll make it a lot easier.

The taxman maintains that the reason for implementing the change was to account for errors made by smaller businesses, which it estimates will cost £8 billion by 2019/20.

 A spokesman said:

"HMRC published its impact assessment for the programme in January outlining that there will be an average one-off transitional cost of £280 per business, followed by small ongoing annual savings.

“This is in addition to the benefit to businesses of having a clearer in-year view of their tax position and more confidence they have got their tax right."

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Business rates

Business rates will be changing from this tax year because of the revaluation which typically happens every five years, but in some cases it can be longer. The last time they were revaluated back in 2010, almost half of businesses appealed against how much they were due to pay.

The size of the tax varies depending on the 'rateable value' of the property.

Smaller businesses are expected to suffer as a result of the revaluation, with many saying they'll have to shut up shop.

To help them out, £435 million support was pledged to local authorities to help businesses affected by the rate increase as part of the Spring Budget. Businesses losing small business rate relief will have their increases capped at £50 a month or £600 a year. 

Pubs in England with a rateable value of less than £100,000 will be able to claim a £1,000 discount for the first year too. The rate will be applied from 1 April 2017 to 31 March 2018.

Those with a rateable value of less than £12,000 will be exempt from business rates entirely. 

Read more on the Government's Business Rate Relief page.

Buy-to-Let tax relief

Landlords will face new tax relief on mortgage interest from 6 April, which will eventually be replaced in 2020 by a 20% tax credit.

For more information, have a read of our complete guide to the buy-to-let tax changes.

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What about National Insurance?

There was some respite for the self-employed last month when the Government made a U-turn on its controversial National Insurance contribution increase.

If this had gone through, those on Class 4 National Insurance contributions would be paying 2% more in National Insurance, rising to 4%.

The plan was beaten down by Tory backbenchers as it wasn’t in the spirit of the party’s manifesto.

Class 2 NICs are still set to be abolished from April 2018 though. At the moment, Class 2 contributions apply to self-employed people who have a turnover of less than £6,025 a year, but they can pay voluntary contributions.

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These Buy-to-Let changes start next week