How Sole Traders Can Simplify Their Next Tax Return

With the 31 January 2026 deadline looming, the UK sole traders are about to undergo some of the biggest changes in tax reporting regulations in the last several years. As new requirements influence the way the profit is calculated, what expenses can be claimed, and who should adhere to the Making Tax Digital (MTD), it is necessary to have a better understanding of changes. Regardless of whether you are going it alone or you use accountants services, being informed will assist you in preventing mistakes, minimising risks of compliance and optimising your tax status.

Knowing the Tax Year Basis

The full transition to tax year basis, in place of the previous basis period rules, is one of the largest changes to which sole traders will be subjected in 2024/25. With this system, business profits are now taxed between 6 April and 5 April and this ensures that all assessments are made in line with the standard tax year.

You are still allowed to prepare accounts up until any year-end date but your profits will have to be apportioned to suit the tax year. As an example, when your accounting year ends on 31 December you will be required to divide income and expenses between the two tax years in which your accounts overlap. HMRC is somewhat likely to have this done by a day-by-day apportionment method, but other reasonable methods may be employed provided that they are applied consistently.

One useful exception is that accounting dates between 31 March and 4 April are treated to end on 5 April in the computation of tax. This eases the reporting of most small businesses who have a year end of late-March.

Managing Transitional Profits

Since the tax year basis replaces the earlier rules, a number of sole traders will have transitional profits to report. These were created in 2023/24, the transition year, and any of the remaining transitional profits are now carried on to 2024/25.

The default rule is that you will have to include 25 percent of the remaining transitional profits to your taxable income annually. Nevertheless, you may choose to hasten this and carry forward more (or all) of the remaining amount to 2024/25. This can be useful when you are earning less than anticipated or when you would wish to pay transitional liabilities at an earlier stage. On this, HMRC gives comprehensive guidance in HS222 helpsheet.

Adjusting to Personal Expenditure: Do Not Make Obvious Errors

The other area that is witnessing much scrutiny is the improper assertion of personal or mixed-use expenses. HMRC has made it very clear that only business expenses that are wholly and exclusively used should be deducted. Where there is a personal and business use of something, i.e. home utilities, mobile phones or vehicles, then you are required to calculate and claim only the business part.

HMRC also sent specific emails to thousands of taxpayers reminding them of this rule in late 2025 because mistakes in this area have resulted in extensive compliance efforts. The 2024 campaign also brought in over 27m in extra tax income, and this shows the seriousness with which HMRC treats false claims.

Sole traders should review:

Mobile phone costs

Home office expenses

Vehicle and travel costs

Subscriptions and memberships.

Personal funds used in business.

Recording-keeping can be simplified by applying simplified expenses when appropriate, and it can minimise the chances of errors. In case you are confused on how to figure out the adjustments correctly, this is one of the fields that professional accountant services can give you great insight and help you escape fines.

Making Tax Digital (MTD) and Income Tax preparation

One significant step is on the verge: MTD of income tax will be obligatory on several sole traders beginning in April 2026. Your 2024/25 will make you or break you.

You must join MTD if:

Your self-employment and/or property business gross income exceeds £50,000

HMRC is expected to notify you, in case you meet the threshold. Though, when your return is filed after August 2025 the letter may not be received until February or March 2026. Furthermore, HMRC will not forward a copy to your accountant and in case you fit the requirements and fail to get a letter, it is up to you to sign up.

MTD requires:

Keeping digital records

Using compatible software

Providing quarterly reports.

Making your end-of-year position final through an end-of-period statement.

It is very important to prepare early. The shift might be challenging, yet the use of digital tools in cooperation with trusted accountant services will provide easy compliance and reduce the impact.

Final Thoughts

The changes in the 2024/25 tax return bring about regulations that will affect the way sole traders will record profits, the calculation of expenses, and future digital requirements. As HMRC puts increased attention on non-business spending and prepares to MTD, precision and preparation are like never before. Knowing the basis of tax year, properly applying personal-use adjustments, and making advance preparations concerning digital reporting will enable a sole trading person to submit a filing that is not subject to expensive mistakes.

Trusted accountant services can offer the knowledge and confidence needed by those who require help navigating such changes to remain compliant and your business finances running smoothly.