Sole traders should be aware of tax thresholds before fast-approaching self-assessment tax return deadline

As the self-assessment tax return deadline looms within the next 100 days, a concerning revelation emerges: 75% of self-employed individuals lack clarity on the point at which higher rate tax obligations kick in.

According to the recent surveys, three-quarters of self-employed individuals are uncertain about the current tax thresholds governing their earnings. Shockingly, only 1 in 10 were familiar with HMRC’s penalties for late filing or non-payment of taxes, while a mere 1 in 50 believed there would be no repercussions for non-compliance.

Although self-employment figures drastically plummeted to 3.2 million during the pandemic, they have rebounded to 4.24 million, akin to the statistics of 2013.

The study reveals that legal professionals are better informed about thresholds and filing dates, whereas retailers exhibit the least knowledge in this domain.

Worryingly, only 1 in 5 surveyed individuals had a safety net, with 21% possessing just three months' worth of savings. This lack of financial cushion potentially leaves them exposed to unexpected tax bills and potential delayed repayments.

The catering sector emerges as the most proactive in reinvesting profits, with a striking 96% expressing intentions to funnel 20% of their earnings back into their businesses.

Alarmingly, over half (58%) of sole traders surveyed by GoSimpleTax were unaware of the sum of their impending tax bills and had no funds earmarked for payment. A significant portion mentioned they would source funds only after completing their returns to settle the bill.

Despite this lack of awareness regarding tax liabilities, nearly half (48%) intended to settle their tax bills as early as six months beforehand.

Furthermore, 17% of self-employed individuals expressed concern about the impact of Making Tax Digital and advocated for the initiative's abandonment. From 2026, sole traders and buy-to-let landlords will be required to report earnings quarterly, with an annual report detailing total earnings.

Desiring better support structures, 66% of respondents sought improved schemes for the self-employed. Over half desired reduced tax burdens, and 25% expressed a need for tax incentives related to training and skill development.

"Feast or famine" nature of self-employment leads to situations where individuals concentrate solely on securing payments without contemplating future financial planning. This in return leads to inadequate provisions for tax payments and overall financial security, resulting in last-minute scrambling to settle tax obligations by the January deadline.

We need to remind about the importance of gaining control over finances, including tax payment and budgeting, which can alleviate the strain associated with self-employment and make the process of preparing for the January 31 deadline less burdensome.