Self Employed and Online? Your Tax Setup Might Be Your Weakest Link
If you’re a self-employed individual or online business owner, then the upcoming Make Tax Digital for Income Tax is something that you’ll certainly want to prioritise. It’s a critical business component to have, and there are a lot of people who are currently in this category of workers and aren’t aware that this is coming into fruition.
Poor tax planning is now the biggest risk for those who own a business and want to sustain it. Here’s why your tax setup might be your weakest link and how to strengthen it before MTD comes into action.
Understanding Making Tax Digital (MTD)
So what is Making Tax Digital? From April 2026, Making Tax Digital for Income Tax becomes a mandatory practice for self-employed individuals and landlords with incomes over £50,000.
What that means is that you’ll need to be using HMRC-recognised software in order to keep digital records and submit quarterly updates for both income and expenses.
Many still rely on manual spreadsheets or paper processes, which can make the shift to automated, real-time reporting a major technical and operational hurdle.
The threshold will drop to £30,000 in April 2027 and £20,000 in April 2028, so most self-employed people will need to move to digital systems soon enough.
Five ways your tax setup is failing
To ensure your tax setup doesn’t fail, here are five ways that it might be currently letting you down.
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Missing the £90,000 VAT threshold
E-commerce owners will often track sales but not the 12-month rolling turnover. This can lead to late VAT registration, margin erosion and more importantly, penalties incurred.
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Mixing personal and business money
If you’re using a personal bank account for both personal and business transactions, this can make bookkeeping a nightmare. Therefore, you risk missing allowable expenses, as well as over-declaring income. Keep them separate.
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Neglecting platform reporting rules
Digital platforms, aka the big ones like Etsy and Amazon, report seller data directly to HMRC. It’s therefore important to no longer assume that HMRC isn’t aware of any side-hustle income you may be making as a result.
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Failure to track digital expenses
Many online sellers will forget to claim deductions for digital advertising, software subscriptions, platform fees and home office costs.
Not tracking these digital expenses will often put you in a more financially dire situation as a result.
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No budgeting for tax payments
Treat every pound you earn as a personal income rather than setting aside 20-30% for tax leads to cash flow crises.
How to strengthen your tax setup
To strengthen your tax setup this year, adopt digital software early to get ahead of the new MTD coming into fruition.
Separate your finances immediately and monitor your rolling turnover to ensure you’re not caught off guard when it comes to VAT registration requirements.
If in doubt, seeking professional advice will help you avoid falling into any traps or problems with your finances and taxes as a self-employed individual or business online. The more proactive you can be, the better to avoid it harming your income.