Effective from 5 April 2025, the UK government will introduce new mandatory tax return requirements impacting sole traders, partnerships, trustees, and company directors. These changes aim to enhance the accuracy of tax data and streamline the reporting process.
Key Changes for Sole Traders and Partnerships
For those commencing or ceasing trading activities within a tax year, it is now compulsory to report the exact dates of commencement or cessation in the Self-Assessment tax return for that year. This will affect personal tax returns, partnership returns and trustee’s returns.
Despite this being included on previous tax returns, providing this information was voluntary; however, from the 2025/26 tax year onwards, it is a mandatory requirement.
New Obligations for Company Directors
Directors of close companies* face additional reporting obligations. From 5 April 2025, directors must, in their tax return:
- Declare Directorship: Indicate their status as a director of a close company in their tax return.
- Provide Company Details: Include the company's name and registered number.
- Report Dividends Separately: Specify the value of dividends received from the close company which will be declared separately from other UK dividends.
- Disclose Shareholding Percentage: State their percentage shareholding during the year. If this percentage changed, the highest shareholding percentage within the year should be reported.
Broadly, a close company is defined as a company which is under the control of five or fewer participators, or any number of participators if those participators are directors[1]. A company will need to be assessed for exemptions.
Making Tax Digital (MTD) for Income Tax
The government's digitalisation efforts, sees the gradual implementation of the Making Tax Digital (MTD) initiative for Income Tax Self-Assessment (ITSA) which will require sole traders and landlords with income over £50,000 to keep digital records and submit quarterly updates to HMRC using compatible software from April 2026. The threshold will then reduce to £30,000 from April 2027.
These changes mean that sole traders and company directors should ensure they are using digital accounting tools and remain compliant with MTD regulations to avoid penalties.
Read our MTD article for more information.
Have any questions about the changes and how they will affect you? At Arnold Hill, we have the expertise and experience to help you every step of the way. Our team is well equipped with the latest government requirements to ensure you stay compliant and make informed decisions. Contact us today to see how we can help you!
About Arnold Hill & Co LLP
Arnold Hill & Co LLP is an accountancy and tax firm who have been delivering tailored accountancy services for over a century. Based in the heart of London, the firm is built on strong, lasting relationships and combine tradition with a forward thinking approach to meet the evolving needs of clients, both across the UK and internationally. The firm advise a range of clients ranging from UHNWI’s, family offices and entrepreneurs to growing businesses and multinational groups.
Leanne Konopka - Partner
