Not everyone is aware of taxes and how complex they can be. Being fully employed by a company means you pay tax through PAYE, and so you don’t necessarily need to worry about tax beyond making sure you’re on the right tax code.
For self-employed professionals, a deeper knowledge of tax is important not just for your current efforts in the industry but to ensure you’re protected in the future too.
Tax is going through a major shift and transformation as it moves to a digital format, with real-time reporting available. If your approach is still based on an annual and manual effort, using spreadsheet-only record-keeping, then it’s likely not something that’s future-proof.
Here’s everything you need to know about making your tax knowledge future-proof as a self-employed professional.
1. Making Tax Digital for income tax
From the 6th April 2026, self-employed individuals with income of over £50,000 will need to use MTD-compatible software for MTD income tax to keep records and provide quarterly updates.
By April 2027, this threshold will be lowered to those with an income of over £30,000, with further reductions planned so that nearly all self-employed people will eventually be on a digital system.
This will also lead to the end of annual filing. Instead of one annual tax return, you’ll submit four quarterly updates, followed by an end-of-year declaration. So if you’re not using digital and API-enabled software now, it’s something to do soon so that you avoid penalties and manage your cash flow properly in real-time.
2. Basis period reform
Starting from the 2024-2025 tax year, all self-employed profits will need to be reported based on the tax year, rather than their own accounting year. This helps to simplify reporting for many, but can then lead to complex, one-off tax calculations for those who aren’t aligned with the tax year currently.
3. AI and HMRC data-matching
With HMRC’s ‘Connect’ system, they’ll now be able to gather data from banks, land registry and social media to find discrepancies and examples of money that’s not declared.
There’s also an increasing use of AI integration that is helping target compliance checks, making it harder for people to hide income or misuse their available expenses.
However, some great tools can now be used by freelancers to help automate expense categorisation, identify any missed deductions and predict tax bills, which can free up a lot of time.
4. Changing tax thresholds and rules
Class 2 NI was abolished in April 2024, and now the main rate of Class 4 NI has been reduced. Shareholders in owner-managed businesses will need to provide more detailed dividend and shareholding information in their returns from the 2025-2026 tax year onwards.
You’ll also need to report the exact start date and end dates of your self-employment, as this will allow HMRC to better monitor any ‘disguised employees’
The future of tax is digital, operating in real-time and making use of automation as well as AI. If you’re not adapting, you put yourself at the risk of penalties, tax scrutiny and missed deductions – so be warned!