Sole traders still not prepared for digital tax returns in April

One in three sole traders are still using pen and paper to work out their accounts, according to research from Sage — despite a looming digital shake-up in how they must file to HM Revenue & Customs.

The accounting software firm found that self-employed sole traders are wasting hours on financial admin every month, with almost a quarter (23 per cent) spending more than six hours filling out a single end-of-year tax return.

Two thirds (66 per cent) still use old-fashioned means to do their financial admin, meaning they are not prepared to adopt cloud-based accounting software, Sage said. Instead, they are using spreadsheets (66 per cent) and bank statements (56 per cent), and a third (33 per cent) say they use pen and paper to track sales and expenses.

Almost 70 per cent are unaware they will be required to file self-assessment returns digitally when Making Tax Digital for Income Tax is rolled out in April. The HMRC initiative applies to sole traders in the UK with an annual income over £50,000. Among those who are aware of the change, almost four in ten (39 per cent) said they had not done anything to prepare for it.

Mark Millar, the TV handyman who presents shows including Channel 5’s Dream Kitchens and Bathrooms with Mark Millar, said digital systems had eased the pressures he faced as a hands-on tradesman after years struggling to juggle his work with balancing the books.

He added that digital tax would ultimately save business owners time and stress. “Many sole traders I know are still using their pencils and scraps of paper to keep tabs on their profit and loss,” he said. “Then when it comes to filing their taxes, many are scrabbling around trying to find them all. That used to be me.

“I started my own construction company in 2003, and back then all my accounting was done manually, so I understand all too well how much time it can take. I can remember the pressure I felt under when I was quoting, invoicing and managing clients, all while trying to keep on top of my tax returns and stay compliant.

• Leigh Thomas: Reboot digital policies to make all SMEs tech savvy by 2030

“Many small business owners feel weighed down by the admin they must do and so Making Tax Digital is an opportunity for them to make this less time consuming. In the years to come, I can imagine many people will look back and not be able to believe they did their tax return manually, using a pen and paper.”

The research, from Sage and the Association of Independent Professionals and the Self-Employed, found that those already using digital accounting software reported a variety of benefits, including better organisation (54 per cent) and financial visibility (53 per cent).

Neal Watkins, Sage executive vice-president for small business, said: “As government initiatives like Making Tax Digital for Income Tax continue to roll out, self-employed people and sole traders have a real opportunity to turn compliance into an advantage — saving time, reducing admin, and gaining clearer visibility of their finances.”