UK Self Employment Sa103

UK Self-Employment (SA103) -- Sole Trader Skill v3.0

Three-year scope: Prior 2024-25 | Current 2025-26 | From April 2026 (2026-27)

Verified rates & thresholds (accountant-reviewed)

Reviewed against the cited tax authorities by James Power on 2026-06-03. Items flagged for further clarification are tracked separately and excluded here. This block is generated from verified skill_facts — edit the facts, not the prose.

Self-Employment SA103

• SA103S (short form) — Turnover below £90,000 (HMRC guidance)
• Trading allowance — £1,000 (ITTOIA 2005)
• AIA (Annual Investment Allowance) — £1,000,000 (CAA 2001)
• Cash basis — Default from 2024/25 (no upper limit) (Finance Act 2024)
• Below £12,570 — 0% (SSCBA 1992)
• £12,570 – £50,270 — 6% (SSCBA 1992)
• Above £50,270 — 2% (SSCBA 1992)
• Car/van: first 10,000 miles — 45p/mile (ITTOIA s.94A)
• Car/van: over 10,000 miles — 25p/mile (ITTOIA s.94A)
• Motorcycle — 24p/mile (ITTOIA s.94A)
• Home office: 25-50 hrs/month — £10/month (ITTOIA s.94B)
• Home office: 51-100 hrs/month — £18/month (ITTOIA s.94B)
• Home office: 101+ hrs/month — £26/month (ITTOIA s.94B)

Section 1 -- Quick Reference

Quick Reference

Field	Value
Country	United Kingdom (England, Wales, Scotland, Northern Ireland)
Tax	Income Tax on trading profits + Class 4 NIC
Currency	GBP only
Current tax year	6 April 2025 -- 5 April 2026 (2025-26)
Primary legislation	Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005); Capital Allowances Act 2001 (CAA 2001)
Supporting legislation	Finance Act 2024 (basis period reform completion, Class 2 abolition, Class 4 cut); Finance (No.2) Act 2023 (MTD ITSA powers); Social Security Contributions and Benefits Act 1992
Tax authority	HM Revenue & Customs (HMRC)
Filing portal	HMRC Self Assessment Online (MTD ITSA quarterly portal from April 2026 for mandated traders)
Filing deadline (2025-26, online)	31 January 2027
Filing deadline (2025-26, paper)	31 October 2026
Contributor	Open Accountants Community
Validated by	Verified by James Power on 2026-06-03
Skill version	3.0

MTD ITSA Timeline -- The Biggest 2026-27 Change [T1]

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) phases in mandatory quarterly digital updates for sole traders and landlords. Three thresholds, three start dates -- assessed on gross income (turnover + gross rental income), NOT net profit.

MTD ITSA Timeline

Phase	Mandation date	Gross income threshold	Test year (look-back)	What changes
Phase 1	6 April 2026	> GBP 50,000	Assessed on 2024-25 SA103/SA105	Mandatory quarterly updates + year-end finalisation; MTD-compatible software required
Phase 2	6 April 2027	> GBP 30,000	Assessed on 2025-26 SA103/SA105	Same rules extend to more traders
Phase 3	6 April 2028	> GBP 20,000	Assessed on 2026-27 SA103/SA105	Smaller traders brought in

Critical points:

• Threshold is gross income (turnover), NOT profit. A trader with GBP 60,000 turnover and GBP 5,000 profit IS in Phase 1.
• Combined gross income across self-employment AND property is aggregated for the threshold test.
• Phase 1 mandation in April 2026 is based on income reported in the 2024-25 return (filed by 31 Jan 2026). HMRC will notify mandated traders during 2025-26.
• Quarterly updates: 5 Aug, 5 Nov, 5 Feb, 5 May (standard quarters). End-of-period statement + final declaration replaces the SA103 line items but the overall liability process continues.
• Penalty regime: points-based late submission penalties under FA 2021 Sch 24/25 apply once mandated.
• Below threshold or out-of-scope traders continue with annual SA103 as before.

Key Thresholds -- 3-Year Comparison [T1]

Key Thresholds 3-Year Comparison

Item	2024-25 (Prior)	2025-26 (Current)	2026-27 (From April 2026)
SA103S vs SA103F cutoff	Turnover GBP 90,000	Turnover GBP 90,000	Turnover GBP 90,000 (MTD finalisation for mandated traders)
Trading allowance	GBP 1,000 (frozen)	GBP 1,000 (frozen)	GBP 1,000 (frozen)
AIA (Annual Investment Allowance)	GBP 1,000,000	GBP 1,000,000	GBP 1,000,000
Cash basis	Default (no upper limit; basis period reform complete)	Default	Default (continues under MTD)
Accruals basis	By election	By election	By election
Personal allowance	GBP 12,570 (frozen)	GBP 12,570 (frozen)	GBP 12,570 (frozen)
Basic rate band	To GBP 50,270	To GBP 50,270	To GBP 50,270
Class 4 LPL	GBP 12,570	GBP 12,570	GBP 12,570
Class 4 UPL	GBP 50,270	GBP 50,270	GBP 50,270
Class 4 main rate	6% (cut from 9% on 6 Apr 2024)	6%	6%
Class 4 additional rate	2%	2%	2%
Class 2 NIC	Abolished from 6 Apr 2024 (voluntary only when profit < SPT)	Voluntary only	Voluntary only
Class 2 voluntary weekly rate	GBP 3.45	GBP 3.50 (illustrative; HMRC sets annually)	TBC
Small Profits Threshold (SPT, for voluntary Class 2 / NI credits)	GBP 6,725	GBP 6,725	GBP 6,725
MTD ITSA mandate	Not yet	Notification year (HMRC writes to GBP 50k+ traders)	Phase 1 LIVE for gross income > GBP 50k

Class 4 NIC Rates -- Applies All 3 Years [T1]

Post-6-April-2024 rate cut (Finance Act 2024) is now embedded. No further rate changes announced through 2026-27.

Class 4 NIC Rates

Band	Rate
Below GBP 12,570	0%
GBP 12,570 -- GBP 50,270	6% (main rate)
Above GBP 50,270	2% (additional rate)

Class 2 NIC -- Abolished but Optionally Voluntary [T1]

• Compulsory Class 2 abolished — Compulsory Class 2 ABOLISHED from 6 April 2024. Self-employed with profits at or above the Lower Profits Threshold (GBP 12,570) receive Class 2 NI credit treated as paid without payment (since 2022-23). No Class 2 box on the SA103 from 2024-25 onwards for these traders.
• Voluntary Class 2 still available — Voluntary Class 2 still available when profits are below the Small Profits Threshold (SPT) of GBP 6,725 and the trader wishes to protect State Pension and contributory benefit entitlement. Paid through Self Assessment.
• Applicability — Applies identically across 2024-25, 2025-26, and 2026-27.

Simplified Expenses Rates -- Applies All 3 Years [T1]

(Frozen rates; HMRC has not announced changes.)

Simplified Expenses Rates

Category	Rate
Car/van: first 10,000 miles	45p/mile
Car/van: over 10,000 miles	25p/mile
Motorcycle	24p/mile
Home office: 25-50 hrs/month	GBP 10/month
Home office: 51-100 hrs/month	GBP 18/month
Home office: 101+ hrs/month	GBP 26/month

Conservative Defaults [T1]

Conservative Defaults

Ambiguity	Default
Unknown accounting basis	Cash basis (default from 2024-25 onwards)
Unknown business-use % (vehicle, phone, home)	0% deduction
Unknown whether expense is capital or revenue	Capital (claim via AIA, not revenue expense)
Unknown expense category	Not deductible
Unknown entertainment purpose	Not deductible (entertainment is always blocked)
Unknown mixed-use proportion	0% business
Unknown MTD ITSA status (2026-27 prep)	Check 2024-25 gross income > GBP 50k -- if yes, assume Phase 1 mandated

Section 2 -- Required Inputs and Refusal Catalogue

Required Inputs

Minimum viable -- bank statement for the full tax year (6 April to 5 April) in CSV, PDF, or pasted text, plus confirmation of whether the trade uses cash basis or accruals.

Recommended -- all sales invoices, purchase invoices/receipts, mileage log, home office hours log, prior year SA103. For 2026-27: confirmation of MTD ITSA mandation status and software in use.

Ideal -- complete bookkeeping records, asset register, prior year losses memo, VAT return (if registered), MTD-compatible software access (Xero, FreeAgent, QuickBooks, etc.) for mandated traders.

Refusal Catalogue

• R-UK-SE-1 -- Partnerships — Partnership profits are computed on a separate partnership return (SA800) and allocated to partners via SA104. This skill covers sole traders only.
• R-UK-SE-2 -- LLP members — LLP members file SA104 (Partnership). Different rules apply. Out of scope.
• R-UK-SE-3 -- CIS subcontractors (construction) — CIS has specific deduction and verification rules. While SA103 is used, CIS-specific guidance is out of scope for this skill.
• R-UK-SE-4 -- Non-resident traders — Non-resident sole traders have different UK tax obligations. Escalate.
• R-UK-SE-5 -- Overlap relief pre-reform residue — Basis period reform completed 5 April 2024. Any residual overlap relief carried into 2024-25 onwards (where not used in 2023-24 transition) is a specialist computation. Escalate.
• R-UK-SE-6 -- MTD ITSA software configuration — This skill explains MTD ITSA rules and timing. Selecting, configuring, or operating MTD-compatible software for quarterly submissions is out of scope.

Section 3 -- Transaction Pattern Library

(Unchanged across the three years -- the box structure of SA103 carries through to MTD ITSA quarterly categories.)

3.1 Income Patterns (Credits on Bank Statement)

Income Patterns

Pattern	SA103F Box	Treatment	Notes
CLIENT INVOICE, [client name] PAYMENT, FEE PAYMENT	Box 9 (Turnover)	Business income	Core trading income
STRIPE PAYOUT, STRIPE TRANSFER	Box 9	Business income	Match to underlying invoices
PAYPAL TRANSFER, PAYPAL PAYOUT	Box 9	Business income	Match to underlying invoices
GOCARDLESS, BACS CREDIT [client]	Box 9	Business income	Direct debit collection
WISE PAYOUT, WISE TRANSFER	Box 9	Business income	International payment platform
HMRC REPAYMENT, TAX REFUND	EXCLUDE	Not trading income	Tax refund -- not taxable as trade income
INTEREST, SAVINGS INTEREST	EXCLUDE from SA103	Savings income	Goes to SA100 savings section
DIVIDEND	EXCLUDE from SA103	Dividend income	Goes to SA100 dividend section
GRANT, GOVERNMENT GRANT, BOUNCE BACK LOAN	Check	May be taxable	Trade-related grants generally taxable. Loan principal not income.
INTERNAL TRANSFER, OWN ACCOUNT	EXCLUDE	Not income	Transfer between own accounts

3.2 Expense Patterns (Debits on Bank Statement)

Expense Patterns

Pattern	SA103F Box	Tier	Treatment
RENT, OFFICE RENT, SERVICED OFFICE, REGUS, WEWORK	Box 14 (Rent/rates/power)	T1	Fully deductible if dedicated business premises
COUNCIL TAX (business premises)	Box 14	T1	Fully deductible for business premises
ELECTRICITY, GAS, BRITISH GAS, EDF, OCTOPUS	Box 14	T2	If home: proportional only. If business premises: fully deductible
BROADBAND, BT, VIRGIN MEDIA, SKY	Box 16 (Phone/office)	T2	Business portion only for home broadband
MOBILE, VODAFONE, EE, THREE, O2	Box 16	T2	Business portion only if personal phone
INSURANCE, PROFESSIONAL INDEMNITY, PI INSURANCE	Box 22 (Other)	T1	Fully deductible if business insurance
SUBSCRIPTIONS, MEMBERSHIP, PROFESSIONAL BODY	Box 22	T1	Fully deductible if related to trade
ADOBE, MICROSOFT 365, SLACK, NOTION, FIGMA	Box 22	T1	Software subscriptions -- fully deductible
GOOGLE ADS, META ADS, FACEBOOK ADS, LINKEDIN ADS	Box 17 (Advertising)	T1	Advertising -- fully deductible
RESTAURANT, CAFE, MEALS (client entertainment)	Box 17	T1	BLOCKED. Client entertainment is NOT deductible.
RESTAURANT, CAFE (business travel meal)	Box 13 (Travel)	T1	Subsistence while on business travel: deductible
TRAINLINE, NATIONAL RAIL, TFL	Box 13	T1	Business travel -- fully deductible
UBER, BOLT, TAXI	Box 13	T1/T2	Deductible if business travel. Ask if personal.
FUEL, PETROL, DIESEL, BP, SHELL	Box 13	T2	If using actual costs: business % only. If simplified: use mileage rate instead.
CAR INSURANCE, MOT, SERVICE	Box 13	T2	If using mileage rate: NOT separately deductible. If actual costs: business % only.
PARKING, NCP	Box 13	T1	Business parking -- deductible even if using mileage rate
ACCOUNTANT, BOOKKEEPER, ACCOUNTING FEE	Box 20 (Professional fees)	T1	Fully deductible (includes MTD software costs)
MTD SOFTWARE (XERO, FREEAGENT, QUICKBOOKS subscription)	Box 22	T1	Fully deductible -- becomes essentially mandatory for 2026-27 Phase 1 traders
SOLICITOR, LEGAL FEE	Box 20	T1	Deductible if business-related
BANK CHARGES, CARD FEE	Box 18 (Bank charges)	T1	Fully deductible for business account
STRIPE FEE, PAYPAL FEE, GOCARDLESS FEE	Box 18	T1	Transaction fees -- fully deductible
INTEREST (business loan)	Box 18	T1	Deductible. Cash basis: capped at GBP 500 interest.
HMRC, INCOME TAX, CLASS 4 NIC	EXCLUDE	Not deductible	Tax on profits is not a deductible expense
HMRC VAT PAYMENT	EXCLUDE from SA103	Not a trade expense	VAT is separate (net figures on SA103 if registered)
PENSION, SIPP, SELF-INVESTED	EXCLUDE from SA103	Not a trade expense	Pension relief claimed on SA100, not SA103
SALARY, WAGES, PAYROLL	Box 12 (Staff costs)	T1	Employee wages -- fully deductible
MATERIALS, SUPPLIES, STOCK	Box 10 (Cost of goods)	T1	Fully deductible
LOAN REPAYMENT, MORTGAGE	EXCLUDE	Not deductible	Capital repayments are not expenses
DRAWINGS, PERSONAL	EXCLUDE	Not deductible	Personal drawings
AMAZON (check)	T2 -- ask	Could be business supplies or personal	Default: not deductible until confirmed
COMPUTER, LAPTOP, DELL, APPLE	Capital allowance (Box 13 AIA)	T1	Capital item -- claim AIA (100% in year). Do NOT put in revenue expenses.

3.3 SaaS Subscriptions (Common UK Patterns)

SaaS Subscriptions

Pattern	Treatment	Notes
XERO, QUICKBOOKS, FREEAGENT, SAGE	Box 22 -- fully deductible	Accounting software (MTD-compatible from April 2026)
CANVA, FIGMA, MIRO, NOTION	Box 22 -- fully deductible	Business tools
GITHUB, AWS, HEROKU, DIGITAL OCEAN	Box 22 -- fully deductible	Developer tools/hosting
ZOOM, GOOGLE WORKSPACE, MICROSOFT 365	Box 22 -- fully deductible	Communication/productivity
SPOTIFY, NETFLIX, DISNEY+	EXCLUDE	Personal entertainment -- not deductible
APPLE ONE, ICLOUD STORAGE	T2 -- ask	Could be personal or business

3.4 Internal Transfers and Exclusions

Internal Transfers and Exclusions

Pattern	Treatment	Notes
TRANSFER OWN ACCOUNT, SAVINGS	EXCLUDE	Internal movement
INVESTMENT, SHARES, ISA	EXCLUDE	Investment, not trade
RENT RECEIVED	EXCLUDE from SA103	Property income -- SA105 (aggregates with SE for MTD threshold)
CHILD BENEFIT, UNIVERSAL CREDIT	EXCLUDE	Not trading income
CASH WITHDRAWAL, ATM	T2 -- ask	Default exclude. Ask what cash was for.

Section 4 -- Worked Examples

Example 1 -- Standard Sole Trader (IT Freelancer), 2025-26

Year: 2025-26 (current). Tax-year basis (basis period reform complete).

Input: Turnover GBP 52,000. Actual expenses: office rent GBP 6,000, software (incl. Xero) GBP 1,200, accountant GBP 800, phone (50% business) GBP 600, train travel GBP 1,500, laptop GBP 1,300. Cash basis. 8,000 business miles (mileage rate).

Computation:

• Turnover: GBP 52,000
• Revenue expenses: 6,000 + 1,200 + 800 + 300 (50% of 600) + 1,500 = GBP 9,800
• Mileage: 8,000 x 45p = GBP 3,600
• Capital allowances (AIA): laptop GBP 1,300
• Total deductions: 9,800 + 3,600 + 1,300 = GBP 14,700
• Taxable profit: 52,000 - 14,700 = GBP 37,300
• Class 4 NIC: (37,300 - 12,570) x 6% = GBP 1,483.80
• Class 2: NONE (abolished; profit > GBP 12,570 gives credit-as-paid)
• MTD ITSA flag: 2024-25 turnover was GBP 48,000 (below GBP 50k) -- not in Phase 1 for 2026-27. Re-test annually.

Example 1B -- Same Trader, 2026-27 (MTD Phase 1 Mandated)

Year: 2026-27. Same trader, but 2024-25 turnover was GBP 62,000 (above the GBP 50,000 Phase 1 threshold). HMRC notified trader during 2025-26.

Mechanics now:

• Trader uses MTD-compatible software (e.g., FreeAgent) and submits four quarterly updates:
  • Q1: 6 Apr - 5 Jul 2026 → due 5 Aug 2026
  • Q2: 6 Jul - 5 Oct 2026 → due 5 Nov 2026
  • Q3: 6 Oct 2026 - 5 Jan 2027 → due 5 Feb 2027
  • Q4: 6 Jan - 5 Apr 2027 → due 5 May 2027
• End-of-period statement (EOPS) and final declaration replace SA103 line items; tax computation, Class 4, and SA100 finalisation continue on the same timeline (31 Jan 2028 for 2026-27).
• Rates unchanged: 6% / 2% Class 4 bands; trading allowance GBP 1,000.
• Late submission point-based penalties under FA 2021 apply per missed quarterly update.

Example 2 -- Trading Allowance vs Actual Expenses

(Applies identically in 2024-25, 2025-26, and 2026-27 -- allowance frozen at GBP 1,000.)

Input: Side income GBP 4,000 from occasional consulting. Actual expenses GBP 700.

Computation:

• Option A (actual): 4,000 - 700 = GBP 3,300 profit
• Option B (trading allowance): 4,000 - 1,000 = GBP 3,000 profit
• Trading allowance is more beneficial. Use GBP 1,000 deduction.
• MTD: gross income GBP 4,000 is below all phase thresholds -- not mandated.

Example 3 -- Entertainment Blocked

(Unchanged across years.)

Input: GBP 500 claimed for client dinner at restaurant.

Classification: NOT deductible. Client entertainment is blocked by ITTOIA 2005, s45. Remove from expenses. Staff entertainment (Christmas party, team meals) may be deductible -- but client-facing entertainment never is.

Example 4 -- Home Office (Simplified vs Actual)

(Unchanged across years.)

Input: Works from home 130 hours/month for 11 months. Alternatively, has a dedicated room (1 of 5 rooms). Annual household costs: rent GBP 12,000, utilities GBP 2,400, broadband GBP 480.

Computation:

• Simplified: 11 months x GBP 26 = GBP 286
• Actual: 1/5 of (12,000 + 2,400 + 480) = GBP 2,976
• Actual method is significantly more beneficial in this case.
• [T2] Flag: confirm dedicated room used exclusively for business during working hours.

Example 5 -- Voluntary Class 2 (Low Profits, Pension Credit)

Year: 2025-26. Applies identically 2024-25 and 2026-27.

Input: Part-time sole trader profit GBP 4,200 (below SPT GBP 6,725). Wants to preserve State Pension qualifying year.

Computation:

• Class 4: GBP 0 (profit below GBP 12,570)
• Compulsory Class 2: GBP 0 (abolished 6 Apr 2024)
• Voluntary Class 2: ~52 x GBP 3.50 ≈ GBP 182 (illustrative weekly rate; check HMRC published rate for the year)
• Tick the voluntary Class 2 box on SA103. Paid through Self Assessment.

Section 5 -- Tier 1 Rules (When Data Is Clear)

5.1 Trading Income [T1]

• Trading income taxable / basis of recognition — All income from the trade is taxable. Cash basis is the default from 2024-25 (basis period reform completed); accruals available by election. Income recognised when received (cash) or when earned (accruals). (ITTOIA 2005, Part 2)

5.2 Wholly and Exclusively Test [T1]

• Wholly and exclusively test — An expense is deductible only if incurred wholly and exclusively for the purposes of the trade. Mixed-use expenses: only the business element is deductible. (ITTOIA 2005, s34)

5.3 Capital Allowances [T1]

Capital Allowances (CAA 2001)

Allowance	Rate	Eligible Assets
AIA	100% (to GBP 1m)	Most plant and machinery (NOT cars)
Main rate WDA	18% reducing balance	Cars 1-50 g/km CO2, assets exceeding AIA
Special rate WDA	6% reducing balance	Cars >50 g/km CO2, integral features, long-life assets
Zero-emission car FYA	100%	New cars with 0 g/km CO2

• Cars and AIA — Cars are NEVER eligible for AIA. Always use WDA pools or FYA (if zero-emission). Rates unchanged across 2024-25, 2025-26, 2026-27. (CAA 2001)

5.4 Basis Period Reform -- COMPLETED [T1]

• Basis period reform completed — Basis period reform completed on 5 April 2024. From 2024-25 onwards, all sole traders are on the tax-year basis (6 April to 5 April). No more "current year basis" overlap relief computations for new SE work. (Finance Act 2022 (introduced); Finance Act 2024 (completion).)
• Transition profit spreading — Transition profit (computed in 2023-24) is being spread across 5 years (20% per year, 2023-24 through 2027-28). The 2025-26 return includes the third 20% instalment; the 2026-27 return includes the fourth. Any unused overlap relief brought forward into 2023-24 was used or written off in the transition. Residual issues are R-UK-SE-5 (escalate). (Finance Act 2022 (introduced); Finance Act 2024 (completion).)

5.5 Loss Relief [T1]

Loss Relief

Basis	Available Reliefs
Cash basis	Carry forward only (no sideways, no carry-back)
Accruals	Carry forward, sideways (s64 ITA 2007), carry-back, early years (s72), terminal (s89)

• Sideways relief cap — Sideways relief cap: greater of GBP 50,000 or 25% of adjusted total income. Unchanged across the three years.

5.6 Filing and Payment -- 3-Year Schedule [T1]

Filing and Payment Schedule

Item	2024-25 (Prior)	2025-26 (Current)	2026-27 (From April 2026)
Paper SA filing deadline	31 October 2025	31 October 2026	31 October 2027 (or MTD final declaration via software if mandated)
Online SA filing deadline	31 January 2026	31 January 2027	31 January 2028
Balancing payment	31 January 2026	31 January 2027	31 January 2028
POA1 (current year)	31 January 2026	31 January 2027	31 January 2028
POA2 (current year)	31 July 2026	31 July 2027	31 July 2028
MTD quarterly updates	N/A	N/A (notification year for Phase 1)	Q1: 5 Aug 2026; Q2: 5 Nov 2026; Q3: 5 Feb 2027; Q4: 5 May 2027
MTD EOPS + final declaration	N/A	N/A	31 January 2028

5.7 Penalties [T1]

Penalties

Offence	Penalty
1 day late filing	GBP 100
3 months late	GBP 10/day for 90 days (max GBP 900)
6 months late	Greater of GBP 300 or 5% of tax due
12 months late	Greater of GBP 300 or 5% of tax due (additional)
Late payment (30 days)	5% of unpaid tax
Late payment (6 months)	Additional 5%
Late payment (12 months)	Additional 5%

• MTD ITSA points-based penalty regime — MTD ITSA points-based penalty regime (from 2026-27 for mandated traders): each missed quarterly update accrues 1 point; threshold (4 points for quarterly filers) triggers GBP 200 penalty per subsequent failure. Late payment under MTD uses the FA 2021 Sch 26 percentage regime. (FA 2021 Sch 26)

Section 6 -- Tier 2 Catalogue (Reviewer Judgement Required)

6.1 Home Office [T2]

Home Office Methods

Method	Deduction	Requirements
Simplified flat rate	GBP 10/18/26 per month by hours worked	Record hours monthly
Actual costs (proportional)	Room fraction of rent/mortgage interest, utilities, broadband, council tax, insurance	Dedicated workspace used exclusively for business

• Lock-in rule — Cannot claim both. Once chosen for a year, must use same method all year.

Flag for reviewer: Confirm workspace arrangement and hours/room proportion.

6.2 Motor Vehicle [T2]

Motor Vehicle Methods

Method	How It Works	Lock-in
Mileage rate	45p first 10k / 25p thereafter. No other car costs claimed.	Once chosen for a vehicle, cannot switch.
Actual costs	Fuel, insurance, repairs, road tax x business %. Plus capital allowances on purchase price.	Once chosen for a vehicle, cannot switch.

• Parking and tolls — Parking and tolls are deductible under EITHER method.

Flag for reviewer: Confirm method choice and business mileage/percentage.

6.3 Basis Period Transition Profit Instalment [T2]

For 2025-26: third 20% instalment of any transition profit computed in 2023-24. For 2026-27: fourth 20% instalment. For 2027-28 (out of scope here but flag forward): fifth and final instalment.

Flag for reviewer: Confirm transition profit running total and instalment amount, and consider acceleration election where beneficial.

6.4 Loss Relief Election [T2]

Choice of loss relief has significant planning implications. Consider: marginal rates, cash vs accruals, first 4 years of trade, cessation.

Flag for reviewer: Confirm which relief(s) to claim.

6.5 MTD ITSA Mandation Status [T2 -- New for 2025-26 / 2026-27]

For any client whose 2024-25 gross income (turnover plus gross rental income) approaches or exceeds GBP 50,000:

• Confirm whether HMRC has issued a mandation notice during 2025-26.
• Confirm MTD-compatible software selection and digital records compliance from 6 April 2026.
• Plan the quarterly cadence and assign internal review checkpoints.

For 2026-27 returns: if the client crosses the GBP 30,000 line in 2025-26 reporting, Phase 2 mandation kicks in from 6 April 2027 -- prepare in advance.

Flag for reviewer: Confirm mandation status, software choice, and quarterly update calendar.

Section 7 -- Excel Working Paper Template (2025-26)

SA103 WORKING PAPER -- Tax Year 2025-26

A. TURNOVER
  A1. Total sales/revenue                         ___________

B. EXPENSES (SA103F boxes)
  B1. Cost of goods sold (Box 10)                  ___________
  B2. Staff costs (Box 12)                         ___________
  B3. Car/van/travel (Box 13)                      ___________
  B4. Rent/rates/power/insurance (Box 14)          ___________
  B5. Repairs and maintenance (Box 15)             ___________
  B6. Phone/fax/stationery/office (Box 16)         ___________
  B7. Advertising (Box 17)                         ___________
  B8. Bank charges/interest (Box 18)               ___________
  B9. Bad debts (Box 19)                           ___________
  B10. Professional fees (Box 20)                  ___________
  B11. Other expenses (Box 22)                     ___________
  B12. Total expenses (Box 23)                     ___________

C. NET PROFIT (A1 - B12)                           ___________

D. CAPITAL ALLOWANCES
  D1. AIA claims                                   ___________
  D2. WDA (main rate pool)                         ___________
  D3. WDA (special rate pool)                      ___________
  D4. Total capital allowances                     ___________

E. TAXABLE PROFIT (C - D4)                         ___________

F. TRANSITION PROFIT INSTALMENT (if applicable)
  F1. 2025-26 third 20% instalment                ___________

G. CLASS 4 NIC (2025-26 rates: 6% / 2%)
  G1. (E + F1 capped at 50,270 - 12,570) x 6%      ___________
  G2. (E + F1 - 50,270) x 2% (if applicable)       ___________
  G3. Total Class 4 NIC                            ___________

H. CLASS 2 NIC (voluntary only)
  H1. Voluntary Class 2 if profit < SPT GBP 6,725  ___________

I. MTD ITSA STATUS (for 2026-27 planning)
  I1. 2024-25 gross income (turnover + property)   ___________
  I2. Above GBP 50,000? Phase 1 mandated 6 Apr 2026  Y / N

REVIEWER FLAGS:
  [ ] Cash basis or accruals confirmed?
  [ ] Mileage rate or actual costs for vehicle?
  [ ] Home office method confirmed?
  [ ] All entertainment removed?
  [ ] Transition profit instalment correctly stated?
  [ ] MTD ITSA mandation status confirmed?
  [ ] Voluntary Class 2 election considered if profit < SPT?
  [ ] All T2 items flagged?

Section 8 -- Bank Statement Reading Guide

UK Bank Statement Formats

UK Bank Statement Formats

Bank	Format	Key Fields
Barclays, HSBC, Lloyds, NatWest	CSV, PDF	Date, Description, Amount, Balance
Monzo, Starling, Tide	CSV	Date, Name, Amount, Category, Notes
Revolut Business	CSV	Date started, Description, Amount, Currency
Wise Business	CSV	Date, Description, Amount, Currency

Key UK Banking Terms

Key UK Banking Terms

Term	Classification Hint
BACS	Bank transfer -- check direction
FPS / Faster Payment	Bank transfer
DD / Direct Debit	Regular outgoing -- likely expense
SO / Standing Order	Regular outgoing
Card Payment / POS	Expense
Interest	Savings income -- not trade income
Dividend	Not trade income

Section 9 -- Onboarding Fallback

If the client provides a bank statement but cannot answer all onboarding questions:

1. Classify all transactions using the pattern library (Section 3)
2. Mark all T2 items as "PENDING"
3. Apply conservative defaults (Section 1)
4. Generate working paper with flags
5. Present questions:

ONBOARDING QUESTIONS -- UK SELF-EMPLOYMENT
1. Cash basis or accruals basis? (Cash is default from 2024-25)
2. Is your turnover above or below GBP 90,000? (determines SA103S vs SA103F)
3. Are you VAT registered? (figures should be net of VAT if so)
4. Vehicle: mileage rate or actual costs?
5. Home office: simplified flat rate or actual costs?
6. Any capital purchases this year? (computers, equipment, vehicles)
7. Any losses brought forward from prior years?
8. Do you have any other self-employments or rental property? (counts toward MTD threshold)
9. What was your 2024-25 gross income (turnover + gross rents)? (determines 2026-27 MTD Phase 1)
10. Have you received an HMRC MTD ITSA mandation notice?
11. Profits below GBP 6,725 -- do you want to pay voluntary Class 2 for State Pension credit?
12. Any transition profit instalments still running from basis period reform?

Section 10 -- Reference Material

Key Legislation

Key Legislation

Topic	Reference
Trading income	ITTOIA 2005, Part 2
Wholly and exclusively test	ITTOIA 2005, s34
Entertainment block	ITTOIA 2005, s45
Simplified expenses	ITTOIA 2005, ss 94D-94H
Trading allowance	ITTOIA 2005, s783A
Capital allowances	CAA 2001
AIA	CAA 2001, ss 38A-38B
Cash basis (default from 2024-25)	ITTOIA 2005, Part 2 Ch 3A as amended by FA 2024
Loss relief	ITA 2007, ss 64-90
Class 4 NIC (6%/2% post-Apr-2024)	SSCBA 1992, s15; National Insurance Contributions (Reduction in Rates) Act 2024
Class 2 abolition (compulsory)	National Insurance Contributions (Reduction in Rates) Act 2024
Basis period reform	Finance Act 2022 ss 6-7 and Sch 1; Finance Act 2024
MTD ITSA powers	Finance (No.2) Act 2017, ss 60-62; Finance Act 2021; Income Tax (Digital Requirements) Regulations 2021 (as amended)
MTD ITSA penalty regime	Finance Act 2021, Schs 24-26
Filing/penalties (annual SA)	TMA 1970

PROHIBITIONS

• NEVER allow business entertainment as a deductible expense
• NEVER allow accounting depreciation -- use capital allowances instead
• NEVER allow income tax or Class 4 NIC as deductible
• NEVER allow fines or penalties as deductible
• NEVER claim both trading allowance AND actual expenses
• NEVER claim AIA on cars -- cars are excluded from AIA
• NEVER claim full expensing for sole traders -- companies only
• NEVER claim sideways loss relief on cash basis
• NEVER include VAT-inclusive figures if VAT-registered
• NEVER separately claim fuel/insurance when using mileage rate
• NEVER compute profit without confirming cash or accruals basis
• NEVER apply pre-2024-25 "current year basis" rules -- basis period reform is complete; all SE traders are on tax-year basis
• NEVER charge compulsory Class 2 NIC for 2024-25 onwards -- it is abolished (voluntary only when profits < SPT)
• NEVER use the pre-April-2024 Class 4 main rate of 9% for 2024-25 onwards -- the rate is 6%
• NEVER assume a trader is outside MTD ITSA for 2026-27 without checking 2024-25 gross income against the GBP 50,000 Phase 1 threshold
• NEVER present tax calculations as definitive -- always label as estimated

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This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, EA, tax attorney, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon.

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