Big change on way for landlords and self-employed earning over £50,000
A big change is on its way when it comes to how self-employed workers and landlords earning more than £50,000 a year submit their tax returns and deal with HMRC.
From 6 April this year, self-employed workers and landlords in that income category will need to keep digital records and submit quarterly income updates to HMRC, rather than relying solely on a single annual tax return.
This is part of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA).
This change comes as tax experts at Dext warn that misconceptions about the new system are spreading quickly with businesses rushing to artificial intelligence (AI) to try to get answers to their tax queries. Dext – which offers automation software – says this could have potentially disastrous results, including the risk of business failures.
Findings of Scottish research by Dext, based on consulting 29 accountants and bookkeepers in Scotland, found that 82 per cent reported a general surge in clients using “public AI”, such as ChatGPT, for tax “advice”.
The most common mistakes being found include incorrectly interpreting business expenses (61 per cent of cases), and messing up VAT claims (46 per cent). Dext said the “AI slop impact” on tax is so bad that just over a fifth (21 per cent) of accountants in Scotland warn that relying on generic AI could actually trigger insolvency or business failures this year.
Almost half of Scottish accountants reported that clients trusting public AI have already been hit with real-world financial losses, from heavy HMRC penalties and overpaid tax to missed allowances.
Paul Lodder, vice president accounting product strategy at Dext, says: “The damage is no longer hypothetical. Businesses are already losing money, and accountants are spending valuable time correcting avoidable mistakes, from VAT and payroll errors to misinterpretation of expenses.
“AI has a powerful role to play in finance, but there’s a fundamental difference between specialist tools built for accounting and bookkeeping, and general-purpose chatbots that don’t know a business’ true financial context.”
He adds: “Based on the research we did, 82 per cent Scottish accountants have found a real surge in clients using AI tools. These tools are very easy to use and you’ll always get a response. But that, in turn, leads to real concerns. Often the questions being asked mirror the knowledge of the person asking the question.“This is why you need that professional expertise to support you on any decision being made around accounting and tax. It can be catastrophic if you don’t have all of the context. An accountant and professional adviser will always ask you more questions until they’ve got enough information to be able to come to a conclusion or the best plan of action.”
With tools like ChatGPT you ask it a question, get an answer and that will be the end of the matter. If you haven’t given it enough information, you’re really at a high risk of undertaking a task or an activity or making a decision that could ultimately lead to business failure.”
Accountants expect the risks to intensify this year if businesses continue relying on public AI tools without professional oversight.
John Allan, director at Glasgow-based Clydegrove Accountants, says: “We have a fair amount of clients, such as taxi drivers, who years ago you would never have thought would be earning near £50,000 a year, but a lot are now, certainly in terms of turnover.
“We have quite a few clients this year that are hitting MTD and we will have an awful lot the year after. So we’re putting processes in place. It’s really about trying to train clients as to what to do and what not to do. It used to be ‘my pal down the pub told me that…’ and now it’s ‘ChatGPT told me’ –which is more dangerous.”
With concerns mounting, accountants are calling for urgent intervention. More than nine in ten UK accountants believe public AI tools should be regulated and/or restricted when providing financial advice, with 70 per cent calling for regulation.
Lodder comments: “The focus now should be on responsible guardrails, clearer restrictions around financial advice, and better education for businesses on what these tools can and cannot safely be used for.”
Allan agrees that the introduction of guardrails are part of the solution: “AI has its place, but check it, rather than just accepting what it says. We have internal processes in place – our own guardrails –where someone will check things and someone will sign them off.”
Lodder adds: “At the end of the day, when you complete your self-assessment return, or whatever it may be, there’s a legal declaration basically saying that you’re agreeing that everything is correct. You need that personal accountability that you’re comfortable with the numbers and have done the review process.”
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