Digital bank Monzo has unveiled a new tax tool in a bid to reduce the substantial and time-consuming accounting workload currently endured by sole traders and landlords.

Built into Monzo’s business banking platform, the free feature will enable users to categorise transactions, track expenses by uploading receipts and set aside money to pay to the taxman at the end of each financial year.

The tool, based on accounting software developed by Sage, will also provide freelancers and landlords with guides, timelines and reminders to help them stay on top of their accounting responsibilities and comply with new roles being introduced by HM Revenue & Customs.

HMRC is pressing ahead with a new sole trader and landlord tax rule called Making Tax Digital for Income Tax. Set to come into force this April, it’ll require certain sole traders and landlords to use HMRC-compliant digital tools for creating and storing financial records. These will also need to be submitted to HMRC on a quarterly basis.

This new rule will initially affect sole traders and landlords whose income exceeds £50,000 in the next financial year. But the threshold will gradually reduce in the next few years - to £30,000 in April 2027 and £20,000 in April 2028.

Currently, freelancers are only required to complete a self-assessment document outlining all their financial transactions, expenses and income from the previous financial year and to pay tax by January 31st.

With these new rules just around the corner, Monzo research found that the vast majority of freelancers (70 per cent) are aware of them. But what’s concerning is that 28 per cent don’t think they’ll be ready to comply in time. What’s more, 69 per cent of freelancers don’t currently use premium digital tax tools.

The transition to digital tax tools will likely be seen as a good thing by many sole traders, as accounting currently takes up a significant amount of their time and causes a lot of stress. Monzo found that, for 54 per cent of sole traders, tax-related accounting takes two hours a month or 27 a year. Based on minimum wage, they could be losing £343 a year.

In another new finding, Monzo claims that 52 per cent of sole traders are stressed by their tax and business accounting obligations. And due to the confusing nature of accounting and the amount of time it can take to complete, 44 per cent of sole traders have made late tax return filings.

Monzo hopes to alleviate this stress by rolling out its new tax tool ahead of the next financial year, which will start on April 6th. Both free and paying Monzo business account holders will be able to access it.

Jordan Shwide, general manager at Monzo Business, said: “Sole traders already work incredibly hard, often at the expense of their own time and wellbeing. With Making Tax Digital coming soon, we want to make sure people feel supported - not overwhelmed.

“By building a simple tax tool directly into everyday business banking, we’re helping sole traders save hours of admin each month. That means less stress, fewer late nights, and maybe even time for an extra coffee break or two.”

---