Making Tax Digital for Income Tax: One Year to Go

The UK tax landscape is on the cusp of a significant transformation. Starting 6 April 2026, sole traders and landlords with annual gross income exceeding £50,000 will be required to comply with Making Tax Digital (MTD) for Income Tax . This initiative aims to modernise the tax system, making it more efficient and user-friendly. 

What is MTD for Income Tax?

MTD for Income Tax is a government-led programme designed to digitise the tax reporting process. Instead of the traditional annual Self-Assessment, affected individuals will need to: 

• Maintain digital records of income and expenses.
• Use MTD-compatible software to submit quarterly updates to HMRC.
• Provide a final declaration at the end of the tax year.

This approach aims to reduce errors, streamline tax submissions, and provide taxpayers with a clearer picture of their financial obligations throughout the year.

Who Will Be Affected?

From April 2026, the MTD requirements will apply to individuals: 

• Registered for Self-Assessment.
• Earning over £50,000 annually from self-employment or property income.
• With income sources established before 6 April 2025. 

The scope will expand in subsequent years:

• April 2027: Individuals earning over £30,000.
• April 2028: Threshold expected to lower to £20,000. 

Benefits of the Digital Shift

Transitioning to a digital system offers several advantages:

• Efficiency: Quarterly updates distribute the workload, reducing the year-end rush.
• Accuracy: Digital records minimise errors common in manual entries.
• Transparency: Regular updates provide real-time insights into tax liabilities.
• Time-Saving: Automated processes free up time for core business activities. 

Preparing for the Change

With a year to go, it’s advisable to start preparing:

1. Assess Your Income: Determine if your income exceeds the £50,000 threshold.
2. Choose Compatible Software: Select MTD-compliant software that suits your needs.
3. Digitise Records: Begin maintaining digital records to familiarise yourself with the process.
4. Join the Pilot Programme: HMRC encourages early adoption through its testing programme, offering support and guidance. 

Implications of Non-Compliance

Failure to comply with MTD requirements can result in penalties. From April 2025, late submission penalties for Self-Assessment and VAT returns will increase, with fines potentially reaching up to 10% of the tax owed. 

Conclusion

The move towards Making Tax Digital represents a significant shift in the UK’s tax administration. By embracing digital tools and processes, taxpayers can benefit from increased efficiency, accuracy, and transparency. With the April 2026 deadline approaching, early preparation is key to a smooth transition.

The UK government is introducing a significant shift in pension schemes with the expansion of Collective Defined Contribution (CDC) pensions. This move aims to provide more predictable retirement incomes while reducing risks for future pensioners.

What Are CDC Pensions?

CDC pensions are a hybrid between traditional Defined Benefit (DB) and Defined Contribution (DC) schemes. In CDCs, both employers and employees contribute to a collective fund. This pooled approach allows for shared investment and longevity risks, aiming to provide a stable income in retirement without the financial unpredictability often associated with individual DC plans. Unlike DB schemes, CDCs don’t guarantee a fixed income, but they strive for a target pension income, adjusting payouts based on the fund’s performance.

Recent Developments

Royal Mail has already implemented a CDC scheme for over 100,000 employees, offering a combination of a cash lump sum and a lifetime income upon retirement. Building on this, the government plans to introduce regulations allowing multiple unconnected employers to participate in CDC schemes. This change is expected to broaden access, enabling more workers to benefit from the stability and potential higher returns that CDCs offer.

Benefits of CDC Schemes

• Predictable Income: By pooling resources, CDCs can provide a more stable retirement income compared to individual DC plans.
• Risk Sharing: Investment and longevity risks are shared among all members, reducing the burden on individuals.
• Cost Efficiency: Employers can offer a pension scheme with predictable costs, avoiding the financial strain associated with DB schemes.

Considerations

While CDCs offer several advantages, they also come with considerations:

• Variable Payouts: Since benefits depend on the fund’s performance, payouts can fluctuate, and in adverse conditions, they may be reduced.
• Intergenerational Fairness: Ensuring that contributions and benefits are equitable across different age groups is crucial to maintain trust in the system.

Looking Ahead

The government’s initiative to expand CDC schemes represents a significant evolution in the UK’s pension landscape. By allowing multiple employers to participate, the potential for wider adoption increases, offering more workers access to a pension scheme that balances predictability and shared risk.

As always, it’s essential for individuals and employers to stay informed about these changes and consider how they align with their retirement planning goals.

The UK government has announced a record-breaking £13.9 billion in research and development (R&D) funding for the coming year. This major investment is designed to drive innovation, create quality jobs, and support long-term economic growth across the country.

A large share of the funding, amounting to £8.8 billion, has been allocated to UK Research and Innovation (UKRI), which supports the UK’s leading scientific and technological projects. This funding will help deliver groundbreaking work across multiple sectors including life sciences, clean energy, and advanced engineering.

One of the headline projects includes research into new blood tests aimed at detecting dementia earlier. With nearly a million people in the UK affected by the condition, early diagnosis could make a big difference to treatment outcomes and overall quality of life. It would also help reduce pressure on health and care services.

Another key area of investment is renewable energy. The government is continuing its support for the construction of a new wind turbine test facility in Blyth, Northumberland. This project, which is receiving £86 million, is expected to boost the UK’s capacity for clean energy development, support highly skilled local employment, and attract further private investment into the green economy.

The government sees this R&D investment as a central part of its broader ‘Plan for Change’, which aims to strengthen public services while encouraging economic opportunity and innovation. Officials believe that public investment in R&D often leads to a doubling of private sector investment over time. Evidence shows that businesses receiving R&D grant funding often experience more than 20 percent growth in both employment and turnover within six years.

Science and Technology Secretary Peter Kyle described the investment as a commitment to the future. He said innovation is central to solving society’s biggest challenges, from life-saving medical advances to tackling climate change. He also stressed that research and development plays a vital role in growing the economy and supporting public services across the UK.

This unprecedented level of funding shows that the UK is serious about its role as a global leader in science and technology. By supporting bold ideas and giving researchers the tools they need, the government hopes to unlock progress, create opportunity, and deliver real benefits for people and businesses throughout the country.

Alongside tax reforms, HMRC’s Spring 2025 update introduces a variety of regulatory changes that will affect how small businesses operate and interact with government systems. Here’s what’s new:

1. Cultural Gift Scheme Reform

Updates to the Cultural Gift Scheme will remove restrictions on jointly owned objects and allow more flexibility in how tax credits are applied. These changes are designed to increase the scheme’s accessibility and uptake, particularly for those donating valuable cultural items.

2. VAT Terminal Markets Order Reform

The government has completed its initial consultation and will continue engaging with industry stakeholders to reform the VAT terminal markets order. This is intended to reflect modern market practices, including developments in emissions trading and other financial instruments.

3. State Pension Forecast Improvements

Enhancements are being planned for the ‘Check your state pension forecast’ online service. The aim is to make it easier for individuals to view their forecast and understand whether making voluntary National Insurance contributions could improve their entitlements.

4. NIC Refund Process Review

A review is underway to simplify the process for claiming National Insurance refunds under the annual maximum rules. Many overpay without realising, and the goal is to make refunds more accessible and the process less time-consuming.

5. Clearer Self-Assessment Registration Guidance

HMRC plans to collaborate with taxpayer representatives and other stakeholders to provide clearer guidance on when individuals are required to register for Self-Assessment. This should help reduce confusion, particularly for those with mixed or modest income streams.

6. Simpler HMRC Communications

The government is committed to making HMRC’s letters and communications easier to understand. They’ll work with the Administrative Burdens Advisory Board and other groups to revise templates and simplify the language used in official correspondence.

These regulatory changes reflect a continued emphasis on reducing friction between small businesses and government. Whether it’s streamlining communications or improving digital services, the overall direction is towards making things more manageable, saving time, and cutting through the bureaucracy.

1 May 2025 – Due date for corporation tax due for the year ended 30 July 2024.

19 May 2025 – PAYE and NIC deductions due for month ended 5 May 2025. (If you pay your tax electronically the due date is 22 May 2025).

19 May 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2025.

19 May 2025 – CIS tax deducted for the month ended 5 May 2025 is payable by today.

31 May 2025 – Ensure all employees have been given their P60s for the 2024/25 tax year.

1 June 2025 – Due date for corporation tax due for the year ended 31 August 2024.

19 June 2025 – PAYE and NIC deductions due for month ended 5 June 2025. (If you pay your tax electronically the due date is 22 June 2025).

19 June 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2025.

19 June 2025 – CIS tax deducted for the month ended 5 June 2025 is payable by today.

Child Benefit has risen for 2025-26: £26.05 for eldest, £17.25 for others. Claim continues to age 20 in approved education. HICBC still applies for incomes over £60K – but PAYE option coming this summer!

The child benefit rates for the only or eldest child in a family increased to £26.05 (from £25.60) for the 2025-26 tax year and the weekly rate for all other children to £17.25 (from £16.95). Child Benefit is usually paid every 4 weeks and will automatically be paid into a bank account. There is no limit to how many children parents can claim for.

Taxpayers entitled to the child benefit should be aware that HMRC usually stop paying child benefit on the 31 August following a child’s 16th Birthday. Under qualifying circumstances, the child benefit payment can continue until a child reaches their 20th birthday if they stay in approved education or training. A qualifying young person is someone aged 16,17, 18 or 19 in full time non-advanced education or in approved training.

Any parents with children that remain in approved education or training should contact the child benefit office to ensure they continue receiving the child benefit payments to which they are entitled. No child benefit is payable after a young person reaches the age of 20 years.

Child benefit is usually payable for children who come to the UK. However, there are a number of rules which must be met in order to claim. HMRC must be notified without delay if a child receiving child benefit moves permanently abroad.

The High Income Child Benefit Charge (HICBC) currently applies to taxpayers whose income exceeds £60,000 in a tax year and who are in receipt of child benefit. The HICBC is charged at the rate of 1% of the full child benefit award for each £200 of income between £60,000 and £80,000. For taxpayers with income above £80,000 the amount of the charge will equal the amount of child benefit received.

The HICBC therefore either reduces or removes the financial benefit of receiving child benefit. It was announced as part of the Spring Statement measures that from this summer, families will have the option to report their Child Benefit payments and pay the HICBC directly through their PAYE tax code instead of filing a self-assessment tax return.

HMRC has announced that interest rates for late payments will increase by 1.5% for all taxes starting 6 April 2025. This change, which was first announced at Autumn Budget 2024, will raise the late payment interest from the current base rate plus 2.5% to base rate plus 4.00%. This adjustment applies to most taxes. Late payment interest is automatically applied by HMRC and accrues on any unpaid tax liability from the due date until the amount is fully paid.

HMRC interest rates are determined by legislation and are tied to the Bank of England’s base rate. While the rate for late payments is set to increase, the rate for repayment interest will remain unchanged. Currently, repayment interest is set at base rate minus 1%, with a minimum floor of 0.5%.

The purpose of the late payment interest rate increase is to encourage timely tax payments, ensuring fairness for those who pay on time. HMRC also says that this increase aligns its practices with those of other tax authorities globally, as well as with commercial norms for loan and overdraft interest rates. The repayment interest rate compensates taxpayers fairly for any overpayments.

MTD for Income Tax kicks off in April 2026 for those earning over £50k. Digital records, quarterly updates, and tougher penalties are on the way. If this affects you, it’s time to get ready.

Designed to modernise the tax system and improve accuracy, MTD will significantly change how Income Tax is reported and paid. With less than a year until the first group of taxpayers must comply, now is the time to prepare.

MTD for Income Tax will become mandatory for self-employed individuals and landlords with annual business or property income exceeding £50,000 from April 2026,. This will require taxpayers to submit quarterly updates to HMRC, maintain digital records, and comply with a new penalty regime for late submissions and payments.

The second phase of implementation will begin in April 2027, extending the requirements to those earning between £30,000 and £50,000. In a further expansion announced during the Spring Statement 2025, MTD obligations will apply to sole traders and landlords with income over £20,000 starting April 2028. The government has also indicated that it is considering the best approach for individuals earning below this threshold.

HMRC is currently contacting taxpayers whose 2023-24 self-assessment returns indicate income near or above the £50,000 threshold. These letters are intended to provide advance notice of upcoming obligations under MTD.

Want to make the most of your pension savings? You could claim up to 45% tax relief on contributions, plus carry forward unused allowances. Here’s how to boost your retirement pot with generous HMRC incentives.

Tax relief on private pension contributions is generally available up to 100% of your annual earnings, subject to specific limitations. The relief is applied at your highest rate of Income Tax, which means:

• Basic rate taxpayers are eligible for a 20% pension tax relief.
• Higher rate taxpayers can claim a 40% pension tax relief.
• Additional rate taxpayers are entitled to 45% pension tax relief.

For individuals paying the basic income tax rate, the initial 20% pension tax relief is typically applied automatically by their employer.

Higher and additional rate taxpayers can claim the additional relief through their self-assessment tax return as follows:

• An additional 20% relief on income taxed at 40%
• An additional 25% relief on income taxed at 45%

Alternatively, if taxpayers are subject to 40% income tax and do not submit a self-assessment return, they may contact HMRC directly to request the relief.

These tax relief rates apply to taxpayers in England, Wales, and Northern Ireland. It is important to note that Scotland has some regional variations for Income Tax rates.

Furthermore, there is an annual allowance of £60,000 for pension tax relief. Taxpayers have the opportunity to carry forward any unused portion of this allowance from the previous three tax years, provided they made pension contributions during those years. As of 6 April 2023, the lifetime limit for pension tax relief was abolished, offering greater flexibility in pension contributions without the previous lifetime cap.

The Spring 2025 Tax Update brings a series of reforms aimed at simplifying tax administration and reducing burdens for UK businesses. Here’s a breakdown of the key changes:

1. Capital Goods Scheme Simplification

The government plans to simplify the Capital Goods Scheme by removing computers from the assets it covers and increasing the capital expenditure value threshold for land, buildings, and civil engineering work to £600,000 (exclusive of VAT). This change should reduce the number of capital assets within the scheme, making administration easier for small businesses.

2. Spirit Drinks Verification Scheme Overhaul

For those in the spirits industry, a new flat fee of £250 per facility every two years will replace the current verification charges, effective from July 2025. This simplification should bring cost savings and reduce red tape.

3. Corporate Interest Restriction Administration

HMRC is exploring ways to simplify the administrative rules around Corporate Interest Restriction, especially regarding the appointment of reporting companies. This is an ongoing discussion with stakeholders.

4. International Tax Rule Reforms

New draft legislation is being reviewed to modernise rules on transfer pricing, permanent establishments, and Diverted Profits Tax. These reforms aim to align UK rules with global standards and reduce ambiguity for businesses operating internationally.

5. Electronic Invoicing Consultation

The government is seeking feedback on proposed standards for electronic invoicing (e-invoicing), aiming to boost adoption across both the private and public sectors. The long-term goal is to improve efficiency and reduce paperwork.

6. Revisions to Employment Status Tool

The ‘Check Employment Status for Tax’ (CEST) tool is being updated to make it more user-friendly, with revised guidance to help users navigate the updated questions from April 2025.

7. Simplified Employer NIC Elections

From May 2025, employers using a standard form from GOV.UK to transfer NIC liabilities to employees will no longer need HMRC’s pre-approval. This reduces administrative overhead for employers managing share-based pay.

8. Reversal of Proposed PAYE Reporting Rule

Plans requiring employers to provide detailed employee hours via PAYE from 2026 have been scrapped, relieving businesses from potential new reporting obligations.

9. Delay to Payrolling of Benefits in Kind

Mandatory payrolling of benefits in kind has been pushed back a year to April 2027. Employers will have additional time to adjust payroll systems, and HMRC has released updated guidance.

10. New Self-Assessment Thresholds

From 2025-26, the thresholds for trading, property, and other taxable income will be aligned at £3,000 gross. This means up to 300,000 individuals could avoid filing a full Self-Assessment return, instead using a simpler digital reporting service.

These changes are part of a broader drive to make tax simpler, fairer, and more efficient for small businesses.