We’re just out of 2024. The snowdrops are still in flower. Spring has barely sprung. Yet you want me to think about 2026?
I’m sorry, but the answer’s “yes”. Next year, many clients will be affected by some changes coming from our friends at HMRC. So it’s important that we share them with you in plenty of time, and in plain English.
The name of this change is as catchy as ever: Making Tax Digital for Income Tax. It’s known as MTD IT for short. If you’re self-employed or a landlord, it’s going to affect how you manage your taxes before long. Don’t worry – it’s not really that daunting. Let’s break it down for you: what’s changing, why, and what it means for you.
What’s changing?
MTD IT is part of the push to modernise our tax system. Right now, if you’re self-employed or earning rental income, you submit a self assessment tax return to HMRC. That’s been true for a long time – gather the records, send them to Merlin, and we do the rest. But from 6 April 2026, instead of one big yearly submission, you’ll need to report your income and expenses every quarter.
So we’re moving from once a year to four times a year, and you must use approved, compatible software. Paper records and manual spreadsheets won’t cut it. Everything has to flow through software that HMRC have authorised. Then, at the end of the year, there’ll be a final declaration to wrap things up.
Why?
Changes like this always give us some short-term pain and teething problems. But the goal is to make the system more accurate, and easier for everyone. By reporting quarterly, you’ll have a clearer, real-time picture of your tax position. No more nasty surprises when the annual bill lands. HMRC also reckon it will reduce errors. After all, little slip-ups happen when you’re dealing with months-old records that aren’t fresh in your mind.
Better data helps HMRC stay more up-to-date. In turn, that helps them spot discrepancies faster and clamp down on pesky tax evaders. It’s all part of their bigger vision to ‘make tax digital’, a project that started with VAT a few years back. In time, we can expect other taxes to move to the digital-only space, too.
What it means for you
MTD IT is mandatory, but it’s being phased in. For many sole traders and landlords, the first date we must be aware of is April 2026. You’ll be required to sign-up if your income is over £50,000. Before long, that threshold is trickling down from the high-earners to £30,000. Our advice is to just assume you’re in scope. Better to be ready than caught out.
Here are three key things to get on top of now:
Digital record keeping. Many of our clients already use software to manage their records, so you may already be ahead of the game. If not, we’ll need to get you set up with tools like QuickBooks or Xero. We use them to track your income and expenses and send updates straight to HMRC. Check in with us to see if you’re already prepared or might need some help.
Start thinking about updating your income data every three months. If you’re VAT-registered, you already supply VAT data quarterly. So this is another task, but its rhythm is the same. This year will fly by, so it’s good to get into the right habits now. When MTD ID is live, you won’t pay income tax quarterly (that still happens annually). But you’ll get an estimate of what you owe as you go.
Spread the time and cost. Depending on your IT setup, there may be a little time and cost needed to prep for MTD ID. The longer you give yourself, the better. Yes, there’s some upfront effort on your part, but the Merlin team is always here with advice.
Finally…
MTD IT isn’t optional. It’s coming, ready or not. (We will be!). HMRC tell us it’s a way of simplifying taxes, and that’s something we can all get behind. That may be true in the long-term, but we should expect some gremlins and bumps in the road. In time, they should smooth out. With any luck, that means better clarity on what you owe and fewer year-end panics. Now wouldn’t that be nice…
How Merlin can help
To find out more about how we can help your business, please contact us. Our clients say that it’s useful to have a numerate friend prodding their thinking, especially one who understands the issues. If you’re not already a client, please get in touch here. You’ll find us a good fit if you’re looking for an accountant as an investment – rather than just a cost.
