HMRC’s new tax reporting regime “Making Tax Digital for income tax” (MTD IT) will be compulsory from April 2026 for self-employed individuals with income (turnover, not profit) more than £50,000 or gross rental income more than £20,000.
MTD IT mandates the use of digital accounting records, such as bookkeeping software or a spreadsheet, and information will need to be submitted electronically to HMRC every quarter.
If a taxpayer’s 2023/24 Self-Assessment Tax Return shows their income (turnover, not profit) either exceeds, or is close to, £50,000 then they will receive a letter from HMRC in April 2025.
This letter will inform them that they may need to use Making Tax Digital for Income Tax (MTD IT).
There will be two different letters – one for taxpayers already expected to comply with MTD IT and another for those whose turnover is between £45,000 and £50,000.
HMRC will inform taxpayers if they must use MTD IT after they file their 24/25 Self-Assessment Tax Return, in which case the requirement to operate MTD IT will be effective from April 2026.
Individuals will need to sign up to MTD IT because this will not be done automatically.
Over the coming weeks, we will be contacting our clients that could be affected to plan for the implementation in April 2026.
Company and LLP size thresholds
New regulations increasing company and LLP size thresholds will be effective from 6 April 2025.
The new size thresholds, set out below, will be met for a financial year if any two of the three criteria are met.
An entity needs to satisfy the threshold criteria in two consecutive years. When determining company size for a financial year beginning on or after 6 April 2025, a transitional provision allows preparers to assume that the new thresholds had been applicable in the previous financial year.
Entities moving into the small companies’ regime will be exempt from the audit requirements (subject to the usual exceptions). They will also be able to take advantage of simpler accounting requirements.
HMRC abandons requirement to report employees’ hours data through RTI
HMRC originally planned for employers to report Real Time Information on employees’ hours from April 2025.
This was then delayed until April 2026, but HMRC have now abandoned plans to introduce this requirement altogether.
HMRC has said that it has listened to feedback and “acknowledges the potential administrative burden highlighted by businesses”.
The current requirement for employers to report normal hours worked will continue, as will the need to provide evidence of actual hours worked for national minimum wage calculations.
Changes to Employment Allowance from 2025/26
From April 2025, the allowance will increase from £5,000 to £10,500 and the £100,000 NIC contributions threshold for Employment Allowance will be removed, meaning that more employers will be able to claim the Employment Allowance.
The restrictions on claiming remain if you have more than one payroll in connected entities, are employing a domestic worker, are a single director company, and for those employers carrying on functions of a wholly or manly public nature such as GP practices.
Although some software may retain the fields as a legacy, due to the expiry of the Brexit transition period, there will no longer be a requirement to confirm that the State Aid criteria are met.
New Tax Return requirements for sole traders and directors
Legislation has been passed that imposes new mandatory tax return requirements on:
- Taxpayers who start or cease to trade; and
- Directors of close companies (basically those with 5 of fewer shareholders, or where all directors are shareholders)
The requirements take effect from 5 April 2025 and apply to tax returns from 2025/26 onwards.
Where a person starts or ceases a trade during a tax year, they must report the date of commencement/cessation in the tax return for that year.
From 2025/26 the tax returns will include a mandatory field asking whether the individual is a company director of a close company. A director of a close company must then include the following information in their tax return:
- The name and registered number of the company
- The value of dividends received from the close company during the tax year. The dividends will be declared separately from other UK dividends; and
- Their percentage shareholding in the company during the year. If the percentage shareholding changes during the year, the person should record the highest percentage shareholding. HMRC are yet to clarify how this will work when there is more than once class of share.
Gibson Whitter contributes to study into HMRC Customer Service challenges
The Institute of Chartered Accountants in England and Wales and the Chartered Institute of Taxation, launched a joint report addressing HMRC’s customer service challenge and setting out ten key recommendations for improvement.
As a member of both professional bodies, Gibson Whitter director Linda Gibson represented the firm’s views and suggestions during this six-week study. Gibson Whitter was one of 31 firms participating in the study, other firms participating in the study included Ernst and Young, Grant Thornton and PriceWaterhouseCoopers.
The two professional bodies hope to continue to work with HMRC to make meaningful improvements to their customer service.
We acknowledge the stress and frustration our clients experience from the deterioration in HMRC’s customer service and we will continue to play our part in striving for improvement.
