What Small Businesses Need to Know About Income Tax Changes from 2026

Chris White • May 17, 2025

Navigating the Digital Tax Revolution

For many small business owners, staying on top of tax obligations can be a daunting task. Between juggling operations, managing cash flow, and serving customers, tax compliance often feels like just another item on a never-ending to-do list. Enter Making Tax Digital (MTD) – a government initiative designed to simplify the tax system through digital record-keeping and submissions.

But what does MTD actually mean for your business? From 2026, MTD will apply to Income Tax Self Assessment (ITSA), marking a significant shift in how self-employed individuals and landlords manage and report their taxes. In this guide, we break down what you need to know about the upcoming changes.

What Is Making Tax Digital?

Making Tax Digital is a UK Government initiative launched by HMRC to make the tax system more effective, efficient, and easier for taxpayers to get their tax right. It aims to replace paper-based tax filing with digital record-keeping and online submissions.

The key goals of MTD are:

Improve accuracy and reduce errors
Make it easier for individuals to stay on top of their tax affairs
Promote the use of digital tools to simplify tax processes

What it means for individuals from 2026:
Self-employed individuals and landlords with income over certain thresholds will need to maintain digital records and submit updates using MTD-compatible software.

Who Needs to Comply with MTD for Income Tax?

Understanding whether you fall under the new MTD for ITSA rules is the first step to compliance.

From April 2026:

Self-employed individuals and landlords with annual income over £50,000 must follow MTD rules.

From April 2027:

The threshold lowers to £30,000, bringing more individuals into the scope of MTD for ITSA.

Exemptions may apply in cases of age, disability, or if you live in an area with poor internet access, but these must be formally requested and approved by HMRC.

Digital Record-Keeping Requirements

Under MTD for Income Tax, it’s not just about submitting your taxes online. You must also maintain certain records digitally throughout the year.

What you need to keep digitally:

Your business income and expenses
Details of rental income if you're a landlord
Relevant digital receipts and invoices
Adjustments and allowances

How to do it:
You must use MTD-compatible software (like Xero, QuickBooks, Sage, etc.) or a bridging tool if you currently use spreadsheets. The software must be able to communicate with HMRC via their API.

Benefits of Making Tax Digital

Although it may seem like more work at first, MTD offers several benefits for individuals:

Improved accuracy: Digital records reduce the risk of manual errors.
Time savings: Automation features in accounting software streamline the process.
Real-time view of finances: You can make better financial decisions with up-to-date insights.
Simplified submissions: Quarterly updates help avoid surprises at year-end.
Better compliance: Helps you stay on the right side of HMRC regulations.

Common MTD Pitfalls and How to Avoid Them

1. Not using compatible software
Make sure the software you choose is recognised by HMRC as MTD-compatible.

2. Missing submission deadlines
From 2026, you'll need to submit quarterly updates and an end-of-period statement. Set calendar reminders and use software alerts.

3. Incomplete digital records
Keep everything from invoices to expense receipts digitally. Paper-only systems won’t cut it anymore.

4. Assuming it doesn’t apply to you
Even if you’re under the threshold now, be aware of upcoming changes and prepare ahead of time.

Getting Started with MTD for Income Tax

Here’s a simple roadmap to help you prepare for MTD-ITSA:

Check if you need to register: Review your income sources to determine if you'll fall within the new thresholds.
Choose MTD-compatible software: Select a platform that integrates with HMRC and suits your needs.
Set up digital record-keeping: Begin recording transactions digitally now to get used to the process.
Register for MTD: Do this through your HMRC online account when registration opens.
Submit quarterly updates: Prepare to begin submitting from the start of the 2026–27 tax year.

Conclusion: Embracing the Digital Future of Income Tax

Making Tax Digital for Income Tax is the next big step in HMRC's move to modernise the UK tax system. While the transition may feel overwhelming, early preparation can make a world of difference. By embracing digital tools now, you can save time, reduce errors, and feel more in control of your finances.

Need help navigating MTD or choosing the right software? CW Licensed Bookkeeper & Accountant is here to support self-employed individuals and landlords through every step of the transition.

Contact us today at info@cwabc.co.uk or call 07306 812321.

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Get Ahead of the Curve: Join the MTD for ITSA Testing Phase with CWABC

By Chris White • April 20, 2025

Making Tax Digital for Income Tax is coming. Learn how CWABC can help you join the MTD testing phase, stay compliant, and simplify your taxes—stress-free.

Boost for Side Hustlers: Changes to UK Tax Rules and What They Mean for You

By Chris White • March 17, 2025

Introduction The UK government has announced a major change in tax reporting rules that will benefit thousands of people earning extra income through side hustles. The threshold for filing a Self Assessment tax return is increasing from £1,000 to £3,000, meaning approximately 300,000 taxpayers will no longer need to submit a tax return. This change is designed to reduce administrative burdens and make it easier for individuals to manage their additional income. So, what does this mean for you if you have a side hustle? Let's break it down. Understanding the New Tax Rules Previously, if you earned more than £1,000 from self-employment or side activities, you were required to file a Self Assessment tax return. Under the new rule: Earnings up to £1,000 : No tax is due, and no reporting is necessary, thanks to the existing trading allowance. Earnings between £1,000 and £3,000 : You will owe tax on the amount exceeding £1,000. However, you will no longer need to file a full Self Assessment tax return. Instead, HMRC is introducing a simplified online system for reporting and paying tax. Earnings above £3,000 : A full Self Assessment tax return is still required. This change is part of the government's efforts to modernize HMRC and streamline tax reporting, particularly for people earning small amounts on the side. Who Benefits from This Change? This new threshold primarily benefits individuals with small-scale side hustles, including: Selling goods on platforms like eBay, Vinted, or Depop. Providing freelance services such as graphic design, writing, or tutoring. Working in the gig economy through platforms like Uber or Deliveroo. Renting out personal assets, such as through Airbnb. The government estimates that around 90,000 individuals within this group will owe no tax and therefore will not need to report their earnings at all. For those earning above £1,000 but below £3,000, the new simplified system will make tax payments easier and more efficient. Why the Government is Making This Change The government is aiming to reduce the administrative burden on both taxpayers and HMRC. By eliminating the need for thousands of small earners to file full tax returns, the new policy allows HMRC to focus its resources on higher earners and complex tax cases. Additionally, this move supports the growing gig economy, making it easier for individuals to supplement their income without being bogged down by paperwork. What You Need to Do If you have a side hustle, here’s what you should consider: Review Your Earnings : Determine whether your total income from side activities falls within the new thresholds. Understand Your Tax Liability : If you earn between £1,000 and £3,000, keep track of your income and expenses so you can accurately report your taxable earnings. Stay Updated : HMRC will introduce a new online reporting system for those earning between £1,000 and £3,000. Make sure you understand how to use it once it becomes available. Seek Professional Advice : If you’re unsure about your tax obligations, consulting a licensed bookkeeper or accountant can help ensure compliance and optimize your tax situation. Conclusion The increase in the Self Assessment threshold to £3,000 is great news for side hustlers across the UK. This change will reduce paperwork, simplify tax payments, and make it easier for individuals to earn extra income without the stress of unnecessary filings. However, tax rules can still be complex, and it’s essential to stay informed. If you have any questions or need assistance managing your finances, contact CW Licensed Bookkeeper & Accountant at info@cwabc.co.uk or call 07306 812321 for professional guidance.

Is Your Accounting Software the Right One for You?

By Chris White • February 25, 2025

Choosing the right accounting software is crucial for managing your business finances effectively. The right software can save you time, reduce errors, and provide valuable insights into your financial health. However, with so many options available, how do you know if the one you're using is truly the best fit for your needs? In this blog, we'll explore key signs that indicate whether your accounting software is helping or hindering your business. We'll also provide guidance on what features to look for and when it might be time to switch to a better solution. Signs Your Accounting Software Might Not Be the Right Fit If you’re experiencing any of the following issues, it might be time to reconsider your accounting software: 1. It’s Too Complicated or Too Basic Some software solutions are packed with features that small businesses may never use, making them overwhelming and difficult to navigate. On the other hand, some software may be too simplistic, lacking essential features like invoicing, tax reporting, or payroll. If you find yourself struggling to use the software or needing additional tools to compensate for its shortcomings, it’s a sign that it might not be the right fit. 2. It Doesn’t Integrate with Other Business Tools Your accounting software should work seamlessly with other tools like payment processors, inventory management, and customer relationship management (CRM) software. If you constantly have to enter data manually or use multiple platforms that don’t sync, it can lead to errors and wasted time. 3. Lack of Cloud Access or Mobile Usability In today’s digital world, cloud-based accounting software offers flexibility and accessibility from anywhere. If your software is limited to a desktop version or doesn’t provide a user-friendly mobile app, you might be missing out on efficiency and real-time access to your financial data. 4. Limited Reporting and Insights Good accounting software should provide reports that help you understand your business’s financial health. If your current software lacks detailed reporting features or makes it difficult to generate insights, you may be missing opportunities to make informed business decisions. 5. Poor Customer Support or Frequent Downtime If you frequently encounter technical issues and struggle to get support, this can be frustrating and disruptive. Reliable customer service is essential when dealing with financial matters, so if your software provider isn’t responsive or doesn’t offer adequate support, it may be time to switch. 6. Expensive and Unjustified Costs Many businesses start with affordable accounting software, but over time, hidden fees, additional feature costs, or price increases can make it more expensive than expected. If you're paying for features you don’t use or the cost outweighs the benefits, it’s worth considering a more cost-effective alternative. What Features Should Your Accounting Software Have? If you’re thinking about upgrading your accounting software, look for these essential features: Ease of Use – A user-friendly interface that doesn’t require extensive training. Automation – Features like automated invoicing, expense tracking, and tax calculations can save time. Integration – The ability to sync with your bank, payment gateways, payroll software, and other business tools. Scalability – Software that can grow with your business, allowing for additional users, advanced reporting, and new features as needed. Cloud-Based Access – The flexibility to access your finances from anywhere. Strong Security – Reliable data protection to keep your financial information safe. Affordable Pricing – Transparent pricing with no hidden fees. When Should You Switch Accounting Software? If you find that your current software isn’t meeting your needs, don’t wait too long to make a change. The best time to switch is usually at the end of a financial period (such as the end of the month, quarter, or year) to avoid major disruptions. Before switching, ensure you back up all data and carefully plan the transition. Final Thoughts Your accounting software should be an asset, not a hindrance. If it’s too complex, lacks key features, or is costing more than it’s worth, it might be time to explore other options. The right software will help streamline financial management, reduce errors, and give you better control over your business’s finances. If you need guidance on choosing the right accounting software for your business, feel free to contact CW Licensed Bookkeeper & Accountant at info@cwabc.co.uk or 07306 812321 for expert advice.