MAKING TAX DIGITAL (MTD) - INCOME TAX SELF EMPLOYED AND LANDLORDS
As the summer approaches we need to start to look at the significant change in how the self-employed and the landlords will be required to report to HMRC starting from April 2026.
Making Tax Digital (MTD) for Income Tax, is a reality, and we have less than one year before its implementation. MTD has been a complicated program for HMRC, and experienced several delays, however The Government confirmed its commitment on the timescales at the Autumn Budget 2024. The accounting profession, including Harbour Key have a greater confidence than ever, that MTD will go ahead from April 2026. We don’t believe there will be any further delays!
The self-employed and landlords with an income (note gross income, no expenses), in excess of £50,000 will be required to file quarterly returns and then a final return (i.e. five returns), from April 2026. MTD for Income Tax marks a significant shift in how self-employed individuals and landlords report their income to HMRC. While this transition may seem daunting, preparing early can help businesses and individuals adapt smoothly to digital tax reporting, avoiding last-minute complications and potential penalties.
EMPLOYER HMRC REPORTING 6 JULY FILING DEADLINE
May is the month when several employer returns will need to be submitted, in the run up to the 6 July deadline for employee benefits, and employment related securities/option scheme reporting. All the annual employer payroll reporting needs to be completed and all employees who were on the payroll at 5 April are required to receive a P60 by 31 May;
Employment benefits (company car, medical insurance, cheap overdrawn loan accounts, etc.) which have not been payrolled, must be reported via the form P11D and filed by 6 July.
Employers are also required to report to HMRC details of directors or employees acquiring shares or being granted share options in the tax year (to 5 April), by the following 6 July using HMRC’s online system. In addition, annual returns for approved share option schemes, such as EMI, need to be filed by 6 July. These returns can only be filed electronically, which means the employer will need to have set up online access, which takes a few weeks. The Employment Related Securities service is part of the PAYE Online for employers’ service. More detail can be found HERE.
Please note that reporting and payment of income tax and Class 1A NICs on benefits in kind will all have to be made through payroll software from April 2026. The reporting change to employment benefits will be mandatory and is part of HMRC’s plans for a move to a digital first tax authority. We have raised this change in pre-year end meetings, and many clients have already changed to payrolling benefits.
From recent experience, Employment Related Securities (“ERS”) is becoming a major issue in respect of transaction due diligence, the implications of which can be catastrophic, when an employee who has been incentivised with shares believing on a sale that they will be subject to lower rate capital gains tax (14% or 24%), only to be told that income tax and national insurance applies at 47%! We would highly recommend that you look at our article regarding ERS which includes a case study, so you can avoid getting into difficulties.
HMRC RATE OF INTEREST
HMRC has increased the rate of interest it charges for late payment by 1.5% to 8.25% which takes effect from the 28 May. Late payment interest is charged from the first day that the tax debt is overdue until the day it is paid in full.
The decision to increase the late payment interest rate was taken at the Budget last autumn. While taxpayers are charged a punitive 8.25% for late payments, HMRC enjoys a favourable position where it only pays out 3.25% if tax is overpaid, for example for tax refunds.
It is not possible to appeal against late payment interest charges. However, taxpayers can object if HMRC has made a mistake or caused an unreasonable delay, which has contributed to the build-up of interest; the relevant date or effective date of payment is disputed or questions the legislation. However, appeals are difficult and HMRC take a robust approach.
We have contacted clients who we are aware have tax debt to advise of the change, as the cost of borrowing from HMRC (i.e. not paying your tax), has got a lot more expensive.
GROWTH GUARANTEE SCHEME
We have reported previously the launch of The Growth Guarantee Scheme (“GGS”) the Government backed successor to the Recovery Loan Scheme, designed to support access to finance for UK smaller businesses for investment and growth purposes. Delivered by the British Business Bank through around 50 accredited lenders, the GGS has so far enabled £2.1bn of finance through 13,447 facilities. More details can be found HERE.
With the ongoing turmoil of global tariffs, the Chancellor has provided further funding to GGS of approximately £500m as additional lending capacity to help more smaller businesses across the UK in these difficult times. The GGS can be used counter-cyclically, enabling smaller businesses to obtain funding during times of uncertainty such as we are experiencing currently.
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