HMRC's Lenny Barry outlines what bookkeepers need to be doing ahead of MTD for Income Tax
We all know that Making Tax Digital will be going live from April 2026. There has been a clear change within the agent community – more are recognising this, and starting to think about getting ready.
But, it is probably not a majority of agents, yet!
So, we would like to offer a view of some practical steps all agents should be thinking about, and implementing in the very near future!
There are things to consider ahead of April 2026.
Have you done a client segmentation exercise yet? Do you know how many clients you have who will have Qualifying Income, above the threshold? Qualifying Income is the gross income, before deductions, from Self Employment and from Property ONLY. Other sources of income such as PAYE, Pensions, Dividends etc are not included in the threshold calculation. But they will be accounted for in the MTD Tax Return, which will be compiled and filed from MTD compatible software.
So, how many clients due to come into MTD from April 2026? And from April 2027, and April 2028? That would give you a good idea on volumes, and potential workloads.
You know the core of Making Tax Digital has three main elements:
- Client business records must be created and retained in a digital format;
- Quarterly Updates of categorised summaries of income and expenses need to be sent to HMRC via MTD compatible software; and
- The Tax Return will be compiled in, and submitted from, MTD compatible software.
What does that actually mean?
Digital records can be kept in accounting software, bookkeeping software or even in spreadsheets. What does the record need to contain? As a minimum it would need the date, amount an category. Many will find it easier, and more beneficial, to retain all the information from a VAT invoice, for example.
Your software will aggregate the income and expenses, by category, ready for the Quarterly Updates
After the end of year you would make the required tax and accounting adjustments (we would expect there to be some discrepancies in the Quarterly Updates to be amended) as well as claiming reliefs and allowances, as now. This will all be dome in MTD compatible software and would need to be submitted by 31 January, as now.
Make time to make a plan
There are several things agents need to consider, and think about how they are going to implement for their practice and clients, including:
- Who is going to do what? Who will create and maintain the digital records? If not the tax agent completing the tax return, then who? You should inform clients that you will not be offering this service, if that is your decision, as early as possible. Clients may well ask for advice, do you know a bookkeeper you could recommend? Or create an alliance with bookkeepers who could provide the service to clients?
- Think about the workflow process, and devise a system that works for you. If you are doing the digital records, how are you getting the source data? From software, or client is emailing you something, or client will bring in paper records every month? Things will not always be as simple and straightforward as we would wish! Clients may forget to send / bring things on time. Remember the Quarterly Updates are cumulative, and can be “caught up” in the next Quarter. And don’t be late submitting just because something is missing….
We are aiming for “better” every time as we go along…..
Testing Programme in 25-26
We get asked a lot about “how long will digital records take”, “how much work is involved in digital records / Quarterly Updates” and “there is more work involved, how much should I charge”?
Clearly HMRC are unable to provide advice on these. But we would strongly suggest that bringing clients into Testing this year, and seeing what is actually involved will better inform practices about the potential workload and extrapolate that across the client base to come to a pricing structure.
There is no substitute for getting a real feel for it in live testing. What about bringing in a sole trader who is on software, a landlord and a sole trader not on software, or other clients who are typical of the client base? See it, work with it, improve it and master it! And before you have to bring in clients in larger numbers?
https://www.gov.uk/guidance/sign-up-your-client-for-making-tax-digital-for-income-tax
Multiple Agents – testing
We have enabled Multiple Agent authorisations for MTD for Income Tax. The tax agent who submits the tax return would be the main agent for the client. But we are allowing a Supporting Agent role. This could be a bookkeeper who does the record keeping and submits the Quarterly Updates.
We have some bookkeepers signed up as Supporting Agents, but would like more….And would want them to be submitting Quarterly Updates this year, so we can validate the service, and ensure it is working as we would expect.
Only clients can authorise Main or Supporting Agents. Can you get involved? https://www.gov.uk/guidance/choose-agents-for-making-tax-digital-for-income-tax
