Panellists

• Stephen Relf, Technical Manager, Tax, ICAEW
• Caroline Miskin, Senior Technical Manager, Digital Taxation, ICAEW
• Adelle Greenwood, Technical Manager, Employment Taxes and National Insurance Contributions, ICAEW

Producer

Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW where we explore the latest developments in the world of tax. In this episode, we’ll look at two significant changes taking place from April 2026. First, Making Tax Digital for income tax, which will require many individuals to keep digital records and to send quarterly updates to HMRC.

Caroline Miskin: It really is very significant, how they manage the workflow, what you do about pricing, what you do about staffing.

SR: And second, mandatory payrolling of benefits in kind.

Adelle Greenwood: The goal is to simplify the tax process and to have more employees pay the correct amount of tax.

SR: Both were confirmed by the government at the Budget and there’s much taxpayers and their agents can do in the coming months to prepare.

I’m Stephen Relf, Technical Manager for Tax at ICAEW. Today I’m joined by two colleagues in the ICAEW’s Tax team, both of whom have detailed knowledge of today’s topics. Welcome, Caroline Miskin, Senior Technical Manager, Digital Taxation, and Adelle Greenwood, Technical Manager for Employment Taxes and National Insurance Contributions.

Let’s begin with Making Tax Digital for income tax. Now, keen listeners will note that I stopped myself before I said self assessment. Typically, we do refer to this as Making Tax Digital for income tax self assessment. But that has changed recently. Caroline, could you explain?

CM: We have been calling it MTD for income tax self assessment to distinguish it from MTD for income tax. When MTD was first being thought about, it was intended that it would cover everybody who paid income tax, including people who never get anywhere near self assessment. And there has been a lot of thinking going on within HMRC, and even including some consultation as to what it should be called, because at some point, the Making Tax Digital bit will probably get dropped. But we do now know that HMRC is settled on Making Tax Digital for income tax, though in fact it will still only apply to people who are in self assessment. So we’ve now got to go away and update our website.

HMRC has been using MTD for income tax for some time, but we were waiting to make that change until we knew that that name had been settled on for the foreseeable future.

SR: Okay, so we’ll all have to get comfortable with the name change. But thankfully, nothing’s changed in terms of the design of the regime, in terms of what it’s going to look like from April 2026. Is that correct?

CM: That is correct. The key aspects of MTD are still keeping digital accounting records in software or a spreadsheet. And then the next thing is you have to maintain digital links from the point that you have recorded the transaction right through until submitting data to HMRC. Data will have to be submitted quarterly, which is the new piece, but that is a simple summary of transactions. The important bit is that you do need to use a compatible software product.

It’s important to emphasise the use of spreadsheets for digital record keeping is acceptable, despite what some of the advertising from the software developers may say. Coordinating transaction spreadsheets is fine, but you will need to use those spreadsheets in conjunction with a submission product, sometimes known as a bridging product, that will take a summary of transactions from that spreadsheet and submit it to HMRC.

That sort of solution is actually really important. It’s important for people with perhaps a relatively small number of transactions, where it’s not worthwhile them investing in an expensive software product. But it’s also very important for more complex businesses who may have existing software that they use which won’t be upgraded for Making Tax Digital, and using submission products or bridging products will enable businesses to keep their existing software and use another product to submit the data to HMRC.

AG: And is Making Tax Digital going to apply to all income taxpayers from April 2026?

CM: It starts from April 2026 but only for those with gross income from self-employment or property of more than £50,000. That test will be applied to 24/25 self assessment tax returns, and HMRC will be going through those as they are submitted from next April through to January 2026, and looking at specific boxes on the tax return and working out whether people are in or out of scope. Any other type of income – dividends, employment – doesn’t come into the equation. It is specifically your gross income from self-employment and property.

The significant announcement that we had at the Budget was that the government, well, first of all, committed itself to introducing MTD for income tax from April 2026 for those with turnover of more than £50,000, and April 2027 for those with more than £30,000 turnover, but also indicated its intention to expand MTD for income tax to those with turnover of more than £20,000. No specific date was given, but the statement said by the end of the parliament. I think, for the moment, while keeping a close eye on that – they will need a further announcement – what this really is, is a signal of intent that the current government is committed to MTD for IT. There was a slight question, I think, until we knew that the new minister was behind it. And I think this is a very strong signal of intent.

SR: So, obviously we had that commitment in the Budget with regard to MTD for income tax…

CM: Yes.

SR: No mention of MTD after that, in terms of corporation tax partnerships. Did we read anything into that? Or is that just waiting for income tax to bed in?

CM: There’s a limit to HMRC capacity, and I think they’ve got more than enough to do with what they’ve got on their plate at the moment. So I think corporation and partnerships are very much in the long grass.

AG: It sounds like quarterly reporting is quite a lot of additional work for agents. Is there a lot of upheaval expected?

CM: It certainly is. Some of you may have listened to the podcast we did with Rebecca Benneyworth where we discussed the implications for firms, including how they manage the workflow, what you do about pricing, what you do about staffing – it really is very significant. So it’s worth listening to that. And Rebecca is also writing a helpful series of articles, which you will find on icaew.com, which go through all the different aspects that agents should consider.

I think one of the things that I’d like to talk about today and emphasise is the choice of software. One of the reasons why we think this will now happen is we have now got to the stage… we’ve got 11 software developers whose products are ready. I think we’ll probably get up to about 20 in the long run but we’ve already got 11. The choice of software, if you’re not already committed to certain products that you know are going to be upgraded for MTD IT, I think the choice of software is one of the critical decisions, because it’s very important to be aware that the different products all do different things.

You’ve got a whole series of things that need to be done in software, from recording transactions through to submitting quarterly updates, through finalising your property and your self-employment income, through finalising the tax return at the end of the year, which is a process more similar to what you know at the moment. And the different products don’t necessarily do the whole thing. Some of them will, but they won’t all do the same thing, and you need to be really aware of that when you’re choosing your software. I think most agents will actually end up using at least two products, a record-keeping accounting product and a tax submission product.

SR: I think that’s a really interesting point. I went to an MTD event in Glasgow earlier this year, and there was a lot of concern amongst agents, but it was generally around how they prepared their practice in terms of workflows, in terms of staffing, because there will be bunching of work, and how they prepared clients. Not many people talking about software. So I think it is really important that we make that point.

CM: Something like 750,000 self assessment tax returns for 22/23 were submitted by agents using HMRC’s own self assessment software, and that is probably not going to be a realistic option, particularly if clients are in MTD.

SR: So, given that software is a concern, is that a good reason to get involved in the pilot so you can test what is there at the moment?

CM: Yes, it is – though there is an element that you might need to wait a little bit to see how the market develops. There are still more products coming on board, and you wouldn’t want to rush into a decision just to get into the private beta. But there is an opportunity in February and March 2025 to sign up a client or two for 24 or 25, because it is your last opportunity to sign somebody up and get the full reporting cycle, including finalising their liability by January 2026. It is the last opportunity. So that, in itself, may be a good reason just to put one or two clients in to get that opportunity.

I would hope by now that most agents have worked out which of their clients are likely to be in scope and which are not. Until you actually prepare the 24/25 tax return you won’t know for sure, but by now firms really should have a good feel for how big the task is, and have at least scoped it in terms of number of clients. And if you are putting something in a private beta, it’s likely to be somebody who’s already got good bookkeeping, is already keeping records. So by going into the pilot, you’ve already essentially got the bookkeeping up to date, and so you can submit the quarterly updates without having to necessarily do extra bookkeeping that you wouldn’t already have done.

The testing will expand significantly from April 2025. The ABAB report, which was published in mid-December, makes it clear that testing with a far larger group of taxpayers is “mission critical” – was the words that ABAB used – and I would certainly endorse that. There will be an expansion – we don’t yet know exactly how much it will expand, but we think it should be possible to bring some more clients in. For example, one of the things we hope to see change is clients with the high income child benefit charge may be able to come in, which they can’t at the moment.

SR: The timing is quite good, because as an accountant you can get January out the way, think about it in February/March and, as you say, clients’ bookkeeping will be up to date at that point. So certainly, put some time aside in February and March to consider if the pilot would work for you.

CM: I think so.

SR: There are an awful lot of challenges to do with Making Tax Digital for agents. ICAEW has done a lot already but have we got more things planned, Caroline?

CM: We do indeed. The main event that we are going to kick off with is on 28 April 2025, which will be an MTD Live event at Chartered Accountants’ Hall with HMRC, with software developers, an in-person event that we will be recording – those bits that we can. And then we will be following that up by a series of webinars in June, starting with a two-hour webinar with HMRC, and then following that up with some webinars with different software developers where they can demo their products. And we will use Insights articles and TAXwire, etc, as we have new information to impart.

We did do a webinar in April 2024 which is actually still relevant. We are also looking at things like regional roundtables. There’s going to be an absolute wealth of MTD related events in 2025. There’s the Festival of Accounting and Bookkeeping in March, Accountex… HMRC has already run two of its own events. You mentioned you were at one, Stephen – there’s been another one in Croydon. I think at each of HMRC’s large offices, there’s going to be an in-person event. And HMRC is also open to arranging visits to individual firms. They’ve been doing quite a lot to get some of their senior people out, and to actually have one-to-one engagement with firms about how they intend to manage.

SR: Yes, you mentioned the ABAB report which came out recently, and they do praise the levels of HMRC engagement. Also that they’ve addressed quite a few of the concerns that ABAB had. Some concerns remain, clearly, but it is good to see HMRC taking a lead on this, isn’t it?

CM: There is certainly a lot of engagement, yes.

SR: Okay, so as Caroline mentioned, we do have the Institute’s MTD hub. You can access all the information, recorded webinars to date from there, and also we will be populating that in the future, as more and more things come online.

Now let’s turn our attention to another big change that’s coming down the line from April 2026, and that is mandatory payrolling of benefits in kind.

Adelle, this is very much your area of expertise, like it or not. Can you tell us more?

AG: Mandatory payrolling of benefits in kind essentially means that non-cash benefits, such as company car or medical insurance, will be reported and taxed via payroll rather than on the form P11D, and tax will therefore be paid on a real-time basis rather than via a self assessment tax return.

It will also mean that the employer Class 1A liability will move from an annual to a monthly or a pay period obligation. And currently, payrolling of benefits in kind can be done on a voluntary basis, and this has actually been the case since April 2016, but it’s going to become mandatory for all employers from 6 April 2026. At the moment there will be an exception for loan benefits and accommodation benefits only, because of the way the value of those particular benefits is calculated. So the P11D form will remain in place, but it will only be able to be used for those particular benefits.

CM: What’s the thinking behind this change?

AG: The goal is to simplify the tax process and to have more employees pay the correct amount of tax on a real-time basis. It will also have helped us resolve some of the issues with frequently issued tax codes and potentially remove several taxpayers from the self assessment system, if perhaps the only reason they file is to report their benefits in kind. Getting rid of the P11D process will eventually save HMRC a lot of resources – approximately 4.5 million forms could be eliminated.

SR: What are the challenges for employers?

AG: The main challenge will be moving from a retrospective process to capturing data on a real-time basis. This could be a challenge for several employers, especially when they’re using third-party benefit providers, or perhaps need to collate data from several sources.

The taxable value of the benefits needs to be communicated to the payroll team so that they can process it on or before the payroll date in order to conform with the RTI rules. This might not be too arduous for some regular benefits, but for benefits which may change in value, or simply large volumes of employees receiving benefits… this information might not be available until very close to the payroll cutoff dates. And then you have the issue with the payroll software – needing to update their software in order to deal with the new timeframes, and what this means for data flows with agents and clients. And also how to communicate to employees who may see differences in how their remuneration is reported to them on the payslips and want to understand what this means, and also what they need to know in order to still file their self assessment tax returns at the end of the year.

There’s also more niche issues for particular groups, such as the globally mobile leavers, who may leave during a pay period; what the process will be for corrections within the tax year; the process for making good when an employee pays towards the benefit, therefore reducing the tax pool value.

HMRC have indicated that there will be an end-of-year reconciliation process, but we still need to know what the scope and timeframe of that will be and how that will work in practice.

SR: I think there is also a limit on how much an employer can take from pay, isn’t there, in terms of deductions, possibly 50%?

AG: Yes, that’s right. An employee can’t have more than 50% of their taxable pay deducted in any pay period, which may be an issue in some particular circumstances – for example, individuals with low pay but high value of benefits in kind, and the value of the payrolled benefits may therefore push them over that limit, so that the employer can’t deduct the full tax that’s actually due. Currently, if you’re payrolling benefits on a voluntary basis, then you can exclude the payroll benefits. But we still need clarification of how this will work once it becomes mandatory.

SR: There are some potential changes coming down the track, but clearly there are an awful lot of challenges here. Employers may want to get ahead of the game. What would you suggest they can do now to prepare for this?

AG: Well, the main thing is updating process flows, and work with benefits and software providers to agree new timeframes for process flows, for reporting the information, especially when they’ve been used to receiving this information on an annual basis after the end of the tax year. We’ll need to receive this on a monthly basis going forward in order to process these benefits via their payroll systems. We would also suggest registering for voluntary payrolling where you’re in a position to do so. This does need to be done before 6 April 2025 and it can’t be done within the year. But if an employer does register for voluntary payroll, they don’t need to payroll all benefits as yet. They could choose which benefits they want to payroll, and so they have a year to iron things out. But prior to commencement of payrolling of any benefits, we’d suggest communication with employees so they understand if there are any changes to their monthly take-home pay and how things are reported on payslips, for example. And benefits should be removed from tax codes when you register for voluntary payrolling benefits, but there could be underpaid taxes from previous years brought forward, so this would need to be explained to employees.

SR: Testing seems like a good idea then? Obviously there’s a lot to prepare for, and that’ll give you an opportunity to do that, especially if you have a choice over which benefits you put in.

AG: Yes, that’s right. You could choose to just payroll some benefits during 25/26 before the mandation for all benefits comes in in 26/27.

SR: You would have to do that before April 2025, is that correct?

AG: You’d have to register for the payrolling by 10pm on 5 April 2025.

SR: Another date for the diary, isn’t it?

As I mentioned, there’s still work to be done on the legislation in terms of what this is going to look like. What is ICAEW doing to raise members’ concerns?

AG: We are engaged with HMRC as a stakeholder on this topic. We’ve raised concerns about various issues that we’ve mentioned today, amongst others, and also about the timing of the new legislation, which we’re expecting to come out in summer 2025 – which doesn’t give employers, agents and software providers very long to get things in place for 6 April 2026. We’re also continuing to liaise with HMRC about the issues and the guidance we think is needed.

SR: Okay then. We’ve concentrated there on changes for employers that take effect from April 2026, but I think we all know that there are some significant changes from April 2025 too, particularly coming out of the Budget. Could you quickly talk us through those?

AG: Yes. One of the most significant changes coming out of the Budget was the removal of the £100,000 eligibility threshold for the employment allowance, which means that several more employers will be eligible to claim this allowance from 6 April 2025.

The employment allowance is effectively a deduction against an employer’s Class 1 national insurance bill, and previously only employers with Class 1 bills of £100,000 or less for the prior tax year were able to claim it. And it’s going to be worth £10,500 from 6 April 2025.

There are still other restrictions in place regarding this allowance, so there can only be one per group of companies, and previous restrictions regarding sole director companies and domestic workers and public sector work are still in place.

SR: Caroline and I did a webinar recently, didn’t we, Caroline, where employment allowance came up a lot in the questions?

CM: Yes, it did. Our ‘Tax and practice’.

SR: Yes, a lot of questions around the restrictions, how they’re going to work. So I’m sure we’ll be covering that a lot more in the weeks and months to come.

Okay, so both of these changes, they have in common that they apply from April 2026, but do they also have in common that they are moving taxpayers closer to real-time reporting, and if so, is that the general direction of travel for tax – in which case are we going to see more of this?

AG: I think certainly for employees, moving to paying accurate tax on a real-time basis is the goal, and more automation within the payroll – getting rid of some of the more manual reporting that was required. And I think it’s actually a welcome change for employees who would quite like to know that they’re paying the right amount of tax.

SR: Caroline, is that also how you see it?

CM: Making Tax Digital for income tax certainly does move record keeping closer to the point of transaction. But I would hesitate to refer to it as being real time or anything like that. The quarterly reporting aspect of MTD for income tax is the new piece, and the piece which ICAEW considers the most problematic, because income tax remains an annual tax, and although HMRC intends to play back tax estimates, I think it’s going to take a few years before those tax estimates are in any way accurate or provide useful information for anybody whose got anything other than the most simple affairs. So it moves us in this direction, but I think I would say it’s short of real time.

SR: We have covered quite a lot of ground today, and I think we’ve demonstrated that there is quite a lot of work ahead of all of us. We’ve got some big changes from April 2026, but also lots of things that we can do now to get ahead of the game and make that easier for us when it comes.

That’s it for this episode. Many thanks to Caroline and Adelle for your contributions, and thank you for listening.

All of the topics we’ve discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don’t forget to subscribe so you never miss an episode. You can rate and share the podcast too.

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