Making Tax Digital for Income Tax

The UK tax system is changing, and if you work in the childcare or education sector and are self-employed, it’s important to understand how these changes may affect you.

Making Tax Digital (MTD) is HMRC’s programme to move away from annual paper-based tax returns and towards a more digital, ongoing way of reporting income. For many professionals across the childcare and education sector, this will mean changes to how business records are kept and how information is submitted to HMRC.

Below is a practical overview of what’s changing, when it applies, and how you can start preparing.

When does MTD for Income Tax start?

MTD for Income Tax Self-Assessment (ITSA) will be introduced in stages, based on your gross annual income (your total income before expenses):

Annual Income	Start Date	What You Must Do
Over £50,000	April 2026	You will be the first group required to use MTD.
Over £30,000	April 2027	You will join the scheme one year later.
Under £30,000	To be confirmed	The government is still reviewing how MTD will apply to those in this bracket.

Note: These thresholds apply to your total qualifying income. If you have more than one source of income, these figures are added together.

 

What is Actually Changing?

Under the old system, most people filed one tax return per year. Under MTD, the process becomes a more regular reporting process:

1. Digital Record Keeping: You can no longer keep paper-only records. All business transactions must be stored digitally using compatible software or spreadsheets.
2. Quarterly Updates: Instead of one annual deadline, you will send a summary of your business income and expenses to HMRC every three months via your software.
3. End of Period Statement (EOPS): At the end of the tax year, you’ll finalise your business income.
4. Final Declaration: You will bring together all other forms of income (like savings interest or dividends) to receive your final tax bill.

 

Three Steps You Should Take Now

Even if you aren't in the first wave starting in 2026, getting ahead of these changes now can make the transition smoother:

1. Confirm Your Income Band
   Review your gross income from the last two tax years. Remember, this is your total turnover, not your profit. Knowing which "wave" you fall into will determine how much time you have to prepare.

    

2. Move Towards Digital Record Keeping
   If you currently rely on paper records, consider introducing a digital system that fits around your working day. Getting used to logging expenses on your phone or computer now will make the 2026 transition easier.

    

3. Access Professional Support
   MTD requires "compatible software" that can talk directly to HMRC’s systems.

• Software Support: Most major providers offer MTD-ready packages.
• Professional Advice: Speak to an accountant to ensure your current record-keeping meets HMRC standards.
• Technical Identifiers: Ensure your business details are up to date. While Legal Entity Identifiers (LEIs) are primarily for companies involved in financial trading, ensuring your tax references (UTR) and digital IDs are verified is a crucial part of the MTD setup.

 

Support available to Morton Michel policyholders

Morton Michel Childcare, Education, and Activities policyholders have access to ARAG legal expenses insurance, which includes a tax advice helpline offering guidance on tax-related matters. Full details are available in your Policy Wording.

The helpline is provided by ARAG plc and is available Monday to Friday, 9am–5pm. Calls are charged at standard rates and subject to fair and reasonable use.

This article is for general information only and does not constitute tax or financial advice. Tax rules, thresholds and implementation dates may change. For advice specific to your circumstances, please contact HMRC or a qualified accountant.