The planned starting date for Making Tax Digital for Income Tax has now been delayed again by HMRC until April 2026.
The main reason for this delay was that many small business owners wouldn’t be ready after the pandemic and the changes required to start using digital records.
The current cost of living crisis was also a factor in the delay decision. This delay gives small business owners who were still not aware of MTD some breathing space and time to adjust their book-keeping records.
What is the general feeling of Accountants and Book-keepers about the delay
At Accountancy Kids we were generally a little disappointed at the additional delay as we have transitioned many small business owners onto digital records ready to go live in April 2024.
We now see this as an opportunity to continue building awareness of the benefits of digital software. This additional time should see us support many more small childcare businesses and childminders transition smoothly onto digital records.
We’ll continue to promote the benefits of digital records, all new clients will automatically start using QuickBooks. Our priority is to persuade childminders that digital is better and produce business reporting insights that help all our clients grow and develop into more agile businesses.
Why everyone should be using digital software now
All businesses must constantly adapt or they become out of date or plod along unsuccessfully and then fail.
If you want to ensure you have a successful business, up to date business insights and real time book-keeping then digital records should be able to provide the following:-
- Work day to day with your Book-keeper or Accountant with constant dialogue.
- Instant business bank feeds help control and match your sales invoices and late payers are sent automatic reminders.
- Monitor your business finances constantly where-ever you may be, use your mobile software app and create sales invoices for clients even if your sitting on a beach in Majorca.
- Don’t miss out on recording expenditure that has been misplaced or stuffed into a cupboard or drawer. Even worse, it’s not the first time that receipts have gone missing in transit through the post to your Accountant or destroyed with water damage from a burst pipe in the house. Please snap expenditure receipts on a mobile app regularly and record and monitor your expenses in real time.
- Digital records will produce insightful reports that can help you monitor your sales, expenditure, profitability, cash flow and debtors.
- When do you decide it’s the right time to increase your fees to parents if your records are in a manual cashbook and your receipts are in a plastic bag or cupboard. Do you not agree that if everything was entered quickly into digital software then decisions could be made quicker and ensure your potential profitability isn’t damaged or delayed because you don’t have the insights into making a correct decision.
- Digital records aids you in controlling and monitoring personal drawings and setting aside money for any annual tax bills. It’s not the first time I’ve seen childminders who haven’t set aside enough money to pay their tax bills and end up having to ask for a payment plan with HMRC.
Why the cost of digital software should not deter any childminder from transitioning over from manual cash books and bags of receipts even below the registration threshold
One of the biggest factors stopping childminders using digital records is the additional cost of the software licences. Generally this is great value when you weigh up the massive benefits of the software. I conducted some research with my own childcare clients and the licence fee including accountancy services and tax returns averaged approximately two percent of the annual sales generated by childminders. This is a relatively small outlay for one of the most important parts of running a successful childminding business. Take care of your finances and the your business should flourish.
Using digital records, is the way forward but it doesn’t mean you have to submit digital quarterly reports to HMRC
Let’s be clear that using digital records doesn’t mandate you into submitting quarterly submissions to HMRC if your below the £50,000 threshold from April 2026 and £30,000 from April 2027. Digital software upgrades your business finances and aids you into making better timely real time business decisions.
Guidance document, training and working in real time makes transition easy
We have transitioned small business owners and childminders over to our preferred software QuickBooks since April 2021 and even clients that don’t use laptops or mobiles that much have successfully moved over from paper based systems.
We achieve this by making sure, especially at the start that enough training, guidance documents, tips and monitoring are provided for the client. We will never leave someone struggling to adapt, if a specific clients needs a little additional help then we are always available to help.
There is a clear responsibility document that the client must follow when using the software and we clearly explain our responsibilities and what services we provide for the client.
When does MTD ITSA start
After the pandemic HMRC triggered a one-year delay in the introduction of MTD ITSA and now have extended this for another two years. The new start date is 6 April 2026, individuals with self-employment and/or rental income over £50,000 will be required to register. All tax agents should be able to register their clients for a new digital service account.
What are the trigger thresholds
HMRC has now confirmed that the combined gross income that you earn in a tax year from self-employment and property income sources is considered when determining whether the £50,000 threshold is met.
It is worth noting that the £50,000 threshold is a turnover – not profit – threshold and where a taxpayer has more than one relevant source of income (for instance, an individual who has a trade and also a rental property) they are required to add the turnover from each of these sources together to determine whether or not the threshold has been breached.
The threshold for registration and submissions falls to £30,000 from the 6 April 2027
What tax returns are considered in determining the thresholds
All completed tax returns for 2024-2025 will be reviewed and letters sent to taxpayers explaining how to meet the requirements and how to authorise their digital account.
What must I submit to HMRC
Business owners and landlords will no longer file an annual self-assessment tax return, unless exempt from MTD for ITSA. Where a taxpayer falls into the MTD ITSA regime, they will need to keep digital records and submit quarterly reports to HMRC as well as complete a year-end reconciliation and update process which broadly equates to the current self-assessment tax return filing.
When are the quarterly updates due
The quarterly updates are due for submission one month after the end of the quarter. There will be no changes to the date of the payment of the income tax due.
Penalties for late submission
Based on our current understanding we believe a new penalty system will be introduced based on a points system on late submissions. If a client or agent makes three or four late quarterly submission reports to HMRC then the points accumulate until a threshold is triggered and a penalty issued.
As more information becomes available over time, this web page will reflect the actual penalty amounts and time frames to make any late penalty payments to HMRC.
What do I do if I don’t currently use digital records.
Please contact us, we’ll finish off your current accounts and tax return before moving you onto QuickBooks Any sole trader who breaks the threshold in tax year 2024-25 and currently uses a manual cashbook, spreadsheet or even a bag of receipts must transition over to digital records. We will however recommend that every small business transition over to digital records. You can contact AccountancyKids and we’ll provide a step-by-step plan on how to smoothly transition over to digital software.
When must I start using digital records
We would recommend that all clients start using digital records immediately, if your mandated to use digital records then you must start no later than the 1 April 2025. The quicker a childminder becomes proficient and confident using digital records then they should find it easier to adapt to MTD when it starts in April 2026. A business owner with no digital experience using digital records for the first time takes approximately twelve months to become confident in using the software.
What problems can I expect if I leave the transition to a later date
Any childminding business owner that struggles to keep their records up to date may encounter the following problems in the next few years:-
- Failure to digitalise records for 2024-2025 will unfortunately result in trying to run two systems in parallel at the same time at the start of April 2026.
- Limited time to bed in digital records and increase familiarity and confidence before quarterly reports start.
- The likely outcome of triggering penalty points at the start of Making Tax Digital.
- A lack of appropriate support and knowledge on how to implement successfully a new digital system.
- The later someone takes to transition over, they may be unable to find a suitable qualified Accountant or Tax Agent due to late soaring demand to support clients without digital records after April 2025.
How we help existing and new childcare clients
We have successfully transitioned many childminders over to digital records from a traditional cashbook or a bag of receipts. To help take the stress out of this process, we provide the following services:-
- Any outstanding book-keeping, accounts and tax returns for tax year 2024-2025 are prepared.
- We then transition you over to online digital records with our preferred digital software provider.
- New clients are offered digital licences at wholesale prices.
- We set-up and manage the digital software for clients.
- We provide guidance, tips and responsibility documents to a client portal account.
- Don’t worry if you’ve never used digital records, training is included as part of our service package.
Why the increased thresholds may make quarterly submission numbers lower to HMRC but it shouldn’t detract a childminder from using digital records
Any business with lower sales figures should not use these thresholds as a reason to continue with a paper based approach to managing their business. We can offer you reduced licence fees at a great price and you’ll recoup the benefit for a very small outlay to enhance your business financial management.
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