At June’s Hucknall Business Club meeting, members heard from Lee Henshaw of Wright Vigar Chartered Accountants, who delivered a clear and timely presentation on Making Tax Digital for Income Tax.

Lee has worked in accountancy for much of his career, having studied at Holgate before going on to work locally around Hucknall for many years. He is now based with Wright Vigar in Mansfield, where he helps businesses and individuals navigate tax, accounts and the practical side of keeping records in order.

His presentation focused on a major change now affecting sole traders and landlords: the move from annual tax reporting to more regular digital submissions.

Before going further, this article is a general summary of Lee’s presentation and is not tax advice. Everybody’s circumstances are different, and anyone unsure about their position should speak to an accountant or contact HMRC before taking action.

What is Making Tax Digital?

Making Tax Digital (often shortened to MTD) is part of HMRC’s move towards a more digital tax system. Instead of relying on one annual Self Assessment return, affected taxpayers now need to keep digital records and submit updates throughout the year.

Lee explained that this is not just an admin change. It is a change in behaviour.

For many people, tax has traditionally been something dealt with once a year, often in January, with receipts gathered, figures checked and accounts pulled together in one big push. Under MTD, that workload is spread across the year instead.

Who does it affect?

MTD for Income Tax applies to sole traders and landlords in Self Assessment whose qualifying income is above the relevant threshold. The key point Lee stressed was that this is based on gross income, not profit, and income from self-employment and property is combined. HMRC guidance confirms that those with qualifying income over £50,000 from the 2024 to 2025 tax year need to use MTD from 6 April 2026. The threshold then drops to over £30,000 from April 2027 and over £20,000 from April 2028. (GOV.UK)

This is where some people may get caught out.

For example, a sole trader with £20,000 of business income and £15,000 of rental income may think each figure is below the threshold. But combined, they could fall into MTD when the lower thresholds apply.

Lee also explained that HMRC should write to those affected, but the responsibility ultimately sits with the taxpayer.

One return becomes five

One of the biggest practical changes is the number of submissions.

Instead of one annual return, affected taxpayers will need to submit four quarterly updates and then complete their year-end tax return using compatible software. HMRC guidance also says digital records must be kept using compatible software once someone is within MTD. (GOV.UK)

Lee made it clear that quarterly updates are not full tax returns. They are summaries of business income and allowable expenses for each relevant income stream.

If someone has more than one business, or both self-employment and property income, separate updates may be needed. Even where there is no income or expense in a quarter, an update still has to be filed.

Importantly, tax payments are not due each quarter based on these updates. Payments continue through the Self Assessment process, with the usual January and July payment dates.

Software and preparation

Lee talked through some of the software options available, including Xero, Sage, QuickBooks and FreeAgent. For those who prefer spreadsheets, bridging software may also be an option.

The right choice depends on how the person or business currently works. A landlord with a handful of properties may need something different to a tradesperson with regular invoices, expenses and VAT returns.

For businesses already using cloud accounting software, the change may feel less dramatic. For those still relying on paper records, bank statements and a once-a-year spreadsheet session, it could be a much bigger shift.

The challenge and the opportunity

There are obvious challenges. More deadlines. More admin. More time spent keeping records up to date.

But Lee also highlighted the opportunity. Better records can give business owners a clearer view of how things are going during the year, not months after the year has ended. That can help with cash flow planning, tax planning and decision-making.

How many business owners only find out what kind of year they have had when their accounts are prepared?

MTD may force more regular record keeping, but that regularity could also help avoid nasty surprises.

What happens if you do not prepare?

Lee described the risk as a chain reaction. Poor records lead to late submissions. Late submissions lead to penalties, stress and higher costs. Instead of one January panic, you could end up with four smaller panics across the year.

That line landed with a few people in the room.

The key takeaway was simple: prepare early. Check whether you are affected. Look at your systems. Speak to your accountant before the deadlines creep up.

The session ended with questions from members, reflecting just how relevant this change is for sole traders, landlords and small business owners.

A Note of Thanks from HBC Co-chair, Geoff Cooper

Lee presented a very detailed and factual talk on the introduction by His Majesty's Government of digital tax return requirements, starting real implementation in 2027.

He explained how this is to be phased into business taxation, including the requirements of small businesses, according to a series of thresholds reducing annually over 4 years to a minimum of £20,000.

Lee informed me that it was the first time that he had attempted a presentation of this kind. Using the audio/visual facilities available in-house at the Bowman, Lee presented a very professional hour of very informative information and answered many questions with clear confidence. As a result, HBC has given him the confidence to use this sort of tool to his company's advantage in the future if needed. Well done, Lee!

Keeping Your Accounts Moving in the Right Direction

Making Tax Digital is not just about software. It is about getting into the habit of keeping records up to date throughout the year.

If you have questions about MTD, tax returns, bookkeeping, accounts or the wider financial side of running your business, Lee Henshaw of Wright Vigar Chartered Accountants would be happy to help. You can get in touch using the contact details below:

• 07484 93390
• lee.henshaw@wrightvigar.co.uk
• www.wrightvigar.co.uk