Making Tax Digital for Income Tax (MTD for IT) will become mandatory in phases from April 2026. If you are self-employed or a landlord and have over £50,000 in qualifying income you need to start preparing to submit quarterly updates, keeping digital records and cope with a new penalty system.

Your qualifying income is the total income you receive in a tax year from self-employment and property. Other income, such as from employment (PAYE), partnerships or dividends (including from your own company), do not count towards your qualifying income.

HMRC will calculate your qualifying income based on your self-assessment tax return you submitted in the previous year. For example, to assess your income for the 2026-2027 tax year, they will use the return you submit for the 2024-2025 tax year which is due to be submitted by 31 January 2026. If your qualifying income is over £50,000, HMRC will inform you when you need to start using MTD for IT.

Qualifying income includes your share of income from jointly owned property, certain trusts, VAT-registered businesses and disguised investment management fees. It does not include business partnership income, transition profits or qualifying care relief payments.

Initially, MTD for IT will only apply to self-employed individuals, and landlords with an annual qualifying income exceeding £50,000. From 6 April 2027, the rules will extend to those with a qualifying income between £30,000 and £50,000. From April 2028, sole traders and landlords with qualifying income over £20,000 will need to follow MTD rules. The government is also exploring ways to bring those earning under £20,000 within the MTD framework at a future date.

The claimant began employment as a Contracts Coordinator on 23 January 2023, subject to a contractual 6-month probationary period, one which required 5 weeks’ notice for termination. The contract included a garden leave clause, but no clause permitting Payment in Lieu of Notice (PILON). 

Disputes soon arose over his work patterns and behaviour, and by 22 February 2023, the claimant had emailed the respondent detailing an irrevocable breakdown in trust and confidence. On 3 March 2023, HR obtained authorisation to dismiss the claimant, citing inflexibility, divergent values, negative communications, and uncooperative behaviour.

The decision to terminate his employment had in fact already been made, even though a “Formal Probation Assessment Meeting” had been scheduled for 15 March, on which date he was dismissed with immediate effect and paid 5 weeks’ notice monies. On 24 March 2023, he appealed the dismissal while seeking an assurance that he would not be reinstated, affirming that neither party wished the employment relationship to continue. The employment tribunal found that the claimant had not been wrongfully dismissed, despite accepting that the respondent had breached the contract by instituting a PILON.

The appeal tribunal found that the first tribunal had erred in law by failing to find that the claimant was wrongfully dismissed, as the employment contract did not contain a PILON clause and the employer’s action in dismissing the claimant with immediate effect and simply handing over the notice pay constituted a breach of contract. However, it upheld the earlier decision not to award compensation after applying established common law principles for assessing damages, which assume that the employer would have terminated the contract in the least burdensome way that was lawfully available. The appeal tribunal rejected the claimant’s argument that damages should be subject to the “Gunton extension” to cover the full 6-month probation period. As the issue was a fundamental breakdown of the employment relationship, the employer was entitled to rely on the simpler, contractual 5-week notice clause, rendering the lengthier procedural steps irrelevant in the calculation of damages.

This case offers a stark reminder that, if a company wishes to dismiss an employee with immediate effect and simply pay them in lieu of notice, then the contract must explicitly include a PILON clause, or any immediate dismissal (even with payment) is effectively a breach of contract. While no financial damages were awarded in this specific instance, it nonetheless positions an employer on the wrong side of the law and can complicate any prospective litigation.

Many small businesses rely on a mix of overdrafts, card facilities and short term loans to maintain day to day cash flow. During the past year banks and alternative lenders have become more cautious, and several indicators suggest that credit conditions will tighten further during 2026. For business owners, a little early preparation can make a noticeable difference.

Lenders are placing greater emphasis on consistent record keeping, realistic forecasts and clear evidence that a business understands its cash cycle. This means that up to date bookkeeping is no longer just a compliance task. Regular management information can demonstrate stability, provide reassurance to lenders and highlight any seasonal pressures that may need attention.

It is also sensible to review existing credit facilities. Many overdrafts and business loan agreements include renewal terms, and these can be harder to negotiate if left until the last moment. Checking the renewal dates, interest rates and any security requirements can help avoid unexpected changes that affect cash flow.

Businesses that rely heavily on card funded working capital or revolving credit should consider whether these facilities remain suitable. Even a small increase in interest rates or a reduction in limits can put pressure on margins, particularly in sectors with tight cost structures.

Planning ahead can reduce risk and improve financial resilience. Reviewing cash flow forecasts, maintaining timely financial records and having early conversations with lenders can help small businesses enter 2026 with greater confidence and fewer surprises.

The daily charge for driving within the London Congestion Charge zone will rise from £15 to £18 from 2 January 2026. This is the first increase in several years and forms part of Transport for London’s wider plan to manage traffic levels, improve air quality and support sustainable travel across the capital.

Transport for London has said that without an updated charge the central zone is likely to experience a noticeable increase in vehicle volumes during the next year. The higher charge is intended to discourage unnecessary journeys, smooth traffic flow and reduce delays that affect both businesses and individuals.

A significant change for drivers of electric vehicles is also being introduced. The current 100% discount for electric cars will end on 25 December 2025. From January 2026 electric cars registered for Auto Pay will move to a reduced rate that reflects a new tiered discount structure. Electric vans, heavy goods vehicles and quadricycles will also have revised discounted rates. This marks a shift away from the long-standing full exemption that has been used to encourage uptake of electric vehicles.

Residents who live within the congestion charging zone will continue to receive a 90% discount, although new applicants from March 2027 will only qualify for this reduction if they drive an electric vehicle. Existing residents with the discount will keep their entitlement regardless of vehicle type.

For business owners, delivery companies and anyone regularly travelling into central London, these changes will require some forward planning. Vehicle choice, travel habits and the cost of regular visits to the zone may all be affected. It may be useful to review travel arrangements ahead of the January 2026 increase in order to understand the cost impact on budgets and operations.

Many businesses are still unaware that the VAT late filing and late payment rules now operate on a points-based system, where repeated delays can quickly lead to a £200 penalty and added interest.

The VAT late filing penalties regime changed for accounting periods beginning on or after 1 January 2023. Under the new system, there are penalty points for late filing of VAT returns and for the late payment of VAT liabilities.

The revised system operates on a points-based approach. A taxpayer receives one penalty point for each VAT return that is submitted late. Once a specific threshold of points is reached, a financial penalty of £200 is charged and the taxpayer is notified.

The penalty thresholds based on VAT return frequency are as follows:

• For monthly VAT returns, the threshold is five penalty points
• For quarterly VAT returns, the threshold is four penalty points
• For annual VAT returns, the threshold is two penalty points

For example, a business that files VAT returns on a quarterly basis will receive a £200 penalty once it accumulates four late submission points. To remove the penalty points and return to a clean compliance record, the taxpayer must submit all VAT returns on time for a continuous period of twelve months. There are also statutory time limits after which a penalty point cannot be issued for a particular late return.

Late payment penalties are applied separately. If VAT remains unpaid between 16 and 30 days after the due date, a first penalty of 2% of the outstanding tax is charged. If the VAT is still unpaid 31 days or more after the due date, a second penalty of 4% of the outstanding amount applies.

In addition, late payment interest is charged from the day payment becomes overdue until it is paid in full.

If you are unable to pay your tax bill, it's important to reach out to HMRC as soon as possible.

HMRC may offer a Time to Pay arrangement, allowing you to settle the debt in manageable instalments based on your financial situation.

Taxpayers with liabilities of up to £30,000 can use the online Time to Pay (TTP) service to set up instalment payments. This service is available without the need for direct contact with an HMRC advisor and can be accessed up to 60 days after the payment deadline.

To be eligible for the online service, the following conditions must be met:

• No outstanding tax returns
• No other unpaid tax debts
• No existing HMRC payment plans

For those who do not qualify for the online option, alternative payment plans can be arranged. These plans are typically tailored to the individual's or business's specific financial situation, allowing repayment over an agreed period.

HMRC will generally grant extended payment terms if they believe you will be able to pay the full amount in the future. However, if HMRC determines that additional time won't resolve the issue, they may require immediate payment and take enforcement actions if the debt remains unpaid.

The free HMRC tax app now provides quick access to tax codes, income history, self-assessment details, National Insurance records and even payment options, all from your phone.

HMRC’s free tax app is available to download from the App Store for iOS and from the Google Play Store for Android. The latest version of the app includes some updated functionality.

To set up the tax app for the first time, open the app and enter your Government Gateway user ID and password. If you do not have a user ID, you can create one within the app. After signing in, you can access the app easily using a 6-digit PIN, fingerprint or facial recognition.

The app can be used to see your:

• tax code and National Insurance number
• income and benefits
• employment and income history in the previous 5 years
• Unique Taxpayer Reference (UTR) for self-assessment
• self-assessment tax you owe
• your Child Benefit
• your State Pension forecast
• gaps in National Insurance contributions

The app can also be used to complete a number of tasks that usually require the user to be logged on to a computer. This includes to:

• get an estimate of the tax you need to pay
• make a self-assessment payment
• make a Simple Assessment payment
• set a reminder to make a self-assessment payment
• access your Help to Save account
• using HMRC’s tax calculator to work out your take home pay after Income Tax and National Insurance deductions
• track forms and letters you have sent to HMRC
• claim a refund if you have paid too much tax
• ask HMRC’s digital assistant for help and information
• update your name and / or postal address
• save your National Insurance number to your digital wallet
• check if you can make a payment for gaps in your National Insurance contributions
• choose to be contacted by HMRC electronically, instead of by letter.

HMRC offers a helpful online tool that allows agents and taxpayers to check when they can expect a response to a query or request that they have made. The online tool is updated weekly with the latest information.

The full list of taxes the tool can currently be used for are as follows:

• Child Benefit
• Corporation Tax
• Construction Industry Scheme (CIS)
• Employers’ PAYE
• Income Tax
• National Insurance
• Self-assessment
• Tax credits
• VAT

Agents can also check how long it will take HMRC to:

• register you as an agent to use HMRC online services;
• process an application for authority to act on behalf of a client; and
• amend your agent details.

The online tool can be accessed at the following address, and you do not have to be logged in to receive an answer: https://www.tax.service.gov.uk/guidance/Check-when-you-can-expect-a-reply-from-HMRC/start/are-you-an-agent.

HMRC is currently contacting certain sole traders by email to reiterate the importance of adjusting business expenses for personal use.

The email explains:

• why personal use must be adjusted on your self-assessment tax return; and
• what you need to do if your business expenses cover business and personal use.

The email also includes links to GOV.UK for more detailed information on personal use adjustments and allowable expenses. This is a genuine email that HMRC recently sent (from 20 October 2025 up to and including 7 November 2025).

This is an important reminder for sole traders. In general, if sole traders use something for both business and personal reasons, they can only claim allowable expenses for the business costs.

However, there are simplified arrangements available to sole traders for claiming a fixed rate deduction for certain expenses where there is a mix of business and private use. The simplified expenses regime is not available to limited companies or business partnerships involving a limited company.

Simplified flat rates can be used for working from home and for the business costs of vehicles. This method saves having to calculate the proportion of personal and business use.

The current monthly flat rates are based on the amount of business use of the home:

• 25 to 50 hours worked per month can claim – £10
• 51 to 100 hours worked per month can claim – £18
• 101 or more hours worked per month can claim – £26

Under simplified expenses, there are the following flat rates per mile available. These rates can be used instead of working out the actual costs of buying and running your vehicle, e.g. insurance, repairs, servicing, fuel.

• Cars and goods vehicles first 10,000 miles – 45p
• Cars and goods vehicles after 10,000 miles – 25p
• Motorcycles – 24p

Whilst using the flat rates is not compulsory, once a decision is made to use the simplification for a specific vehicle this must continue to be used for a vehicle as long as that vehicle is used for business purposes.

We would be happy to help you ascertain whether using simplified expenses or claiming based on actual costs incurred is more beneficial for your business.

The Department for Business & Trade has recently published a report that outlines the government’s enforcement of the National Minimum Wage (NMW) and National Living Wage (NLW) for the 2024–25 financial year.

The Government is committed to ensuring that all workers receive the minimum wage to which they are entitled, and HMRC enforces this on its behalf through a strategy known as ‘Promote, Prevent and Respond’.

The ‘Promote’ strategy aims to address non-compliance due to lack of understanding rather than deliberate underpayment, focusing on improving information for employers so they can meet their legal obligations. If employers continue to neglect compliance, full enforcement actions are taken.

The ‘Prevent’ strategy targets employers who intentionally underpay workers, by highlighting the consequences of non-compliance to deter such behaviour.

The ‘Respond’ strategy comes into play when HMRC identifies non-compliance, either through worker complaints or its targeted enforcement activities. If an employer is found to have underpaid workers, HMRC issues a Notice of Underpayment (NoU), requiring the employer to repay the wages within 28 days and imposing penalties. Serious cases may result in a labour market enforcement undertaking (or order). In the most serious cases criminal prosecution can also be pursued by HMRC.

The budget for enforcement increased from £31.2 million in 2023-24 to £31.5 million in 2024-25, enabling HMRC to expand its compliance team and increase its investigative efforts to improve wage compliance and protect workers’ rights.

As a reminder, the current NMW and NLW rates took effect on 1 April 2025. The current hourly rate for the NLW is £12.21. For those aged 18 to 20, the NMW is £10.00 per hour. Workers aged 16 to 17 and apprentices are entitled to £7.55 per hour.

Current estimates suggest that there are around 5.6 million businesses operating in the UK. This figure comes from the Department for Business and Trade and the Office for National Statistics. What stands out is that most of these businesses are very small. The vast majority are run by one person, without employees, either as sole traders or small limited companies. Only a small proportion of the total business population consists of medium or large organisations, yet those larger firms account for a significant share of total employment and economic output.

Around 4.1 million of the 5.6 million businesses are sole traders. These include contractors, tradespeople, freelance workers, independent professionals, and small retail or service businesses. A further 1.1 million are limited companies. The remainder are partnerships or other legal forms. Approximately three quarters of all UK businesses have no employees at all. They are operated directly by the owner.

The UK has a relatively low barrier to starting a business. Registering as self-employed is straightforward, and forming a limited company is inexpensive and quick. This ease of entry encourages individuals to test ideas, create income streams, or change the way they work. Digital platforms have also expanded opportunities. For example, selling through online marketplaces, providing services remotely, or trading through social media channels has become increasingly common. These models enable people to run small businesses from home, with minimal overheads.

There is also a lifestyle element. Many individuals value autonomy over working hours and location. Self-employment or small business ownership provides this flexibility. Some move into business ownership after redundancy or a change in circumstances, while others start with the intention to grow something long term.

Although many of these businesses operate on a modest scale, collectively they play a major role in the economy. They support local employment, supply chains, and community activity. They bring specialist skills to market and allow rapid adaptation when customer needs change. Small businesses tend to be agile and close to their customers.

However, small businesses also face challenges. These include managing cash flow, understanding tax obligations, accessing finance, and dealing with administrative requirements. The owner often carries full responsibility, which can create pressure. Support, planning, and advice can therefore have a very positive impact.

The main message is that small business is central to the UK economy. It is diverse, active, and resilient, and it continues to shape how people work and earn today.

A limited company is a separate legal entity. In normal circumstances, its debts belong to the company, not to the directors. This is one of the central advantages of incorporation. However, the protection is not absolute. Directors have duties in law, and if those duties are not met, there are situations where personal liability can arise. Understanding the main risk areas helps directors manage their responsibilities with confidence.

The most common route to personal liability is through personal guarantees. These are often required when arranging finance or long term commitments. They appear in bank loans, leases, asset finance, invoice discounting and sometimes supplier credit arrangements. A personal guarantee means that, if the company cannot pay, the director promises to pay instead. Many directors accept guarantees without fully recognising their implications, sometimes as part of standard paperwork. If the business later becomes insolvent, the creditor may enforce the guarantee directly against the director.

Another area where liability can arise is wrongful trading. This occurs when directors continue to trade at a point where they knew, or should have known, that the company was unlikely to avoid insolvency. Once insolvency becomes likely, directors must act to minimise losses for creditors. Continuing to take new orders, incur new debts, or draw full salaries without regard to the company’s position may be seen as failing in that duty. If wrongful trading is found, a director can be required to contribute personally towards the shortfall to creditors.

Fraudulent trading is a more serious matter. This involves intent to deceive. Examples include deliberately misleading creditors, falsifying records, or taking payment from customers when it is clear the business will not be able to supply. In these cases, personal liability is likely, and criminal sanctions may also be possible.

Misfeasance relates to breach of duty. Directors must act in the best interests of the company and use company assets responsibly. Issues arise where funds are drawn inappropriately, company assets are used personally, records are not maintained, or tax liabilities are ignored. If the company enters liquidation, transactions will be reviewed. Directors may be required to repay sums that were taken improperly.

HMRC can also pursue directors personally in some situations. If there is repeated or deliberate non-payment of PAYE, NIC or VAT, HMRC may issue a personal liability notice. This is generally used where behaviour is seen as deliberate or reckless rather than a one-off difficulty.

If a company fails and a related business continues afterwards, this can also be examined. Forming a new business after insolvency is not itself prohibited, but if it appears to be an attempt to avoid debts unfairly, directors may face investigation or disqualification.

Good practice reduces risk. Clear financial records, cash flow forecasting, early advice when trading becomes difficult, care with drawings, and caution when asked to sign guarantees all help protect directors.