- MTD income tax begins
An estimated 864,000 sole traders and landlords will need to comply with MTD income tax from April 2026, with many more to follow in April 2027 and April 2028. Taxpayers that are within MTD income tax must keep digital accounting records and use compatible software to submit quarterly updates and an end-of year return to HMRC.
The start date is determined by your combined total income (not profits) from any sole trades and property businesses that you carry on. Where this exceeds £50,000 for 2024/25, you are within MTD income tax from April 2026 unless an exemption applies
- Reduction in the main rate WDA
From 1 April 2026 for companies and 6 April 2026 for unincorporated businesses, the main rate of writing down allowance (WDA) is cut from 18% to 14%.
The government says that the cut is needed to finance the introduction of a new 40% first year allowance (FYA) for main rate expenditure incurred on or after 1 January 2026. The new FYA is intended to plug gaps in the framework of accelerated capital allowances, particularly for leasing companies.
- Construction industry scheme rules tightened
With effect from 6 April 2026, where a business makes a payment for construction operations or receives a payment it treats as a sum deducted under the CIS, and the business knew or should have known that the payments were connected to fraud, HMRC will have the power to:
- immediately remove the business’ gross payment status (GPS);
- make it liable for the tax lost; and
- apply penalties to the business. The penalties may also be recovered from officers of the business.
In addition, the time limit for re-application of GPS where it was removed with immediate effect will be extended from one year to five years.
Also, from 6 April 2026, payments made to local authorities or public bodies will be exempt from the scope of the CIS and contractors will be required to file a nil return when they have not paid any subcontractors in a month (unless they have notified HMRC in advance that no payments will be made).
- New VAT relief for donations
Currently, donations of goods to charities can be zero rated, but only where the goods are to be resold by the charity. This creates a perverse incentive for unsold stock to be destroyed, in which case no VAT liability arises, rather than for it to be donated to a charity for the charity to give away, or to use in providing its services, where a VAT charge is incurred.
To address this, there will now be no output VAT charge for qualifying donations made on or after 1 April 2026 where goods are donated for onward distribution to people in need or for use by the charity in its non-business activities.
Other changes included the exclusion of suppliers of private hire vehicle and taxi services from the scope of the Tour Operators’ Margin Scheme (TOMS) from 2 January 2026.
