In the Autumn 2025 Budget, it was easy to miss an important update regarding the penalties under the digitalization of tax for Income Tax Self-Assessment (MTD for IT).

In this blog we will look at the announcement and how accountants should respond to the news.

What the budget tells us about MTD for IT’s penalty regime

It has been confirmed that, for the first year, HMRC will not apply a penalty for late quarterly submissions. However, a fine will be imposed in the event of late payment.

The following year will see a MTD penalty point system for IT and higher fines for missing payments.

The announcement

In the Budget, the UK Government explains: “The Government will not apply late submission penalties for quarterly updates in the 2026-27 tax year for ITSA (Income Tax Self Assessment) taxpayers required to join Making Tax Digital (MTD). The Government will apply the new late submission and late payment penalty regime to all ITSA taxpayers who are not yet due to join the new system from 6 April 2027.”

It adds: “This will be legislated via secondary legislation. The Government will increase the penalties payable for late payment of ITSA and VAT from 1 April 2027. This will be legislated via secondary legislation.”

What is likely to happen next year – MTD for IT penalty points explained

The system is likely to follow the same points-based penalty system as MTD for VAT registered businesses. However, it is it is important to understand that this penalty system could be subject to change.

The points system for late submissions under MTD

Here’s a quick reminder of how HMRC’s MTD penalties work for VAT registered businesses: each late submission earns one ‘point’. Annual and quarterly submissions have different point thresholds before a financial penalty is applied.

Late submissions – annual filing

• 2 “points” result in a £200 penalty.
• Each subsequent late annual return carries a penalty of £200.

Late submissions – quarterly updates:

• If you accumulate 4 points there is a £200 penalty.

How do MTD penalty points reset?

Points are reset to zero if:

• All submissions are on time for 24 months (annual) or 12 months (quarterly) and
• All previously due submissions have been received.

Late penalties

These apply to balances or amounts due after modification/assessment.

• After day 15: 3% of unpaid tax.
• Day 30: 3% additional.
• After day 30: 10% per year until paid.

Interest is charged in addition.

Remember: suspension of sanctions is not a license to relax

With late payment penalties not being introduced for another year, what should accountants do?

MTD for IT’s quarterly updates could pose the biggest threat to accounting efficiency in a generation. The administration involved – for the accountants and the client – ​​means it’s not that different from having a busy season four times a year. Every minute will count.

Use this time to learn as many lessons as possible. This means you need to start MTD for IT the way you want: it’s the only way to test the real weaknesses in your processes. This will reduce the risk of late submission penalties from 2027.

It is also important to remember that late payment penalties are still in effect.

Check that your systems are ready

You need to ensure that your company’s digital systems are not wasting time and are being used to their full capacity.

Your best place to start is to make sure your system synchronizes data, automates processes, and alerts you if something goes wrong. The best of them are cloud-based, allowing teams to work from anywhere with an internet connection. These systems also help you communicate with customers and maintain a centralized database – a central list where all data is kept. This way you don’t need to log into different applications or re-type data.

Your MTD IT Readiness Checklist

Make sure you have segmented your base: Can your system easily help you verify which customers fall under MTD and when?

Confirm HMRC connections: Is your solution HMRC recognized? HMRC tests the software to ensure it is compatible with the filing of MTD submissions.

Make sure you have monitoring: Controls are essential, so make sure you’re connected to a system that can monitor workloads across your entire business. Your system should see submission status, adjustments, and deadlines in a single view.

Often referred to as a “practice management” or “task management” solution, this part of your system should include:

• Dashboards for managers to track progress and bottlenecks.
• Centralized task management for quarterly updates and customer communications.
• Shared calendars and deadlines to keep everyone aligned.
• Workflow automation for recurring tasks, such as finding customer data.

Make sure you can collect information easily: It is essential that all documents are stored in a central location and are easily accessible to team members with the appropriate permissions. Use secure portals for client communication to protect sensitive data – and ensure smaller clients have their own accounting software or you can import their spreadsheets into your MTD recognized system.

Check that your software has anomaly detection: With multiple submissions, can you see where errors might creep in?

Carefully review any manual processes

Every manual process will slow you down and make record keeping haphazard. Remove any workarounds you may have, such as spreadsheets, to ensure you can:

• Prevent errors
• Comply with HMRC compliance rules
• Work quickly
• Maintain an audit trail
• Large-scale operations during peak periods

Accounting resources and solutions for MTD for IT

See how we can help you. We have a range of solutions to suit your business.

We also have guides you can use – and give to your customers so they know how to help keep things running smoothly.

The 2025 autumn budget got off to a chaotic start, with the Office for Budget Responsibility (OBR) releasing part of the forecast early.

Henry Zeffman, BBC chief political correspondent, commented: “The budget already exists thanks to the mistake of the Office for Budget Responsibility. It is truly extraordinary. An hour ago, this would have been unimaginable. It is difficult to find the right adjectives to do it justice.”

Nonetheless, Chancellor Rachel Reeves then presented the highly anticipated Budget, setting out a series of measures that are expected to have a significant impact on businesses across the UK.

Reeves began his speech by saying: “These budget measures are the right choices for a fairer, stronger and more secure Britain.”

Below, we’ve summarized some of the key points from the 2025 fall budget, detailing the potential implications for HR and payroll.

Minimum wage rate from April 2026

The Chancellor confirmed that the Government had accepted the Low Pay Commission’s recommendations regarding minimum wage rates:

• From April 2026, the National Living Wage (NLW) for over-21s will increase to £12.71 an hour.
• As for the National Minimum Wage (NMW), for 18-20 year olds it will increase to £10.85 an hour.
• For 16-17 year olds their NMW will increase to £8 an hour

Our Director of Human Resources Consulting, Dan Grace, commented: “A further increase in the NLW and NMW will result in continued increases in costs for businesses in the UK. This could lead to further economic impacts and possible changes to the cost of living due to price increases to account for higher wages.”

Freezing tax thresholds

The Budget confirmed a freeze on income tax and national insurance thresholds for a further three years from 2028, continuing the freeze implemented by the previous government.

Reeves said she is “asking everyone to do their bit” as the thresholds will remain frozen at their current level until 2031.

Dearbail Jordan, senior business and economics journalist at the BBC, commented: “The tax threshold freeze that Reeves just announced is not a surprise. What is shocking is that it will remain in effect for three years instead of the planned two years. This means that by 2031, tax thresholds will have been frozen for almost a decade.”

Increase in state pensions

The Chancellor confirmed that the state pension will increase in April 2026 based on average earnings.

This means:

• The new flat-rate state pension for those who reached state pension age after April 2016, the amount will increase from £230.25 to £241.30.
• The old basic state pension for those who reached state pension age before April 2016, the amount will increase from £176.45 to £184.90.

Grace commented: “There are fears that the triple lock system will be detrimental to the budget and drive the UK into bankruptcy if it is continued – a worrying view. »

Pension contributions will be taxed above £2,000

The Budget announced that pension contributions sacrificed above an annual threshold of £2,000 will no longer be exempt from National Insurance – this will come into force from April 2029.

Grace shared her perspective: “This will have a substantial impact on pension providers who could see their contributions reduced, employees facing a significant overall tax burden and employers who will now find it even more difficult to help their employees invest for the future and retirement.”

Tax on electric vehicles

A new mileage tax on electric vehicles (EVs) is confirmed.

This includes a new mileage-based tax on electric and plug-in hybrid cars from April 2028, representing around half the fuel tax rate paid by drivers of gasoline cars.

Reeves explained: “This will be payable annually in addition to vehicle excise duty at 3p per mile for electric cars and 1.5p for plug-in hybrids.”

Fuel tax frozen

The fuel tax will be frozen at its current rate until September 2026, which Grace highlighted that this was “good news for the fuel-based industry and, most importantly, for commuters”.

Apprenticeship funding

Reeves announced funding to make training for apprentices under 25 completely free for small and medium-sized enterprises (SMEs).

Network card upgrade from 2026 to 2027

Some NIC limits and voluntary NIC rates for the self-employed will increase in line with the CPI to 3.8%.

This affects:

• Employers with independent contractors who make voluntary contributions
• Anyone using payroll or bookkeeping services to track mixed employment income
• Employees whose income is around the lower limits of earnings, as some will move into the contributory brackets

Student loan threshold freeze

The budget announced a freeze on repayments and interest rate thresholds for Plan 2 student loan repayments for three years, starting in 2027-28.

Changes to tax on dividends and savings

Tax rates on dividends and savings income will each increase by two percentage points over the next few years.

Payroll relevance:

• Directors whose salary and dividends are combined will have their net income reduced
• Organizations supporting administrator pay will need to prepare clear communication

Employment Rights Bill (ERB)

No updates to the Employment Rights Bill have been announced as it has already entered a “ping-pong” phase.

For the latest information on the Employment Rights Bill, check out these recent blogs:

Final Thoughts

Ahead of the budget, Prime Minister Keir Starmer said: “I can tell the House now that we will build a stronger economy, reduce NHS waiting lists and deliver a brighter future for our country.”

At this time, it is essential to prepare for the changes planned in the 2025 fall budget.

With significant updates to workplace legislation on the horizon, businesses must act quickly to ensure compliance and avoid potential penalties.

You don’t have to navigate these changes alone.

Trusted suppliers, like IRIS, are there to support businesses every step of the way.

If you take anything from this blog, let it be this: Start preparing today to ensure your business is ready for what lies ahead.

This year’s Budget was presented after a wave of media speculation, an initial ‘leak’ of the OBR report and some sparks in the House of Commons.

But what’s really important are the details of the budget itself.

What did Chancellor Rachel Reeves say that matters to accountants and the business community they serve?

The top 4 announcements that will affect your customers

This budget contained important announcements. Of these, four areas will worry some business leaders.

1) The salary sacrifice ceiling

Employee pension contributions above £2,000 will be taxed from 2029, aiming to raise £4.7 billion a year.

When preparing the budget, REBA surveyed businesses and found that 99% of them said they would be affected if this happened.

Former pensions minister Steve Webb, now a partner at LCP, said: “The decision not to implement this change until 2029 creates a huge opportunity for businesses to restructure the way they deliver pay and pensions to mitigate or eliminate this new burden,” Mr Webb said.

“There is a good chance this policy will only bring in a fraction of the amount the Chancellor expects.”

What should be done?

To navigate these waters, businesses must turn to accountants for tax planning advice. The question will be whether a salary sacrifice system is still good for them. It will be important to review and, if necessary, restructure pension and benefit schemes.

In light of this announcement, many accountants will find themselves in a long-term advisory position. Where should enterprise customers invest now? It may no longer be tax efficient to keep things as they are.

2) Increase in tax on dividends

The base rate of dividend income increased from 8.75% to 10.75% and the top rate was adjusted from 33.75% to 35.75%.

The rates will place UK rates among the highest in the world and will have an effect on many of the business owners that accountants serve. The role of an accountant here will be to help them with financial planning: will it still be beneficial for these owners and entrepreneurs to receive dividends if they are now taxed more?

3) A freeze on income tax thresholds

The income tax threshold will remain unchanged until April 31, leading to no increase in personal allowances. As a result, those earning the same amount could experience a reduction in their take-home income. This change will likely have a greater impact on lower-income individual traders.

This is yet another burden for this client. Needless to say, they will also face the added burden of digitalizing tax during this time and, as we will see in the next section, higher salaries if they choose to hire and share their responsibilities.

4) Salaries are increasing

From 1 April 2026, the national living wage for people aged 21 and over in the UK will increase to £12.71 an hour, up 4.1%. The minimum wage, meanwhile, will increase by 8% to £10.85. affecting 18-20 year olds). Additionally, 16 and 17-year-olds, as well as those in apprenticeships, will benefit from a 6% increase to £8 an hour. The question for customers will be how they find the extra money, as this is the second year in a row that the minimum wage has been increased (and on top of that an increase in employer national insurance contributions from April 2025).

A new era of collaboration

Now more than ever, accountants will need to establish a collaborative partnership with their clients. The days when financial experts could be there to ensure compliance and not provide advice are long gone.

The challenge is to prove value now, when executives are already worried about costs. Your advice will save them money and help them grow, and is worth paying for – but customers need to be aware of the indispensability of your business.

Digital systems will help your client master live data, which captures critical information and enables rapid decisions. With such systems, accountants can be proactive, view information in real time, and the client can see the big picture.

Time for greater efficiency

My colleague, Jenny Strudwick, director of IRIS Accountancy, said: “Today’s Budget brings a significant wave of tax changes at a time when most practices are already under strain with dealing with Companies House reforms, MTD compliance and the pressures of peak season. The immediate question for business leaders is not whether clients will need advice – they will – but how to achieve it without being overwhelmed by demand.”

“The Budget will test the resilience of businesses across the country, and accounting firms have a crucial opportunity to demonstrate foresight and provide clarity as clients will seek advice, reassurance and, in some cases, help to navigate measures they are unhappy with.

She added: “The businesses that succeed will be those that resist the urge to react to everything at once while remaining flexible enough to react quickly to the most burning changes. Smart segmentation is key: identify the customers who are truly affected by today’s announcements, for example employers facing increased National Insurance charges, high net worth individuals or high net worth property clients and focus on these groups first. Proactive and targeted communication to these groups signals that you are in-depth and ready to support them By combining scenario modeling and proactive review compensation, accelerated succession planning and clear client communication can help clients navigate uncertainty while strengthening their advisory role and protecting their revenue.

“The hardest challenge is creating the ability to have these conversations properly. For most businesses, this means working more efficiently and reducing administrative burden through technology, automation or outsourcing. It also means making deliberate choices about priorities and accepting that some things will have to wait. Practices that can strategically create this space, rather than letting urgency dictate everything, will maintain both service quality and team well-being well into the future.”

Expand your team and use solutions that help you focus on consulting

Take a look at our outsourcing options, which can help you take care of the administration and focus your efforts where they matter most.

Also look at digital tools and see what can drive efficiencies, including Dext and solutions like IRIS Elements and IRIS Cloud Accounting.

Get expert insight during our 2025 Budget webinar

Join me to discuss the latest budget findings with experts Paul Lodder FCCA – Vice President of Product Strategy and Accounting (Dext), Paul Aplin OBE – Tax expert.

Together we will explore the potential impacts on tax, compliance and business planning and help you prepare for the year ahead.

On October 30, 2024, the Labor government released its first budget since coming to power. And as expected, employers are expected to adopt many changes; In this blog we outline the key points that will impact businesses.

Any changes in legislation are confusing and often complicated, which can cause anxiety among human resources professionals and small business owners. In an effort to demystify the budget and ease some of your concerns, we’ve broken it down.

Some important changes we will look at include increases to the National Minimum Wage and National Insurance. While these changes seem scary, the blow will be softened for some employers with an increase in the employment allowance available to small businesses.

Any changes in legislation are confusing and often complicated, which can cause anxiety among human resources professionals and small business owners. In an effort to demystify the budget and ease some of your concerns, we’ve broken it down.

Keep reading for a concise overview of the 2024 fall budget.

National minimum wage and national insurance contributions to increase

Alongside the budgetary provisions, the The government has announced annual increases in the national minimum wage. This will come into force on April 1, 2025, so you still have time to prepare. The new minimum wage requirements are:

• 21 years and over – the minimum wage will increase from £11.44 to £12.21 per hour
• 18 to 20 – the minimum wage will increase from £8.60 to £10 an hour
• 16 to 17 years old and apprentices – the minimum wage will increase from £6.40 to £7.55 per hour

These increases bring the rates for under-21s and over-21s closer together and are a step towards the government’s plans to introduce a single rate for all adult workers.

Housing compensation (the amount of accommodation provided by an employer that can be taken into account when calculating the minimum wage) will also increase from £9.99 to £10.66 per day.

The government also announced that there would be a 1.2% increase in national insurance paid by employers. This means that it will increase from 13.8% to 15% on April 1, 2025.

The threshold at which employers start paying National Insurance on a worker’s earnings will also rise from £9,100 to £5,000 a year.

Employment allowance will increase

To soften the blow from rising national insurance contributions, the government announced that the employment allowance for small businesses will be increased from £5,000 to £10,500. The allowance allows employers to reduce their Social Security contributions up to the amount of the allowance, over the financial year.

The Chancellor explained that this would mean 865,000 employers would pay no national insurance next year (because the £10,500 allowance applied to their national insurance obligations would reduce their contributions to zero), while more than one million would pay the same amount or less. than they did before.

End of freezing of personal tax thresholds

The government has announced that there will be no extension of the current freeze on income tax and national insurance thresholds, and that the relevant thresholds will increase in line with inflation from financial year 2028-2029.

Retirements

Pensions will also be affected by the autumn budget. Basic and new state pensions will be increased by 4.1% in the 2025-26 financial year, in line with income growth.

Increase in carers’ allowance

The Chancellor also announced there would be an increase in the amount carers can earn while receiving the Government’s £81.90-a-week Carer’s Allowance.

This increase will mean that a carer will be able to work the equivalent of 16 hours per week at the National Living Wage and will therefore be able to earn more than £10,000 per year and still be eligible for the benefit. This is good news for employees with family responsibilities, but also for employers, because it gives caregivers more incentive to keep their jobs.

Do you want to stay informed about legal requirements?

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OUR HR advice The service provides unlimited access to HR legal experts to guide you through legislative updates. Spend less time worrying about legislation and more time focusing on what really matters: your employees.