This article is part of a series of articles on tax changes applying from April 2026. Other articles from the series that may be of interest include the article for employers and an article to be published in due course on changes relevant to companies only.  

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 the taxpayer’s combined total income (not profits) from any sole trades and property businesses that they carry on. Where this exceeds £50,000 for 2024/25, the taxpayer is within MTD income tax from April 2026 unless an exemption applies. Exemptions may be given automatically or must be applied for depending on the circumstances.  

Taxpayers who are within MTD income tax from April 2026 should receive a letter from HMRC informing them of this and explaining how to sign up. However, it is the taxpayer’s responsibility to check if they need to comply with and sign up for MTD income tax.  

Reduction in the main rate WDA 

From 1 April 2026 for companies and 6 April 2026 for unincorporated businesses, the main rate of WDA is cut from 18% to 14%. A hybrid rate will apply where the period straddles 1/6 April 2026, calculated by reference to the number of days in the period before and after the change in the rate. The special rate WDA remains at 6%.  

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.  

Further information 

• Winners and losers from capital allowances changes | ICAEW

Construction industry scheme rules tightened 

At the Autumn Budget 2025, the government announced a number of changes to the construction industry scheme (CIS) to “tackle the small minority of businesses who knowingly engage with fraudulent businesses who evade tax”.  

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. 

The government also intends to make a number of changes to simplify the CIS. 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, legislation included in the Finance Bill 2025-26 (see TAXguide 05/25) ‘switches off’ the 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.