From 6 April 2026, a major shift is coming for how many early years professionals report their income to HM Revenue & Customs (HMRC). Known as Making Tax Digital, referred to as MTD for Income Tax, the UK government introduced this system as part of its wider goal to modernise the tax system and improve efficiency.
For those working in the early years sector, especially if your self-employed, this will significantly change how you keep and submit financial records. If you’re a childminder, nursery owner or freelance early years worker, it’s essential to understand what’s coming in April and how you can prepare.
What is Making Tax Digital for Income Tax?
The government designed Making Tax Digital (MTD) to digitise the UK tax system. Under MTD for Income Tax, self-employed individuals must:
- Keep digital records of income and expenses
- Submit quarterly updates to HMRC
This replaces the traditional method of submitting a single annual Self-Assessment tax return.
The government aims to reduce errors and help individuals stay on top of their tax requirements throughout the year.
Who is Affected in the Early Years Sector?
MTD for Income Tax will affect many professionals working across the early years industry. This includes:
- Self-employed childminders
- Freelance nursery staff and agency workers
- Sole traders running small childcare settings
- Early years consultants and trainers
From April 2026, MTD for Income Tax will apply to individuals earning over £50,000 annually (based on the 2024–2025 tax year).
From April 2027, this will lower to £30,000 (based on the 2025–2026 tax year).
If your income falls within these thresholds, you must comply with the new digital tax requirements.
What is Actually Changing?
The most significant change under Making Tax Digital for Income Tax is the frequency and method of reporting.
Current System:
- One annual Self-Assessment tax return
- You can keep records on paper, spreadsheets, or basic systems
From April 2026:
- You must keep digital records
- You must submit updates quarterly to HMRC
Rather than completing one tax return once a year, you’ll need to update your financial information every three months. This shift aims to create a more real-time view of your tax position.
What Software Will You Need?
MTD for Income Tax requires you to use HMRC-compatible software. Paper records alone will no longer meet the requirements.
There are two main types of MTD-compatible software available:
1. Full Digital Accounting Software
These platforms allow you to:
- Record income and expenses digitally
- Upload receipts and invoices
- Automatically submit updates to HMRC
2. Bridging Software
If you already use spreadsheets or other accounting tools, bridging software can:
- Link your existing records to HMRC systems
- Enable digital submission without changing your entire setup
Choosing the right software is an important step in preparing for MTD. The GOV.UK website offers a helpful tool to compare approved software providers based on your needs. You can access it here.
The Impact on Early Years Professionals
For many in the early years sector, this transition will significantly change day-to-day administration.
Increased Administrative Responsibility
Moving from annual to quarterly reporting means more frequent interaction with your financial records. For professionals who currently rely on paper systems or simple spreadsheets, this may feel like a considerable adjustment.
Digital Skills and Confidence
Some early years practitioners may need to develop new digital skills to confidently use accounting software and maintain accurate records.
However, while the transition may seem challenging at first, there are also clear benefits.
The Benefits of Making Tax Digital
Despite initial concerns, MTD for Income Tax offers several advantages for early years professionals:
Better Financial Visibility
Regular updates mean you’ll have a clearer understanding of your income, expenses and tax position throughout the year.
Reduced End-of-Year Stress
By keeping records up to date, you avoid the pressure of last-minute tax preparation in January.
Greater Control for Childminders
For childminders managing payments from multiple families, digital tools can simplify tracking income.
Final Thoughts
Making Tax Digital for Income Tax is one of the most significant changes to the UK tax system in recent years and it will have a direct impact on the early years sector.
While the move to quarterly digital reporting may initially feel like an added burden, it also presents an opportunity. With better financial tracking, improved organisation, and reduced last-minute stress, early years professionals can gain greater control over their finances.
For more information see the links below:
HMRC videos and webinars for Making Tax Digital for Income Tax:
HMRC videos and webinars for Making Tax Digital for Income Tax - GOV.UK
HMRC YouTube channel:
https://www.youtube.com/user/HMRCgovuk/featured?app=desktop&cbrd=1
