January 2026 Newsletter
We are pleased to welcome you to the January 2026 edition of the Mercian Accountants Newsletter. As the new year begins, attention quickly turns to key deadlines and changes that will shape the months ahead, particularly the upcoming Self Assessment filing deadline and a range of significant developments affecting businesses, employers and individuals.
January is also a time when many clients review their financial position and plan ahead for the year to come. With economic uncertainty continuing, preparations for Making Tax Digital for Income Tax gathering pace, and further changes to employment law, wages and HMRC processes on the horizon, early awareness and planning are more important than ever.
In this issue, we highlight the approaching Self Assessment deadline, the latest economic outlook for 2026, HMRC’s move towards digital correspondence, changes to debt recovery powers, developments in employment rights, and upcoming increases to the national living and minimum wages. We also include a diary of key tax dates to help you stay on track.
Self Assessment Deadline Approaching
The deadline for submitting your 2024/25 Self Assessment tax return and paying any tax owed is 31 January 2026.
By this date, you must:
- file your Self Assessment tax return online
- pay any outstanding income tax and National Insurance
- make your first payment on account for the 2025/26 tax year, if applicable.
Missing the deadline can result in automatic penalties, interest on late payments and further charges if delays continue. Even if you cannot pay the full amount owed, it is essential to submit your return on time and speak to HMRC as early as possible about payment options.
If you are self-employed, a landlord or have additional sources of income, now is the time to ensure your records are complete and accurate. Leaving things until the last minute can increase the risk of errors or missed reliefs.
If you would like help completing your return, understanding your tax position or arranging a payment plan, please contact us as soon as possible so we can support you ahead of the deadline.
Preparing for 2026: A Challenging but Changing Economic Outlook
Economic conditions are expected to remain challenging into 2026, with slower growth and continued uncertainty for both households and businesses. Recent forecasts suggest the UK economy will continue to grow, but at a more modest pace than previously expected.
While economic growth is predicted to slow, inflation is widely expected to fall more quickly over the coming year and move closer to the Bank of England’s long-term target. This should ease some pressure on household budgets and business costs, though the next 12 months are likely to remain unsettled.
Global trade disruption and higher taxes are expected to continue to affect confidence, with businesses operating in a more cautious environment and consumers facing ongoing pressure from employment and cost-of-living concerns.
That said, periods of uncertainty can also create opportunities. Falling inflation, stabilising supply chains and better access to real-time financial data may help businesses make more informed decisions around pricing, investment and cash flow.
For individuals and business owners alike, the key takeaway is preparation. Reviewing budgets, stress-testing plans and keeping financial information up to date can help you respond more confidently to changing conditions.
Making Tax Digital for Income Tax is Coming This Year
Significant changes to the way income tax is reported are coming in 2026, as Making Tax Digital (MTD) for income tax is rolled out more widely.
From April 2026, sole traders and landlords with combined gross income above £50,000 will be required to keep digital accounting records and submit quarterly updates to HMRC using approved software. An annual tax return will still be required, but it must also be completed through compatible digital systems.
The move to quarterly reporting represents a significant shift away from the traditional annual tax process. For many businesses and landlords, this will mean more frequent reporting, new software and changes to how records are kept throughout the year.
HMRC is also introducing stricter rules around tax compliance and adviser standards as part of broader reforms. While these changes are aimed at improving accuracy and transparency, they are likely to increase the importance of having reliable systems in place and seeking advice early.
There are also opportunities within the changes. Digital records can provide clearer, more up-to-date insight into business performance, helping with cash flow management and forward planning.
If you are a sole trader or landlord who may be affected, now is the time to prepare. Reviewing your recordkeeping processes, understanding software options and planning for quarterly reporting well in advance can help make the transition smoother.
HMRC Moves Towards Digital Correspondence
HMRC is set to stop sending most paper letters from spring as it accelerates its move to digital communication.
Under the changes, email or app alerts will replace many automatic postal letters. These alerts will notify taxpayers when new documents are available to view in their personal tax account or via the HMRC app. This forms part of HMRC’s long-term plan to make 90% of interactions digital by the 2029/30 tax year, with expected savings of around £50 million a year in printing and postage costs.
Taxpayers who already use the HMRC app or a personal tax account will be among the first to transition. When logging in, users will be asked to confirm or provide an email address or mobile number, which will be used solely to alert them that new correspondence is available online.
HMRC has confirmed that paper letters will continue for those who are digitally excluded or who choose to opt out. Safeguards will remain in place to support elderly taxpayers and those with disabilities who rely on traditional communication.
Legislation in the Finance Bill 2025/26 will give HMRC the power to require users of its online services to provide digital contact details. The rollout will begin in spring 2026 and expand gradually as systems are updated.
If you are unsure how these changes affect you or your business, we can help you prepare and ensure you do not miss important correspondence.
A Six-Month Qualifying Period has been agreed for Unfair Dismissal Rights
The Government has confirmed a six-month qualifying period before most employees gain protection from unfair dismissal, following extended discussions with the House of Lords and business groups.
This represents a compromise from earlier proposals to introduce unfair dismissal rights from day one. While the current qualifying period is two years, the six-month threshold still marks a significant expansion of employee rights.
The agreement allows the Employment Rights Bill to proceed while keeping the Government’s wider reform timetable on track. From April 2026, statutory sick pay and paternity leave are expected to become day-one rights, alongside the introduction of the new Fair Work Agency.
Business groups have welcomed the additional time to prepare, particularly smaller employers who may need to review recruitment processes, probation arrangements and performance management procedures.
Based on current guidance, the six-month qualifying period for unfair dismissal is unlikely to take effect before 2027. Further detail is expected once secondary legislation is published.
National Living Wage and Minimum Wage to Rise
The national living wage for workers aged 21 and over will rise by 4.1% to £12.71 per hour. This is expected to benefit around 2.4 million workers and increase a full-time employee’s annual pay by approximately £900.
The national minimum wage for 18 to 20-year-olds will rise by 8.5% to £10.85 per hour, delivering an estimated £1,500 annual boost for full-time workers. Rates for 16 to 17-year-olds and apprentices will also increase by 6% to £8 per hour.
While trade unions have welcomed the increases, they will add to cost pressures for employers, particularly when combined with the rise in employers’ national insurance contributions from April 2025.
Businesses are encouraged to plan ahead, review payroll budgets and assess pricing and staffing models well in advance of the changes.
Diary of Main Tax Events
January / February 2026
| 1 January | Corporation Tax for the year ended 31 March 2025, unless quarterly instalments apply |
| 19 January | PAYE and NIC deductions, and CIS return and tax, for the month ended 5 January 2026 (due 22 January if you pay electronically) |
| 31 January | Deadline for filing your 2024/25 Self Assessment tax return online and paying any tax owed, including the first payment on account for 2025/26 |
| 1 February | Corporation Tax for the year ended 30 April 2025, unless quarterly instalments apply |
| 19 February | PAYE and NIC deductions, and CIS return and tax, for the month ended 5 February 2026 (due 22 February if you pay electronically) |
Planning Ahead for 2026
As 2026 begins, now is a necessary time to review your personal and business affairs and ensure you are prepared for the changes ahead. The approaching Self Assessment deadline, continued economic uncertainty, and the phased introduction of new digital reporting requirements all underline the need for early action.
Rising employment costs, evolving HMRC powers and further reforms to tax administration mean that careful planning will be essential throughout the year. Taking time now to review cash flow, reporting processes and compliance obligations can help reduce risk and provide greater clarity.
At Mercian Accountants, we are here to support you with practical, proactive advice tailored to your circumstances. If you would like help with any of the issues covered in this newsletter, or support planning for the year ahead, please contact our team.
N.B. This document is for information only and does not constitute tax advice.
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