How to prepare your clients for the new tax year 2025/26

Published Thursday 11 June 2026

Table of contents

• Why early preparation matters
• Key tax changes for 2025/26
• Step-by-step checklist to get clients ready
• Common challenges at tax year-end and how to solve them
• Simplify new tax year compliance with Xero
• FAQs on preparing for the new tax year

Key takeaways

• Start early to reduce year-end pressure. Updating payroll, reviewing reliefs, and briefing clients at the beginning of the tax year means fewer surprises when filing deadlines arrive.
• Significant tax changes affect most clients. Employer NICs rose to 15% with a lower secondary threshold of £5,000, the Employment Allowance more than doubled to £10,500, and Business Asset Disposal Relief rates are increasing.
• MTD for Income Tax launches April 2026. Sole traders and landlords earning above £50,000 must begin quarterly digital reporting, with a soft landing period that waives penalty points in the first year.
• Cloud accounting software reduces manual work. Automated bank feeds, digital data capture, and integrated practice management tools help you handle compliance more efficiently across your client base.

Why early preparation matters

A strong compliance approach starts at the beginning of the tax year, not during the rush before filing deadlines. Once your workflows are up and running, it is difficult to double back and switch systems or update processes mid-year.

Your clients depend on you to keep them informed about changes to tax rates, reliefs, and reporting requirements. The sooner you bring them up to speed, the easier it is for everyone to stay compliant throughout the year.

Early preparation also helps clients access support they might otherwise miss. For example, eligible employers could be claiming Small Employers Relief to reclaim statutory pay through their payroll submissions. The earlier they know about reliefs like this, the sooner they benefit.

When clients keep the right records from day one, preparing tax returns becomes far less stressful. There is no need to chase missing documents at the last minute when you should be focused on getting compliance tasks done.

Key tax changes for 2025/26

The 2025/26 tax year introduced several changes that affect employers, sole traders, landlords, and limited company directors. Here are the key updates to discuss with your clients.

Employer National Insurance contributions

Employer Class 1 NICs increased from 13.8% to 15% from 6 April 2025. At the same time, the secondary threshold dropped from £9,100 to £5,000, meaning employers now pay NICs on a larger portion of each employee's earnings. For clients with staff, the combined effect is a noticeable increase in payroll costs.

Employment Allowance

To offset some of the NICs increase, the Employment Allowance more than doubled from £5,000 to £10,500. The eligibility threshold has also been removed, so all eligible employers can now claim regardless of their previous year's NICs liability. Check which of your clients qualify and make sure they are claiming it.

National Minimum Wage and National Living Wage

From April 2025, the National Living Wage for those aged 21 and over rose to £12.21, an increase of 6.7%. The rate for those aged 18 to 20 increased to £10.00, a 16.3% rise. Clients with employees need their payroll updated to reflect these rates from the start of the tax year.

Small Employers Relief

The compensation rate for Small Employers Relief increased from 103% to 108.5% of statutory pay. Eligible employers can reclaim more when processing statutory payments through payroll, so it is worth reviewing client eligibility early in the year.

Capital Gains Tax and Business Asset Disposal Relief

The Business Asset Disposal Relief rate increased from 10% to 14% from 6 April 2025, and rises again to 18% from 6 April 2026. Clients planning to dispose of business assets should factor in these higher rates when making decisions about timing.

Personal allowance freeze and fiscal drag

The personal allowance remains frozen at £12,570, where it has been since 2021/22. This freeze continues until at least 2028, which means more of your clients' income falls into taxable bands each year as wages rise. It is worth flagging this to clients who may not realise they are gradually paying more tax.

HMRC late payment interest

HMRC increased the late payment interest rate from Bank Rate plus 2.5% to Bank Rate plus 4% from 6 April 2025. This makes late payments significantly more expensive and adds urgency to keeping clients' tax affairs up to date.

Making Tax Digital for Income Tax

For sole trader and landlord clients earning above £50,000, the 2025/26 tax year is the final Self Assessment year before MTD for Income Tax begins in April 2026. They will need to submit quarterly updates through MTD-compatible software. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. HMRC has confirmed a soft landing period for 2026/27, meaning no penalty points will be issued for late quarterly updates in the first year.

Step-by-step checklist to get clients ready

These practical steps will help you prepare your practice and clients for a smooth transition into the 2025/26 tax year.

1. Update payroll for new rates

Apply the new NMW/NLW rates, the 15% employer NICs rate, and the reduced £5,000 secondary threshold across all relevant client payrolls. Getting this right from the first pay run avoids corrections later.

2. Claim Employment Allowance

Review which clients are eligible for the increased £10,500 Employment Allowance. With the eligibility threshold removed, more employers now qualify. Submit claims early so the allowance offsets NICs from the start of the year.

3. Review eligibility for Small Employers Relief

Check whether clients meet the criteria for the higher 108.5% compensation rate. Eligible employers can reclaim more on statutory payments, which is particularly valuable for smaller businesses with frequent statutory pay obligations.

4. Set up digital data capture

If clients are still sending paper documents, now is the time to move them to digital data capture. Tools like Hubdoc let clients snap a photo of an invoice or receipt and send it straight into their accounting software, reducing the document chase at year-end.

5. Brief clients on MTD for Income Tax

Identify clients earning above £50,000 from self-employment or property income. Walk them through what quarterly reporting means in practice and help them get set up with MTD-compatible software before April 2026. Reassure them about the soft landing period for the first year.

6. Review Capital Gains Tax implications

Discuss the BADR rate increase with clients who are considering disposing of business assets. The rate rises again in April 2026, so timing decisions made now could have a meaningful impact on their tax position.

7. Agree on bookkeeping responsibilities

Clarify who records what and how often. Setting clear expectations about transaction recording, receipt capture, and bank reconciliation at the start of the year prevents gaps in the records that cause problems later.

8. Schedule client communications

Send an email bulletin or schedule a brief call with each client to cover the changes that affect them directly. A short, personalised update is more effective than a generic newsletter and positions you as a proactive adviser.

9. Run a practice-wide workflow review

Align your internal processes with new tax year deadlines and the upcoming MTD requirements. Check that your software, templates, and task management are set up for the year ahead so nothing falls through the cracks.

Common challenges at tax year-end and how to solve them

Even with thorough preparation, tax year-end brings recurring challenges. Here are the most common ones and how to address them.

Getting clients to provide documents on time

Late documents are one of the biggest sources of year-end stress. When you are still chasing receipts and invoices close to filing deadlines, it adds to your workload and increases the risk of missed submissions. Digital data capture tools solve this by letting clients send documents throughout the year rather than in a last-minute batch. When records flow in continuously, there is far less to chase at year-end.

Handling different client types

Sole traders, partnerships, and limited companies each have different obligations, tax rules, and filing timelines. Using the same manual process for everyone increases the chance of missing something. Cloud accounting software lets you manage all client types within a single platform, with automated workflows that adapt to each client's requirements. Xero Practice Manager gives you oversight of all clients and staff, so you can see which jobs are assigned, their status, and upcoming deadlines in one place.

Balancing compliance deadlines with day-to-day work

Tax year-end does not pause your regular workload. With clients on different year-ends and accounting periods, you could be juggling multiple sets of deadlines simultaneously. Practice management tools help by centralising task tracking and deadline visibility. When compliance tasks sit alongside advisory work in a single view, it is easier to prioritise and allocate capacity across your team.

Keeping up with regulatory changes

The volume of tax and regulatory changes each year continues to grow. Staying current while managing a busy practice requires efficient systems. Integrated tools like Xero Tax auto-populate returns using data already in the bookkeeping software and submit directly to HMRC, reducing the time spent on each return. That freed-up capacity gives you more room for advisory work and client communication.

Simplify new tax year compliance with Xero

The 2025/26 tax year brings significant changes, and the right tools make it easier to stay on top of them. Xero's cloud accounting platform automates bank reconciliation, simplifies data capture, and integrates practice management with tax preparation, so you can handle compliance efficiently and focus on advising your clients.

The Xero Partner Programme is free to join and gives you access to Xero Tax, Xero Practice Manager, Xero HQ, and dedicated onboarding support. Benefits grow as your practice scales through the partner, bronze, silver, gold, and platinum tiers. Join the partner programme to streamline your practice and support your clients through the tax year ahead.

FAQs on preparing for the new tax year

Here are answers to frequently asked questions about preparing your practice and clients for the new tax year.

Do I need to update client payroll before the first pay run?

Yes. The new NMW/NLW rates, the 15% employer NICs rate, and the reduced £5,000 secondary threshold all took effect from 6 April 2025. If payroll is not updated before the first pay run, you risk underpaying employees and miscalculating NICs, which can trigger HMRC penalties. It is worth running a test payroll to confirm the new rates are applied correctly before processing live payments.

Can all employers claim the increased Employment Allowance?

Most employers can claim, but not all. Single-director companies with no other employees remain excluded. However, the previous £100,000 NICs liability threshold has been removed, so employers who were previously ineligible due to the size of their NICs bill can now claim the full £10,500. Connected companies and charities should check the specific HMRC eligibility criteria, as group rules still apply.

What happens if a client misses a quarterly update under MTD for Income Tax?

HMRC has confirmed a soft landing for the first year of MTD for Income Tax (2026/27). No penalty points will be issued for late quarterly updates during that period, though the legal obligation to submit still applies. From the second year onwards, penalty points will accumulate for late submissions. Encourage clients to treat the first year as a practice run and submit on time to build good habits before penalties apply.

How does the BADR rate increase affect clients selling a business?

Clients disposing of qualifying business assets from 6 April 2025 pay CGT at 14% under Business Asset Disposal Relief, up from 10%. The rate rises again to 18% from April 2026, bringing it closer to the standard CGT rates. For clients considering a sale, the timing of the disposal now has a larger impact on their tax bill than in previous years. Discuss whether accelerating or deferring a disposal makes sense given their specific circumstances.

Should I be concerned about the HMRC late payment interest increase?

The increase from Bank Rate plus 2.5% to Bank Rate plus 4% makes late tax payments notably more expensive. For clients who regularly rely on time-to-pay arrangements or who have historically been late with payments on account, this change increases the financial cost of delays. Building regular tax liability estimates into your advisory conversations can help clients set aside funds earlier and avoid accumulating interest charges.