Archives July 2026

HMRC has an ambitious vision for the future of tax administration.

Making Tax Digital, AI, automation, e-invoicing and digital services all feature heavily in its plans for the years ahead.

At the same time, Sage‘s The Hidden Hours of Accountancy research highlights a profession already dealing with growing operational pressure, much of it driven by work that sits outside traditional accounting services.

The question is whether HMRC’s roadmap will reduce that burden—or simply change where the hidden hours appear.

Accountex 2026: A quick summary

At Accountex 2026, the loudest conversations weren’t really about AI.

They were about pressure.

You could hear it underneath almost every session and conversation—MTD deadlines, workflow overload, pricing strain, scope creep, client expectations that keep expanding regardless of what’s in the engagement letter. Even talks and discussions framed around modernisation and digital transformation kept drifting back toward the same operational reality: firms that feel like they are permanently on.

Then Jonathan Athow, Director General of Strategy and Policy at HMRC, reminded a crowd of accountants and bookkeepers about MTD timelines. Not AI slides. Timelines. Quarterly updates spread across the year, rolling onboarding waves, expanding thresholds, continuous digital interactions replacing periodic reporting cycles.

Athow described HMRC’s ambition clearly: a trusted, modern tax collection organisation, with 90% of customer interactions through digital channels by 2030. More automation, more self-service, more real-time interaction between taxpayers, software, agents, and HMRC itself. The organisation is trying to modernise fragmented systems, reduce friction, improve customer experience and close the tax gap. The direction of travel is rational.

But for many in the room, the timelines quietly confirmed something they were already feeling in practice. HMRC’s modernisation doesn’t reduce the operational burden on firms. It redistributes it. The profession isn’t simply becoming more digital. It’s becoming more continuous—and much of what that continuity requires remains invisible, uncharged, and unacknowledged.

That’s what Sage’s The Hidden Hours of Accountancy research, released around Accountex, set out to quantify.

The shape of a modern working week

Sage surveyed 1,000 UK-based accountants and bookkeepers and asked them to account for their own time.

The results are striking.

Accountants now spend just 44% of their working week on core accounting and compliance work, down from 50% a year ago. The remaining 56% is split across advisory and technology work, running the practice, and a growing category that the research describes as “beyond-the-brief” client support—work that rarely appears on an invoice and almost never featured in anyone’s job description when they entered the profession.

That beyond-the-brief category is the one to watch. It has grown by nearly 50% in a single year, from 9% of the working week to 13%, faster than any other category. With only 8% of practitioners saying they do none of this kind of work, it is now effectively a universal feature of the profession.

The work itself is wide-ranging. Business mentoring on non-financial matters and acting as an emotional support resource for clients are both reported by 52% of practitioners—the two commonest types of beyond-the-brief work. Among practices whose primary clients are sole traders, 82% say they regularly act as a therapist for clients. That figure drops to 35% among those focused on limited companies, but it doesn’t disappear.

Hard work, rarely charged

What makes The Hidden Hours of Accountancy data uncomfortable is not the breadth of the work. It’s what happens to it financially.

Only 19% of accountants say they charge for most or all of their beyond-the-brief work. When out-of-scope work arises, the commonest outcome is simply absorbing it—44% say it’s completed without any additional charge. Meanwhile, 70% say their fees don’t reflect the full range of support they provide, and 81% regularly take on tasks outside their agreed scope of work. This is not just operational pressure—it’s margin compression hiding in plain sight.

This is not a story about accountants and bookkeepers occasionally going the extra mile. It describes a structural pricing gap at the centre of the profession—one that has been widening quietly for years and is now accelerating.

What MTD does to the rhythm of work

The significance of MTD for Income Tax isn’t simply that it creates more filings. It’s that it changes the cadence of the job entirely.

Under older self-assessment cycles, pressure accumulated around a handful of major deadlines. Firms experienced intense seasonal peaks, but there were genuine quieter periods between them. MTD distributes that pressure continuously across the year—quarterly updates, ongoing bookkeeping expectations, rolling onboarding waves as thresholds expand, overlapping compliance cycles with fewer real recovery windows.

That’s why so many firms describe the profession as feeling always on, even as software becomes more automated. The hidden burden isn’t usually the submission itself. It’s the coordination work around it—the chasing, the checking, the corrections, the client education, the exceptions that don’t fit neatly into any system.

The Hidden Hours of Accountancy research found that 67% of accountants expect MTD obligations to increase workload over the next two years. That expectation sits alongside a present reality in which 62% already say they spend too much time managing the practice, and 58% say they’re spending too much time on beyond-the-brief work right now.

The automation paradox

One of the more interesting contradictions running through Accountex was this: the profession is becoming more automated, yet many people still feel overwhelmed.

Part of the explanation is that automation tends to remove transaction work while expanding coordination work. AI can accelerate categorisation and drafting. Software can automate submissions. Digital systems can streamline standardised tasks. But somebody still must validate the outputs, resolve exceptions, onboard clients, explain nudges and notifications, and maintain continuity across increasingly connected environments.

Among accountants already using AI, 54% say they regularly need to review or adjust AI-generated outputs before using them. Among regular AI users, that figure rises to 91%. The work doesn’t disappear. It shifts—and often becomes harder to see, measure, or charge for.

The cost to the people doing the job

The Hidden Hours of Accountancy research is careful not to frame this purely as a business model problem. It’s also a people problem.

More than half of practitioners say they are satisfied with their job—but that figure is falling. Over the past three years, 44% say their satisfaction has declined, against only 19% who say it has improved. Among the consequences: 80% say beyond-scope work makes their working life more stressful, 72% say it makes it harder to do their actual job effectively, and 42% say the reality of the role is worse than they expected when they entered the profession.

Perhaps most significantly for the profession’s future: 13% of accountants say they are likely to leave within the next three years. Among the next generation of practitioners—those who will be shaping the profession for the next two decades—that figure is 18%. And among those considering leaving, almost half point to spending too much time on non-accounting work as a key driver.

The work that practitioners value most, the research found, is being crowded out by the work they find most draining.

Final thoughts: What comes next

The Hidden Hours of Accountancy research is the beginning of a longer conversation, not a summary of one. Over the coming months, we will be releasing new data and analysis covering fees and practice profitability, mental health, the future shape of the profession, and what firms are doing—or could be doing—to redesign around this reality.

HMRC’s modernisation goals are coherent. Cleaner data, better compliance, reduced friction, more connected systems—these benefit the profession as well as the tax authority. The question isn’t whether digital transformation is the right direction. It’s where the operational weight of that transformation lands in practice.

The Hidden Hours of Accountancy research suggests it’s landing inside firms, in hours that are difficult to see, measure, or price. As compliance becomes more continuous, as systems become more connected, and as client expectations keep expanding, that weight is only likely to grow.

The firms that navigate this well won’t simply be the ones that use more AI or file more efficiently. They’ll be the ones that make the hidden hours visible—and build a business model that accounts for them.

Frequently asked questions

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In partnership with Smart Data Foundry and The Centre for Economics and Business Research, Sage has published its latest SME Monthly Workforce Pulse research.

This is drawn from anonymised payroll data from approximately 200,000 small businesses and provides unheralded insight into pay across the UK.

The data is part of Data for Good, Sage’s commitment to help Small and Medium Businesses thrive using anonymised insights from our data and enabling better decision making by stakeholders.

As such, smart managers and leaders can use SME Monthly Workforce Pulse to plan their next moves—such as competitive pay offerings that help retain staff. That’s what we cover in this article, as follows:

SMEs are showing resilience

The data shows median gross pay rose 4.1% year-on-year to £2,203, with take-home pay up 3.3% to £1,804. Pay growth is easing amid increased slack in the UK labour market.

Headcount among micro businesses grew +0.4%, outpacing small and medium firms at +0.2% each. The £10,500 Employment Allowance may be shielding the smallest employers from the full impact of the NICs rise, but this protection falls away as firms scale up.

On a sectoral basis, Finance and Insurance was the strongest sector for headcount growth at +1.5%, while Wholesale and Retail Trade led on earnings growth at +4.5%.

Hiring continues to ease

Data also shows that real-terms pay growth is being squeezed, falling to 1.0% this month, as nominal wages cool and progress on reducing inflation is stalled by the conflict in the Middle East.

On regional granularity, Wales recorded the greatest headcount decline at -0.4% despite leading the UK on pay growth at 5.8%. Its heavy reliance on manufacturing and construction leaves it particularly exposed to energy price volatility from the ongoing Iran-Strait of Hormuz disruption.

Accommodation and Food shed the most staff of any sector at -1.4%. As one of the largest employers of young people, the sector’s continued job losses have wider implications for youth employment.

How do you plan pay rises you can keep giving?

With hiring steadier than it’s been, a lot of business owners are turning their attention to the team they’ve already got—and pay is a big part of looking after them.

The encouraging news in this month’s data is that wages are still rising. The clever bit is making sure the rises you give are ones you can keep giving.

Here are some suggestions for how to plan them with confidence.

1. Start with the full picture, not just the salary

It’s easy to think of a pay rise as simply the new figure shown on an employee’s payslip.

In practice, every pound you add brings a little extra with it—more employer National Insurance, higher pension contributions, and sometimes knock-on costs tied to salary.

None of that is a reason to hold back. It just means the smartest first move is to work out what a rise really costs before you promise it, so the figure in your head matches the one that leaves your business’s account.

Payroll software can calculate these costs quickly, helping you plan with confidence.

2. Check it against your cash flow before you commit

A pay rise isn’t a one-off, of course. It’s a commitment you make every month from here on.

So, it pays to see how it sits next to everything else.

Pull up your cash flow forecast and map the new wage bill across the year ahead.

Are there quieter months when it’ll feel a bit tighter? Busier spells that give you some breathing room?

Seeing the whole year in one view means you can be generous on purpose, rather than hopeful in the moment and nervous later.

And when the numbers say you can comfortably do it—wonderful. Now you know for sure.

3. There’s more than one way to say thank you

If an across-the-board percentage feels like a stretch this year, you have options.

In some cases, these alternatives can provide greater value to employees.

You might weight rises towards the roles that are hardest to replace, phase an increase across the year, or link a bump to a milestone everyone can get behind.

A one-off bonus, an extra day of annual leave, or a bit more flexibility can all say “we appreciate you” without locking in a permanent rise to the wage bill.

The real skill is matching the reward to what your people genuinely value—which, more often than not, isn’t only about the money.

4. Talk to your team like, well, your team

People are far more understanding than we sometimes expect—especially when they’re kept in the loop.

Being open about how you set pay, what’s gone well this year, and what you’re planning builds a kind of trust that a surprise figure on a payslip never can.

It’s also the perfect moment to help people see the full value of what they receive: the salary, yes, but also the pension, the benefits, and the flexibility.

A rise always feels bigger when someone can see everything that sits around it.

5. Deciding on the rise itself—and giving it well

At some point the planning has to turn into a decision, and this is the part that’s easiest to keep putting off.

Try not to.

Once you know what you can afford, settle on a figure you can stand behind—one that reflects the employee’s contribution, aligns with market rates for similar roles, and takes into account the cost of living.

You don’t need a complicated formula. You need a number you’d feel comfortable explaining out loud.

When you give it, be specific: tell them the new salary, when it takes effect, and—the bit that really lands and provides lasting value for you as employer—exactly why they’ve earned it.

Then make sure it actually happens: update their contract, log the effective date, and check it’s reflected on the very next payslip.

Nothing undoes a generous moment faster than a rise that doesn’t show up on time!

Final thoughts: Plan ahead, and you can keep saying yes

Here’s the honest secret to rewarding your team well: it’s less about any single decision and more about planning far enough ahead that good decisions stay possible.

Once you know your true costs, you’ve mapped them against your cash flow, and you’ve got a few ways to show appreciation up your sleeve, pay becomes something you can feel genuinely good about rather than something you worry about each spring.

Resilient businesses aren’t the ones that never hit a tight month. They’re the ones that saw it coming and planned around it.

Do that, while keeping an eye on data such as that from Sage’s SME Monthly Workforce Pulse, and you’ll be ready to keep saying yes for years to come.

Frequently asked questions

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Key Takeaways

• The first quarterly update under Making Tax Digital for Income Tax is due by 7 August 2026.
• If you run multiple businesses then you will need to supply a quarterly update for each.
• The month-long window for quarterly update submission opened for taxpayers on 25 June, at the earliest, although for most taxpayers the submission period effectively began on 6 July.
• You can’t submit a quarterly update without digital records, so if those aren’t present already, they need to be put in place.
• A quarterly update is not a tax return and is much more limited in terms of the data you need to provide.
• Completing the updates means HMRC will provide you with a tax estimate.
• No tax payment is due because of the quarterly update (although there may be a payment on account that HMRC has previously requested you pay on 31 July).

If you’re a sole trader or landlord coming into Making Tax Digital (MTD) for Income Tax this year, add this date to your diary: 7 August 2026.

That’s the deadline for your first ever quarterly update, the first of four you’re required to provide across the tax year. (The others are 7 November, 7 February, and 7 May the following year—so maybe add those to your diary, too.)

If this is the first you’re hearing of any of this, take a breath, because it’s far more manageable than it sounds. As we explain below, in most cases you can get some free software, connect your bank feed, categorise the transactions and submit. It can take as little as a few minutes.

However, this guide walks you through the entire process in a bid to take you from zero, to (hopefully) hero.

Here’s what we discuss:

What’s the bare minimum for an MTD for Income Tax quarterly update?

In summary, you’ll need the following to make a MTD for Income Tax quarterly update:

• MTD-ready software capable of making MTD for Income Tax updates. You cannot do this using the HMRC website, like you might’ve done with Self Assessment, or by post.
• Digital accounting for your business income and expenditure since the start of the tax year (e.g. 6 April to 5 July for the 7 August quarterly update). These are known as digital records.

Here’s what’s the information required for those digital records:

• Self-employment or landlord income amounts: Things like your sales, takings, fees, and rents.
• Self-employment or landlord expense amounts: Things like the cost of stock, travel costs, office supplies costs, utility and phone bills, financial costs, and cost of repairs/maintenance/service fees for properties if you’re a landlord.
• Dates: When the income was received, or expenses incurred.
• Tax categorisation for each income and expense: For example, travel expenses, advertising, interest on loans, wages paid to staff, or just the cost of goods bought for resale, or used in your business. HMRC provides a handy list.

If all this sounds overwhelming then—don’t panic!

The whole point of MTD for Income Tax is that you use software to make the update. The software makes everything easy. It’ll assist with the categorisation, for example. And you can connect to your bank to get the data you need.

We explain possibly the simplest possible way of doing all this below.

When is the earliest I can submit my MTD quarterly update?

You get just over a month after the end of a quarterly period to submit your update.

For example, for the period covering 6 April to 5 July, the first quarterly update is due on 7 August.

So, the earliest date to make your update is 6 July.

However, HMRC says you could’ve submitted your quarterly update up to 10 days before this—but only if you were sure those 10 days wouldn’t have any transactions in them. You might’ve been going on holiday, for example, and wanted to take care of the update before you leave.

So, the effective earliest date to submit an update is 10 days before the end of the update period.

Again using the first quarterly update as our example, this would’ve been be 25 June.

Here’s all that in simple terms for the first quarterly update:

• Period covered: 6 April to 5 July.
• Earliest submission date: 25 June, provided you’re sure there will be no more transactions before 6 July.
• Earliest submission date for the average taxpayer: 6 July.

A quick note: If you use 1 April as the start of the tax year (something known as a calendar year basis), it’s a bit different. The earliest you can update your quarterly update would be 20 June (because that’s 10 days before your period ends on 30 June). But your deadline remains 7 August for the quarterly update.

Do I have the right software for an MTD quarterly update?

As you might expect from the name, Making Tax Digital is about using software for your accounting.

There’s no way around this, and it’s the whole reason why HMRC created the Making Tax Digital initiative.

Alas, you can’t just use any software and be within the rules.

You need to be using software that HMRC has recognised as being MTD-ready.

We’ve covered this already on Sage Advice, so take a look at that article, but if you’ve no idea where to start then we’d suggest signing up to Sage Sole Trader. There are versions for Apple and Android mobiles.

If you want to skip ahead to see how to use Sage Sole Trader for your first quarterly update, click here.

There’s a version of Sage Sole Trader available entirely free of charge and yes, it will take you through the MTD for Income Tax requirements—including your digital tax return, due by January 2028.

Bear in mind that once you’ve made any MTD quarterly update, the data is then stored with HMRC—so you can use whatever software you like next time. You just need to make sure the digital records are imported, because updates are cumulative.

And that’s the next topic we’re going to discuss.

Do I have the right digital records for an MTD for Income Tax quarterly update?

Before you can send a quarterly update, you need somewhere to get the data from.

If you’ve had to follow the MTD for Income Tax rules as of April 2026—which is to say, your qualifying income was over £50,000 for the 2024/25 tax year—you should’ve been keeping digital records of your business and property income and expenses as of 6 April 2026 onwards.

“Digital records” sounds heavier than it is.

In practice, it means your business income and expenses live in software.

At its simplest, this could be a spreadsheet that you’ve linked to HMRC through MTD-ready bridging software.

But for most people, it means simply using MTD-ready accounting software and putting their income and expenditure into it when it happens, or as soon as possible after.

Your quarterly update is simply a summary pulled from those records, so the better your records, the easier every update becomes.

So, what if you have not been creating digital records since 6 April?

Don’t panic. You’re actually in the clear provided you get the digital records into MTD-ready software before the quarterly reporting deadline. We explain a simple way of doing this below using a bank feed.

However, a bank feed on its own isn’t really a good solution long-term.

Now is the moment to build the habits that save you a headache at year-end when your full digital tax return is due. A bank statement tells you money moved, but it doesn’t prove what for, and it won’t capture cash takings or match a payment to the right invoice. If you buy things using cash, it won’t capture that, either.

So keep your receipts and invoices, and let your software do the heavy lifting: snap a photo of a receipt using the accounting app just after you’ve made the purchase, and have the details read off automatically, or set recurring expenses to categorise themselves.

Get this right early and your records stay clean, complete and ready to submit at any point.

What should a quarterly update actually include? (And what should it not?)

This is where most of the nerves come from, so let’s clear it up.

A quarterly update is a digital summary of your income and expenses for the tax year so far, sent to HMRC through your software.

That’s it.

Here’s what a quarterly update is not:

• It’s not a tax return.
• It doesn’t include earnings from full-time employment (e.g. PAYE).
• It doesn’t include dividends, savings interest, pensions, capital allowances, capital gains or losses, reliefs, or tax adjustments and allowances. It really is just income and expenditure.
• It’s not a tax bill.
• It’s not your final, fixed word on your income and expenditure.

Each update is cumulative, meaning it’s a running total from the start of the tax year that overwrites the one before it. So if a figure isn’t quite right, you’re not stuck with it: the next update corrects it automatically, and you tidy everything up properly at year-end.

What you get back once you submit your update is the genuinely useful part, and hardly anybody ever mentions it.

After you submit, you’ll see an estimate of your tax bill for your self-employment and property income, either in your software or your HMRC online account.

That’s a running, real-time view of what you’re likely to owe, which makes it far easier to set money aside as you go and avoid a nasty surprise in January. No more setting aside a nebulous third of your income. Now you can be more precise. The cash flow benefit could be enormous.

One quick practical note: you submit a separate update for each source of income.

So if you’re a sole trader who also lets out a property, that’s two updates each time, not one combined figure. Ditto if you run, say, an online eBay store while you also run a carpentry business. That would be two quarterly updates. Any MTD-ready software recognised by HMRC should let you manage both in the same place.

How can I submit an MTD quarterly update right now?

If this is all new to you and you want to get it sorted out ASAP, then we’d suggest the following, which can be done on your mobile phone:

1. Download Sage Sole Trader. There’s even a free version, that’ll be free forever.
2. Create an account and sign-in.
3. Connect your business bank account, and then import your transactions.
4. Use the categorisation tool to categorise your transactions with just a swipe, if you’re using the app. The app will help auto-categorise, too!
5. If you’ve bought anything with cash, or if you’ve taken any payments in cash, create manual transactions for these using the data from receipts you’ve received, or invoices you’ve created.
6. Open your quarterly update, review it, and then tap to send it to HMRC.

That’s it. Job done.

The first time might take a short while. But by this time next year, once you’ve got the hang of it, it really is something you can do in a few minutes between jobs, or before cracking into your meal deal over lunch—especially if you categorise those digital records as they come in each time.

Can my bookkeeper or accountant handle the MTD quarterly update on my behalf?

Yes—and for plenty of people, that’s exactly the plan.

Just as your accountant or bookkeeper used to handle your Self Assessment return, they can prepare and submit your quarterly updates, and your year-end digital tax return. They can handle maintaining the digital records, too.

If you’d rather not touch the software yourself, you don’t have to. Or if you’d like to do a little of it, like record expenses, but leave the rest to the experts, then that’s also possible.

The two jobs can even be split: a bookkeeper you hire to visit your business might handle the quarterly updates while your accountant takes care of the year-end. (Behind the scenes that comes down to how they’re set up with HMRC, but that’s their concern, not yours.)

The arrangement is much the same as the once-a-year one you may already have. Picture the bundle of records you hand over each year so your return gets filed on time, by 31 January—it’s that same handover, just happening after each quarter rather than once a year.

Here’s what’s involved:

1. Authorise them to act for you. Your accountant or bookkeeper needs your permission to deal with HMRC on your behalf for MTD for Income Tax. They’ll usually set this up and send you a request to approve, which is often just a case of logging in once to confirm the link. An existing authorisation for your Self Assessment may carry across, though a fresh digital sign-off is sometimes needed.
2. Get set up on their software. They’ll typically use MTD-compatible software to manage their clients, so you may need to be added to it. It’s worth a quick conversation about which software before anyone commits, so it fits how you both like to work.
3. Get your figures to them. Two routes here. Either connect your business bank account so transactions flow straight into the software (the quickest option), or send them your paperwork, your receipts, invoices and statements, for them to record. Agree who’s doing the categorising, you or them.
4. Keep it flowing every quarter. The real change is the rhythm. Your records now need to reach them four times a year, in good time before each deadline, and more often still if you have more than one income source, since each one is reported separately.

One thing worth holding in mind: your accountant or bookkeeper is doing all of this for the first time too, and they’re doing it for every affected client at once, all hitting the same quarterly deadlines.

The end of July and first week of August will be their busiest stretch of the new year. So the kindest thing you can do for both of you is get your records or paperwork over early, with plenty of room before 7 August.

Don’t be the client emailing a year’s worth of receipts on the 5th. Get your request in now, agree how you’ll work together, and your first quarter will be calm rather than a scramble.

What happens if I get my first quarterly update wrong—or it’s late?

Here’s the reassuring bit.

First, understand that you should aim for accuracy throughout—ensuring your digital records are accurate, and ensuring your quarterly updates are accurate.

However, HMRC won’t ever impose penalties if you find you’ve made a mistake in your quarterly update, or if you find that you have to adjust things later on. (Note that this is not true for the digital tax return, which must be accurate.)

Some commentators have even suggested this means you can just submit £0 in both the income and expenses categories for every quarterly update.

But the reality is that this is not something you should ever do. This is the kind of pattern that HMRC might pick-up on as problematic.

And why would you? You’re legally required to keep accurate digital records, which means the data will be there anyway. So why not just do it properly, to the best of your ability? What’s more, the quarterly update is genuinely useful to you. You get an estimate from HMRC on how much tax you’ll owe. This is incredibly useful for cash flow.

What about timing? What if you’re late with the update?

Ordinarily HMRC would apply a penalty point. (We’ve discussed the MTD penalty point system previously here on Sage Advice, so take a look at that article for details.)

However, HMRC knows MTD for Income Tax is a big change, so it’s built in some breathing room for the first year (2026-27).

It comes in two separate parts that are easy to mix up.

1. Late quarterly updates won’t cost you penalty points in 2026/27

If you’re in this first wave, there are no penalty points for submitting any of your first four quarterly updates late.

Two things to hold onto, though: you still have to submit all four (you can’t file your year-end return until you have), and this does not cover your year-end declaration, due 31 January 2028, which sits under the normal penalty rules.

It’s a one-year reprieve and from 2027/28 onwards, a late update earns a penalty point, and four points means a £200 penalty.

2. You get slightly longer to pay

For your first year in the new penalty system, you have 30 days from the payment due date, rather than the usual 15, before a late-payment penalty kicks in.

The catch worth knowing: this holds off the penalty, not the interest. Interest still runs from the original due date and can’t be appealed, so it pays to clear what you owe as soon as you can.

Like the points easement, this is a one-off. As of 2027/28, it drops to 15 days.

The smart way to read all this: the safety net is there so you can find your feet without pressure, not so you can put it off. Treat 2026/27 as a low-stakes dress rehearsal. Get your software and your categorising right now, while a slip costs you nothing, and the year-end, when the rules tighten, will look after itself.

Danger! Why you shouldn’t wait until the MTD quarterly deadline

The soft landing period means there’s no points penalty for being a little late for this first year of MTD (2026/27).

But there’s a really good reason why you should make your quarterly update ASAP, rather than leaving it to the last minute.

The first week of August will see a rush of first-time filers all hitting HMRC’s systems at once. If you do run into a problem, that’s the worst possible moment to phone a helpline, for example.

Submit your quarterly update early and you’ve got the time and space to sort any hiccups calmly, while support is easier to reach.

But don’t forget that this is HMRC’s first time experiencing around a million MTD for Income Tax customers making a quarterly update, too.

We’re sure HMRC’s systems will cope just fine, but there’s always a risk—however small—that there are some unforeseen small issues that might cause big problems.

So, again, you don’t want to wait until 7 August to make your update only to find that there are technical issues.

Make the update as soon as you can.

What comes next: Your MTD and Income Tax calendar after the first quarterly update

Your first update is the start of a rhythm rather than a one-off, so it helps to see the road ahead. Here’s what’s coming until the start of 2028:

• 31 July 2026: 2nd payment on account for 2025/26 may be due.
• 7 November 2026: Second quarterly update for 2026/27 is due.
• 31 January 2027: For many taxpayers this is likely to be the last-ever traditional Self Assessment return (for 2025/26). Also, any 2025/26 balancing payment and first payment on account for 2026/27 may be due.
• 7 February 2027: Third quarterly update for 2026/27 is due.
• 7 May 2027: Fourth and final quarterly update for 2026/27 is due.
• 31 July 2027: 2nd payment on account for 2026/27 may be due.
• 7 August 2027: Your first MTD quarterly update for 2027/28 is due.
• 7 November 2027: Your second MTD quarterly update for 2027/28 is due.
• 31 January 2028: Your first MTD digital tax return is due (replacing Self Assessment for 2026/27), plus any 2026/27 balancing payment and your first payment on account for 2027/28 may be due.

The digital tax return is where it all comes together: you confirm your figures, add any other income such as employment, dividends or savings interest, claim your reliefs and allowances, and settle up. It replaces the annual return you’re used to but is very similar. However, most of the data will already be in the system because of your quarterly updates. How neat is that?

It’s also worth knowing the net is widening.

MTD for Income Tax reaches those with qualifying income over £30,000 from April 2027, and over £20,000 from April 2028.

And from 2027/28, the penalty points safety net falls away, which is another good reason to use this first year to get comfortable.

Final thoughts

None of this needs to be stressful, and the worst thing you can do is nothing.

So, a simple plan: get your records flowing by connecting your bank and keeping your receipts and invoices, then do your first update early rather than waiting for 7 August.

You’ve got a forgiving first year and real-time tax estimates on your side, so use them.

Get this one out of the way calmly now, and every update after it gets easier.

Frequently asked questions

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Making Tax Digital (MTD) was first announced back in 2015, with Income Tax the first planned inclusion.

History shows things didn’t run quite to plan.

But now, here we are over a decade later: the clock is ticking down to 7 August, the first-ever quarterly update deadline for Income Tax.

For most accountancy or bookkeeping practices, this will be the first time real client data has run through the whole Making Tax Digital process end to end.

There may be challenges. But the focus must be on getting that first batch of updates out of the door. That’s what this article’s all about. No history lessons, no technical explainers. Just focusing on solving for the here and now.

Here’s what we discuss:

Triage your client list right now

Before you touch a single submission, get a clear picture of where every in-scope client stands.

You will have two broad categories, of course:

• Do it with me: Clients who have their own software and are doing their own quarterly updates (but who are anticipating your help at year end). These will need reminding of the quarterly update obligation, and perhaps reassuring, too, given this is the first time.
• Do it for me: Clients that are expecting you to do it all for them—from creating digital records, to creating and submitting the quarterly updates. These clients may need chasing and reassuring that you’re taking care of it.

It’s the latter we’re most focussed on in this article, but we do provide an email template for the former, below.

Pull your list of clients mandated from April 2026 and sort them into three buckets according to the basics of the RAG status system:

• Ready to file (GREEN): Records complete and in your software
• Data still landing (AMBER): Some records in, chasing the rest
• Nothing yet (RED): Radio silence

Then review and file every green client today, if that’s in your purview (e.g. they aren’t doing it themselves). There is nothing to gain by holding these clients, and clearing them off your desk frees the team to focus where it counts.

Remember that this is the first time HMRC has processed what will be around a million taxpayer quarterly updates (with many taxpayers submitting multiple updates, of course). All of us have confidence nothing bad will happen with HMRC’s systems but, in the same breath, it isn’t being overly cynical to get as much done as possible ahead of the deadline, before the systems will become strained.

Now work the amber list hardest: these are the ones a single phone call or scan-in session can push over the line.

The red list you triage by risk—biggest liabilities and least time first.

If you are using Sage for Accountants, the MTD for Income Tax Agent that’s part of the Sage Copilot AI can do this segmentation for you automatically, grouping clients by complexity and readiness so you are not building the list by hand. More on that below.

Get the missing data—in the fastest way possible

The bottleneck is always getting the records out of the clients.

For the disorganised ones (the classic landlord or side-hustler with a carrier bag of statements), the fastest route from raw paperwork to filed figures is scan-and-reconcile.

Use a capture tool to digitise everything in one go. Data entry automation apps like AutoEntry lets clients photograph, scan or email their invoices, receipts and bank statements, then extracts the data for you instead of anyone re-keying it—which also ticks the digital-records requirement.

You might even be able to get by just with the bank statements if the client hasn’t made cash purchases or accepted cash payments. And for clients with no ledger or accounting software at all, its AccountsPrep add-on takes those captured statements, lets you fast-code them to a chart of accounts and reconcile against the bank, and outputs a tidy set of figures.

Those using AccountsPrep say it can turn what used to be a full day’s work per client into an hour or so. For MTD, data entry software like this is not just a nice-to-have. It’s essential.

Lean on light-touch reconciliation. You no longer need to match every line by hand: let the software auto-match the bulk and have your team review the exceptions and anything that looks off.

That’s the only realistic way to get through the volume without burning people out.

The client email templates for sending today

Clients will either be DIYing the quarterly update, or will be relying on you (hopefully having arranged to do so in advance, of course).

Email both types of client with reminders. Here are some templates you can insert straight into your email software. If the client uses calendar quarter elections, you should obviously edit where required (although the deadline remains 7 August).

Clients you’re servicing only for year end

Subject: Your first Making Tax Digital update is due by 7 August

Hi [first name],

A friendly heads-up as the first Making Tax Digital (MTD) for Income Tax deadline comes round. As we’ve arranged, you will handle your own quarterly updates through your accounting software, so here’s a short guide to keep it simple and stress-free—plus a reminder that we’re on hand if you need us.

Your first quarterly update is due to HMRC by 7 August 2026. It covers your income and expenses for 6 April to 5 July, and you submit it through your MTD-compatible software, not the HMRC website.

A few things worth knowing:

• It’s not a tax bill. A quarterly update is just a summary of your income and expenses for the period. There’s nothing to pay—your tax is still due on [31 July/31 January—edit to fit].
• It doesn’t need to be perfect. The updates are cumulative, so anything that changes is tidied up automatically in your next update and finalised at year-end. Filing on time matters more than getting every penny exact.
• Don’t leave it to the last day. This is the first time millions of people are filing, so HMRC’s systems may be busy close to the deadline. Getting yours in a few days early takes the pressure off.

To submit, in short:

1. Check your software is connected to HMRC and shows you as active for MTD for Income Tax, and not connected to the old Self Assessment route any longer.
2. Make sure every transaction from 6 April to 5 July is entered and categorised, with nothing left uncategorised.
3. Review the quarterly summary your software produces, sense-checking any large entries.
4. Submit, and save the confirmation from HMRC.

If you’d rather not do it alone, or you hit anything you’re unsure about, just reply to this email or give us a call. We’re happy to check your figures before you submit, take the whole thing off your hands, or simply be on standby for your year-end—whatever’s easiest for you.

[Your name]
[Practice name]

Clients you’re servicing fully

Don’t wait for stragglers to come to you. Go to them, today, with one clear ask and one clear deadline.

Keep it warm and specific. A firm, friendly nudge with a real cut-off gets records in far faster than a vague chaser.

Subject: Urgent action needed—your records for the 7 August tax deadline 

Hi [First name], 

Your first quarterly update under Making Tax Digital for Income Tax is due to HMRC by 7 August, and we need your business income and expenditure for 6 April to 5 July this year (2026). 

Could you send us the following by [date—give yourself a buffer before 7 August]: 

• Business bank statements for the period—these can usually be exported from your mobile banking app.
• Any sales invoices and expense receipts not already with us
• [Anything client-specific e.g. records for online sales] 

The easiest way is to snap or scan them and send them over — [one line on how: upload here / use WhatsApp / reply to this email / use the app we set up].

Don’t worry about sorting or categorising anything. We will do all of that. If it’s easier to talk it through, just let me know a good time for a quick call. 

Thanks—this won’t take long and we will take it from here. 

[Your name]

For clients who are worried rather than simply late, a short reassurance goes a long way.

Build a submission rota for your team

With four deadlines a year now instead of one, the practices coping best are running submissions like a production line rather than a scramble.

Set up a simple rota for the next few weeks around four roles—even if one person wears more than one hat:

• Capture: Getting records in and scanned (chasing clients, managing accounts in a tool like AutoEntry).
• Code and reconcile: Turning raw data into coded, reconciled figures using tools like AccountsPrep.
• Review (optional): A second pair of eyes sense-checking before anything goes to HMRC. This can be spot-checking if resource is limited.
• Submit: Filing through your software, saving the confirmation, and notifying the client (if that’s part of your workflow).

Work backwards from 7 August and file continuously: as each client clears review, submit them.

A daily five-minute stand-up meeting in the morning for the team—who’s green, who’s stuck, what’s blocking—keeps the whole book moving and stops anyone slipping through the cracks.

One practical heads-up: 7 August lands in school-holiday and peak holiday season, so map the rota against who is actually in the office.

Let the software do the heavy lifting

You don’t have to carry the admin load by hand. This is exactly what the new wave of AI tooling is built for, and this summer window is the moment to put it to work.

Sage’s MTD for Income Tax Agent, built on Sage Copilot, is designed for precisely this crunch. From within Sage for Accountants it can automatically segment your clients by complexity, set up the quarterly update jobs, chase missing documents across different channels, generate the submission report for you to check, and flag anything that looks wrong before it goes anywhere.

Crucially it’s configurable and keeps you in control: you decide which tasks it does automatically and which a human signs off, so it is assisted, not autonomous.

It can cut the admin around quarterly updates by up to 80% and hand back around five hours a week—time you can put into the clients who actually need advice.

The principle holds whatever tools you use: let the software do the repetitive, mechanical work—segmenting, chasing, extracting, pre-filling—and keep your people for the judgement calls, the exceptions and the final review. Used that way, this first quarter becomes far more manageable, and you finish it with a workflow you can run almost on autopilot four times a year.

What if a client just won’t make the quarterly update deadline?

Some clients on the red list will stay red, however hard you chase. And it’s not down to you to panic.

Of course, the fact is that HMRC has confirmed a soft landing for this first year. No late submission penalty points will be issued for quarterly updates during 2026/27 for this first mandated group. A client who genuinely can’t make 7 August faces no point and no fine for that update.

So the rule for the red list is simple: keep chasing, but don’t burn team hours forcing guesswork through on deadline day. In the soft-landing year, an accurate update a few days late is a recoverable, low-drama outcome—just don’t let one missed quarter quietly become a client who has fallen behind for good.

If that sounds harsh, think back to 2019. When VAT went digital, practices up and down the country discovered the same thing: a small tail of clients who wouldn’t or couldn’t make the move, no matter how much hand-holding was on offer.

The refrain on the professional forums at the time became something of a mantra—you don’t have to act for anyone you don’t want to. Many practices used MTD for VAT as the honest prompt to reprice difficult clients, redefine the service—or just part ways professionally. Few regretted it, and most wished they’d done it sooner.

MTD for Income Tax will surface the same tail, only larger. And this is the moment to remember where the responsibility actually sits: the tax obligation belongs to the taxpayer. The relationship that matters legally is between your client and HMRC. You provide services under an engagement letter. You are not the guarantor of their compliance, and a client who won’t engage is not your failing.

Have the honest conversation. Set out plainly what quarterly compliance requires from them, what it costs with you doing it, and what happens if they do nothing.

Disengage properly where it’s not working. If a client won’t engage and won’t pay for the level of service their situation demands, the professional route is a clear written disengagement: what you will and won’t complete, a firm end date, and full cooperation with whoever takes over. Do it well clear of the next deadline, put it in writing, and keep a record of the advice you gave. Then move on with a clear conscience.

After 7 August: Keep the momentum

Don’t let the machine stop when the last quarter-one update goes in. Quarter two is already underway—it covers 6 July to 5 October, with a deadline of 7 November—which means the records for it are landing in inboxes right now.

Three things to do in the week after the deadline:

• Hold a short wash-up meeting: What slowed us down, which clients need moving onto capture tools, and what should the rota look like for November — fewer summer holidays, but you’ll be running into year-end planning season.
• Roll the red list forward: Move quarter one’s stragglers straight onto the quarter-two chase list, with earlier and firmer nudges this time.
• Set the standing rhythm: Ask clients for records monthly, not quarterly. Clients who send little and often turn every future deadline into a non-event.

File the first batch, learn, and go again. By quarter three, this is just how the practice runs.

Plus, you can use quarter one as your pricing dry run. Did you make money?

Buried inside the deadline scramble is the most valuable dataset your practice will collect all year—how long quarterly servicing actually takes, client by client.

Ask the team to log time honestly this quarter against three buckets—chasing and capture, coding and reconciliation, review and submission—for each client. Nothing fancy: a shared spreadsheet does the job.

Then, in mid-August, read it. You’ll see immediately which clients are profitable at current fees across four cycles a year, which ones need moving onto capture tools before quarter two, and which need a fee conversation.

Practices that reprice on real numbers have that conversation with confidence; practices that don’t simply absorb the cost, four times a year. Start the timesheet today, before the first submission goes out of the door.

Final thoughts

The first quarterly update feels like a mountain because it is the first. Really it is the same core job you have always done—get the records, tidy the numbers, file them—on a new rhythm. Triage your book, get the data in with the right tools, keep clients calm, and file early and often.

Do that this quarter and you are not just clearing 7 August; you are building the routine that makes the next three, and every year after, genuinely easy. And keep the bigger picture in mind: four touchpoints a year instead of one is four chances to have a proper conversation with each client. That is not just more compliance — it is more opportunity.

Frequently asked questions

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Key Takeaways

• Multifactor authentication (MFA) is being added to all HMRC agent accounts during 2026.
• Early opt-in activation is possible, or you can wait until it’s switched on for all accounts in later 2026.
• Web sign-in for your agent services account (ASA) and online services account (OSA) are affected, but not things like sign-in for MTD for Income Tax and VAT submissions made through software.

Security is never far from the mind of accountants and bookkeepers, and HMRC has recently announced some interesting news: it’s adding multifactor authentication (MFA) to all agent accounts before the end of 2026.

MFA is a simple, well-established way to keep your practice and your clients’ information safer, and it’s the same kind of protection you almost certainly already rely on across plenty of other online services.

Here’s everything you need to know: the dates, the decisions, and a short checklist to get your practice ready:

What is multifactor authentication for agents?

If you already use multifactor authentication every day, feel free to skip ahead—but here’s a quick recap in case it’s handy.

Multifactor authentication, or MFA, simply adds an additional step to prove who you are when you log in.

As well as your username and password, you confirm it’s really you with a one-time access code—usually generated by an app on your phone, or sent to you by text message or voice call.

It’s the same extra layer you’ll recognise from online banking, and it’s already in place on the personal and business tax accounts that individuals and businesses use to access HMRC services, like the HMRC app.

Considering accessing agent service account (ASA) and online service account (OSA) records effectively open the door to your clients’ tax records, they’re a natural target for fraud—and the addition of MFA could be said to be overdue.

Nonetheless, adding this second step ASAP makes it much harder for anyone else to get in, keeping both your practice and your clients’ data better protected. In short: a small change at the login screen, and a big gain in security.

When is MFA being switched on and how do I get it?

This is the interesting part. MFA is arriving in three stages during 2026, and you can choose the timing that suits your practice best.

There are two early “opt-in” dates over the summer, plus a final stage where MFA is switched on automatically:

• Apply by midnight on 30 June 2026 to have MFA activated on 15 July 2026.
• Apply by midnight on 31 July 2026 to have MFA activated on 19 August 2026.
• If you don’t pick an early date, MFA will be switched on automatically between 28 September and 15 October 2026.

To choose an early date, you complete a short form that appears when you sign in to your agent services account (ASA) or online services account (OSA) from 10 June 2026.

It works best when handled centrally by whoever manages your firm’s agent accounts, so it’s worth letting colleagues know to leave the form to them.

The opt-in is based on your Government Gateway identifier.

If your firm has more than one—for example, if you’ve grown through mergers and picked up additional agent accounts along the way—you can choose which ones to activate and when, and even stagger them across the two summer dates.

Should you opt in early or wait?

Opting in early gives you certainty. You’ll know exactly when MFA is coming, so you can prepare your team and pick a date that works around your busy periods.

It also means the right person is in the driving seat. The first time anyone signs in after MFA is switched on, they’ll set up the extra step—so it makes sense for that to be the person who looks after your agent accounts, on a day you’ve planned for, rather than a quiet morning when someone else happens to log in first.

Preferring to wait for the automatic stage is completely fine too. You’ll just want to make sure everyone who uses the accounts is ready before late September, since the exact day within the final window isn’t fixed. Either way, a short window of preparation is the key to a smooth switch.

Deciding how your team will log in

You have two options here, and both work seamlessly with MFA. But care needs to be taken.

The first is individual logins for each member of staff. This is HMRC’s recommended approach and it’s especially tidy for managing access: everyone has their own credentials, and you can simply remove a person’s access when they leave.

Individual accounts are challenging in the case of OSAs, however, because individual clients need to be assigned to each account. This requirement isn’t present with ASA accounts.

Therefore, a second option might seem better as a short-term option—to keep shared logins and use an authenticator app, especially where OSA client allocation makes individual access difficult.

But there can be little doubt that firms should consider individual access the cleaner, long-term model where it is practical.

Choosing how you receive your access codes

Once MFA is on, you’ll enter a one-time access code alongside your usual Government Gateway details. You can receive that code in one of three ways: by text message, by voice call, or through an authenticator app.

HMRC recommends using an authenticator app as your main method, with at least one backup set up as well. You can have a primary method plus up to two backups.

Adding a backup is a small step that’s well worth taking, so you always have a way to sign in even if your main device isn’t to hand. But bear in mind that any MFA attached to a phone number increases risk, because it’s possible for hackers to socially engineer mobile companies into transferring phone numbers and therefore get access to the MFA codes.

A quick checklist to get your practice ready for MFA

A few minutes of preparation now is all it takes. Here’s a simple checklist to work through:

1. Check your contact details. Make sure the phone numbers and details on your accounts are current, so your access codes always reach the right place. It’s also worth checking whether an MFA option was set up on an account some time ago.
2. Confirm who’s in charge. Decide who manages your firm’s agent account access, and make sure they’re the one to complete the opt-in form.
3. List your Government Gateway identifiers. If your firm has more than one agent account, gather your identifiers in one place before you opt in.
4. Choose your login approach and code method. Decide between individual or shared logins, and pick how you’ll receive your access codes.
5. Brief your team. Let everyone know what’s changing and when, so the switch is no surprise.

Final thoughts

Multifactor authentication is a welcome, straightforward upgrade to the security around your clients’ data—and getting ready for it really is quick.

Decide whether you’d like an early date or prefer to wait, get your contact details and logins in order, and let your team know what to expect.

Do that, and switch-on day will pass without a hitch, leaving your practice better protected than ever.

Frequently asked questions

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Key takeaways

• AI is already transforming HR: The majority of HR leaders expect AI to reshape HR and payroll within the next five years, with many teams already using it for recruitment, onboarding, analytics, and learning.
• The biggest benefit is time back for strategic work: AI helps reduce admin-heavy workloads, allowing HR teams to focus more on people, planning, and business impact rather than repetitive tasks.
• Risks must be actively managed: Concerns around data privacy, compliance, bias, and skills gaps are significant, so organisations need clear safeguards, training, and governance in place.
• Responsible adoption is people-first: Treat AI as a capability, not just a tool—keeping human oversight, transparency, structured processes, and employee trust at the centre of how it’s used.

According to Sage’s HR and Payroll Leaders’ Report, which surveyed 1,000 HR and people professionals across the UK, Ireland, and South Africa, 86% believe AI will transform HR and payroll within the next 5 years.

However, 48% are worried about the future of their role, while 61% worry about compliance and data security.

If you’re feeling that same mix of excitement and unease, don’t worry—you’re not alone.

The good news is that getting AI right is far more achievable than it looks, once you know where to focus.

In this article, you’ll learn what AI in HR means, how HR teams are already using it, where it can add value, and what risks you need to manage.

Finally, it provides a practical checklist that will help you immediately start to implement AI responsibly within your operations.

Here’s what we’ll cover:

What is AI in HR?

AI in HR means using technology to automate routine tasks, analyse people data and support better decisions across HR processes.

That covers everything from screening CVs and answering policy questions to spotting trends in your workforce data before they become problems.

In practice, most HR teams will come across 2 broad uses of AI.

The first is automation and analysis—for example, tools that handle reporting, flag payroll issues, or spot patterns in workforce data.

The second is generative AI, which can help you draft job descriptions, summarise notes, or create first drafts more quickly.

You’re probably using at least one, if not both of these tools already within your HR operations.

And for good reason: when used correctly, AI can make you both more efficient and more accurate.

How are HR teams using AI? AI in HR examples

According to the report, here’s how HR professionals are currently using AI within different areas of their roles:

• Recruitment: 54%
• Employee management: 51%
• Onboarding: 50%
• Learning and development: 50%
• Performance management: 47%
• Workforce analytics: 46%

For example, an HR team might use AI to shortlist candidates against a fixed set of skills, then use human review to decide who moves to interview.

Or it might use AI to summarise employee survey comments, so managers can spot patterns more quickly without reading hundreds of responses one by one.

When we say “using AI”, this could refer to any number of use cases.

In recruitment, it might refer to using AI-powered tools to screen hundreds of applications against structured criteria in minutes rather than days.

In learning and development, it supports personalisation—55% of HR leaders we surveyed now use AI-powered learning as part of their skills strategy.

Crucially, our research shows that AI isn’t just hype. 84% of HR leaders say that AI has already had a positive impact on their HR work, with many hoping it continues to expand into additional use cases.

As one UK-based recruitment manager in the technology sector said: “I wish I could build an AI employee management system that automates repetitive tasks. Allowing more time to focus on people.”

For many HR teams, that’s the real value of AI: spending less time on repetitive admin and more time on recruitment, employee support, and workforce planning..

Why is AI so important for HR teams?

How long’s your to-do list right now? If you’re like most HR professionals, it’s probably pretty long. And it’s getting bigger every day.

Our data shows that 71% of leaders say their workload has increased compared to last year, while 52% feel a sense of burnout. Yet despite this ever-increasing workload, 68% say their organisation sees HR as “more process and admin than adding strategic value.”

This is perhaps unsurprising. 88% agree that time spent on payroll-related admin holds HR back from focusing on other important areas.

Many HR teams spend so much time on admin that it becomes harder to focus on strategic work that supports the wider business.

Thankfully, this is where AI can help—87% of leaders we surveyed say that AI will free up more time for strategic work.

However, increased time-savings isn’t the only benefit you’ll gain by using AI within your HR operations:

• Enhanced decision-making: When AI is used with clear criteria and human oversight, it can help HR teams make more consistent decisions based on data rather than instinct alone.
• Better output, not just faster output: When leaders were asked what they wanted most from AI, their top priorities were enhancing creativity and innovation (57%) and improving compliance and accuracy (57%). Both ranked above simple task automation (56%).
• Staying competitive: 86% say it’s vital to keep up with AI and emerging tech to stay competitive.

Infographic: AI in HR and Payroll

Planning how to use AI in HR and payroll? This infographic highlights the key opportunities, risks, and practical considerations to help you adopt AI with confidence.

Download the AI in HR and Payroll infographic

What’s holding HR back from adopting AI?

So, if the opportunity is clear, why are so many HR teams still cautious about adopting AI?

Our research points to 3 specific barriers, some of which you might even recognise within your own company.

1. Skills and training

79% of HR and payroll leaders say they need more training and support to fully leverage AI, and 65% say their organisation faces a skills gap that limits effective adoption.

The appetite is there—76% wish they knew more about how AI could help in their role—but the support often isn’t.

2. Data privacy, compliance, and bias

61% worry about compliance and data security when AI is used in HR.

It’s easy to understand why: HR arguably holds the most sensitive data in the business. Trust is essential.

Employees must trust that HR, and the tools they use, will always safeguard their personal data.

That is why AI use in HR needs clear safeguards around data, privacy, and decision-making from the start.

3. No clear strategy, and fragmented tech

65% say their HR technology is fragmented and difficult to integrate with other systems.

Without a unified platform and a clear sense of which problems you’re solving, AI simply becomes another shiny new object that serves as a distraction rather than a solution.

All 3 barriers point to the same conclusion: the hard part isn’t necessarily the technology, it’s the people and processes around it.

As Sage research found, 77% say the biggest obstacle to better HR technology isn’t the tools themselves—it’s adoption and the skills to use them well.

To change this, you need to make a shift.

The organisations that get the most value from AI do not treat it as just another software purchase.

They treat it as a change in how their HR team works—one that needs the right skills, clear rules, open communication, and trust.

Buying the tool is the easy part.

What makes the difference is whether your team knows how to use AI well, has clear boundaries for using it, and understands where human judgement still matters most.

At Sage, our view is simple: the goal isn’t to replace people, it’s to humanise HR.

AI in HR and payroll should support human judgement, keeping people in control. It must simplify work, enhance fairness, strengthen reasoning, and protect trust—especially in small and medium-sized businesses, where every relationship counts.

The question isn’t really “should we use AI?” As the adoption figures show, you almost certainly already are. The real question is: how do you use it well?

Infographic: AI in HR and Payroll

Planning how to use AI in HR and payroll? This infographic highlights the key opportunities, risks, and practical considerations to help you adopt AI with confidence.

Download the AI in HR and Payroll infographic

Your responsible AI in HR checklist

Here’s a practical framework for implementing AI responsibly, drawn from insights shared in the full report.

Use these 6 principles as a practical starting point for using AI in HR responsibly.

They will help you focus on value, reduce risk, and keep people at the centre of your decisions:

1. Be purpose-led, not trend-led

Start with the problem, not the technology. Identify your most admin-heavy HR tasks, then prioritise the use case that would drive the most value for your organisation.

2. Keep humans in charge of sensitive decisions

Your business can’t risk employee trust.

Keep people involved in hiring, performance, and disciplinary decisions, and use clear approval flows for any AI-supported work.

3. Protect people data (legally and ethically)

Ensure secure data storage, choose tools designed to support HR and payroll compliance, and minimise data duplication by connecting your HR and payroll systems.

4. Reduce bias through structured inputs

AI is only as fair as the data and prompts feeding it.

Use structured templates for job descriptions, evaluations, and feedback, and avoid subjective prompts.

Keep your documentation consistent.

5. Be transparent with your people

Employees fear what they don’t understand.

Tell them where AI is used and give managers guidance on using it responsibly.

What’s more, log when AI assists in decisions.

6. Build AI confidence through training

AI literacy closes skills gaps.

Offer simple “AI basics” sessions, train managers to use AI to reduce admin rather than replace judgement and reinforce best practice with regular refreshers.

Not sure where to begin? Your first 30 days could be as simple as surveying your team to identify repetitive tasks and pain points.

That gives you your priority use case, as well as your business case.

Start small and grow

The research shows something useful: excitement about AI and caution about AI often go hand in hand.

That’s not a contradiction. It’s exactly the mindset that responsible adoption needs—optimism about what AI can do, paired with healthy caution about how it’s done.

Get it right and the payoff is large. Less time dealing with admin, more time focusing on people.

Better decision-making all round and an HR function recognised for its strategic value—with you, not the technology, calling the shots.

So, pick one item from the checklist and act on it this week.

Small steps, taken now, beat perfect plans that never start.

Ready to go deeper? Download the AI in HR infographic for a visual guide you can share with your team.

Frequently asked questions on AI in HR

What is AI in HR?

AI in HR refers to the use of technology to automate routine tasks, analyse workforce data, and support decision-making across HR processes.

This can include tools that screen CVs, summarise employee feedback, generate content, or identify patterns in people data.

When implemented effectively, it helps HR teams work more efficiently and make more consistent, data-informed decisions.

How are HR teams using AI today?

HR teams are already applying AI across key functions such as:

– recruitment,
– employee management,
– onboarding,
– learning and development,
– performance management,
– and workforce analytics.

Common use cases include shortlisting candidates, personalising learning programmes, and summarising survey insights to identify trends quickly

Why is AI important for HR teams?

AI is important because it helps address increasing workloads and administrative burden.

By automating repetitive tasks, it frees up time for more strategic work, improves decision-making with data insights, and supports better outcomes for both employees and the wider business.

What are the main risks of using AI in HR?

The main risks include data privacy and security concerns, potential bias in AI outputs, lack of employee trust, and gaps in skills or training.

These risks highlight the importance of strong governance, clear processes, and ongoing education when adopting AI.

How can businesses use AI in HR responsibly?

Responsible use of AI in HR involves:
– being purpose-led,
– keeping humans involved in sensitive decisions,
– protecting employee data,
– reducing bias through structured inputs,
– being transparent about AI use,
– and investing in training to build confidence and capability across teams.

Do you need a strategy before adopting AI in HR?

Yes.

Without a clear strategy, AI can become fragmented and fail to deliver value.

Organisations should start by identifying specific problems to solve, prioritising high-impact use cases, and ensuring their technology, processes, and people are aligned to support effective adoption.

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