If you work for yourself as a sole trader, run a small business, or earn money from property, how you manage your income tax is about to change — and the clock is ticking.
From April 2026, HMRC’s Making Tax Digital for Income Tax (MTD for IT) will officially come into effect, transforming the way millions of people across the UK handle their finances.
From that point, sole traders, landlords and small businesses earning over £50,000 will need to comply with the new rules. That means keeping digital records of income and expenses using HMRC-recognised software, and submitting quarterly updates to HMRC directly from that software, plus a final tax declaration by 31 January each year.
Then, the rollout will continue: those earning £30,000 or more will be included from April 2027, and those earning £20,000 or more will follow from April 2028. Altogether, this marks a major shake-up that will eventually affect around 2.7 million small businesses — including landlords and sole traders.*
So, what can you do to make sure you’re ready? We spoke to the experts at Xero, the HMRC-recognised online accounting platform trusted by over a million UK subscribers, to get their top three steps every small business should take before the MTD for IT deadline.
1. Choose the right software
Not all accounting tools are created equal — and under MTD for IT, you’ll need to make sure the one you use is officially recognised by HMRC.
With Xero, you can confidently handle the new way of doing Income Tax. The platform is HMRC-recognised and fully MTD for IT-ready, with tools designed to help you both stay compliant and run your business more efficiently.
The beauty of Xero is that it brings everything together in one place — you can manage your taxes, track expenses, make payments, send invoices and quotes, and capture receipts and bills straight from your phone.
Everything is stored securely online, automatically keeping your records up to date and accessible whenever you need them.
2. Start keeping a digital record of your income and expenditure
If you’re new to digital record-keeping, don’t panic — but don’t leave it to the last minute either. The next six months are your chance to get comfortable with the process of digital record-keeping and quarterly reporting before the April 2026 deadline.
For many small businesses, MTD for IT will be their first experience of digital accounting. Currently, 42 per cent of the smallest firms don’t use any finance or accounting tools at all,** relying instead on manual methods like spreadsheets or even paper records.
But switching to digital isn’t just about ticking a compliance box – there are real benefits. Research from Xero shows that digital-first businesses run 38 per cent more efficiently, have 32 per cent lower costs, and report better financial control overall.**
By taking the time now to get your systems in place, the upcoming changes won’t feel nearly as daunting. Getting into good habits early will remove the pressure later on and ensure you’re confident when it comes to filing digitally.
Plus, many of Xero’s tools are designed to make life easier – features like receipt scanning via your phone camera mean you can go fully paperless, saving time and reducing admin.
3. Understand your support options
The final step? Know where to turn if you need help. Accountants and bookkeepers can play a key role in helping small businesses understand and manage new regulations like MTD for IT. They can help you stay compliant, keep accurate digital records, and submit tax information correctly and on time.
They can also offer support beyond compliance — helping you improve cash flow, manage invoices, and plan ahead, so you always know where your finances stand.
If you’re looking for professional support, Xero’s advisor directory can connect you with an experienced accountant or bookkeeper who knows the ins and outs of MTD for IT.
And by linking your Xero account with your accountant’s system, they can access your data in real time, helping you stay compliant, plan for growth, and even spot ways to save costs.
Ready to get started?
With the right digital tools, Making Tax Digital for Income Tax doesn’t have to be daunting. In fact, it could transform how you run your business.
Like any big change, it might take a little time to get used to doing things differently, but once you’re up and running, MTD for IT should make managing your business smoother and simpler.
You’ll always have an up-to-date view of your cash flow, you’ll never lose a receipt again, and you’ll have a clearer picture of your predicted tax bill all year round.
To help small businesses get ready, Xero is offering new customers 90% off for six months when they sign up here.†
Get ready for MTD for IT and explore Xero’s range of plans at Xero.co.uk.
*UK Government, Making Tax Digital for Income Tax: business population statistics.
**Beating the ‘Digital Drag’, Xero – October 2024.
†Offer valid for organisations new to Xero only. Full terms apply.