If you work for yourself, run a small business, or rent out a property, the way you manage your income tax is about to change. From April 2026, the traditional once-a-year self-assessment will be replaced by Making Tax Digital (MTD) for Income Tax.
Under the new rules, you’ll be required to keep digital records, submit quarterly updates to HMRC on your incomings and outgoings using recognised software, and file a final declaration by 31 January to confirm your total tax bill.
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When do the changes apply?
The rollout is phased over three years based on “qualifying income”. Those with a gross income of over £50,000 from self-employment or property in the last financial year will need to sign up with HMRC and comply from April, with anyone earning over £30,000 following in April 2027. Anyone with gross income of more than £20,000 has until April 2028 to comply.
Even if you aren’t in the first wave, preparation is vital. Xero research shows that 34 per cent of small business owners already find business costs, expenses and tax hard to manage, and 49 per cent find official MTD for Income Tax information confusing. But these three steps can simplify the transition.
1. Choose the right software – look for HMRC-recognised software that brings your financial admin together so you can log expenses, manage tax and keep on top of finances for all your business activities in one place.
2. Use the time left wisely – register for MTD for Income Tax with HMRC and start to get familiar with your new software. For example, you can test out taking photos of a receipt on your phone to log expenses instantly, or linking your bank account so transactions flow in automatically.
3. Ask for help – accountants and bookkeepers can be a huge help if you’re feeling unsure. They can break down HMRC’s guidance, make sure everything is set up right and guide you through the new process.
More regular reporting sounds like extra work but up-to-date digital records will give you a clearer view of your numbers and a rolling tax estimate, helping you avoid end-of-year surprises. With just over 30 days to go until the new rules kick in, acting now will ease the pressure and put you on a stronger footing.
To help small businesses get ready, Xero is offering new customers 95 per cent off for six months when they sign up here in March 2026.
