If you work for yourself as a sole trader or earn money from property, the way you manage income tax is changing. In just six months’ time – from April 2026 – HMRC’s Making Tax Digital for Income Tax (MTD for IT) will kick in, transforming the way millions of Brits manage their finances.
Small businesses, landlords and sole traders earning over £50,000 will need to comply with the new rules. This means they will need to keep digital records of their income and expenditure using HMRC recognised software and submit quarterly updates to HMRC from this software alongside a final tax declaration by the 31st January each year.
It will then be rolled out to those earning £30,000 from April 2027, followed by those earning £20,000 in 2028.
It’s a major shake-up that will eventually affect 2.7 million small businesses,* including landlords and sole traders. So how can you make sure you’re ready?
Small businesses and landlords brace for April 2026 as HMRC’s Making Tax Digital for Income Tax approaches
We spoke to the experts at Xero, the HMRC-recognised online accounting platform trusted by more than a million UK subscribers, to find out the three key steps every small business should take before the deadline.
1. Choose the right software
Not all accounting software is created equal. Under MTD, your chosen platform must be officially HMRC-recognised, and it should make managing your finances simpler, not harder.
With Xero, you can confidently handle the new way of doing Income Tax. They’re HMRC recognised and MTD for IT ready, with tools designed to help you run your business and comply with regulations.
Stay compliant and in control with Xero’s HMRC-recognised, MTD-ready software for effortless financial management
The software helps you run your business and stay compliant with ease. The beauty? You won’t need multiple tools; you can manage tax, track expenses, make payments, send online invoices and quotes, and capture receipts and bills straight from your phone – automatically keeping all your records online, in one secure, easy-to-use platform.
2. Start keeping a digital record of your income and expenditure
If you’re new to digital record keeping, you don’t need to worry but waiting until the last minute could prove costly. Use the next six months to get familiar with the process of digital record-keeping and quarterly reporting.
For many of the businesses impacted, MTD for IT will be their first foray into digital accounting. Currently, 42 per cent of the smallest firms don’t use any finance or accounting tools,** instead relying on manual methods such as spreadsheets or paper records.
Yet, there are real benefits to adopting digital tools beyond ticking boxes. Digital-first businesses run 38 per cent more efficiently, have 32 per cent lower costs, and report better financial control overall*** and, as Xero’s experts note, by taking the time now to get the right systems in place, the new tax requirements won’t feel like such a surprise.
Work smarter with your accountant through Xero – real-time insights and easy-to-use tools that simplify your finances and allow you to get more done
Getting into the right habits will take any pressure off further down the line and ensure you’re confident. A lot of Xero’s software already has a focus on being highly user friendly, with features like phone camera receipt scanning, which also makes paperless record keeping so much easier.
3. Understand your support options
The final step is to consider if you need professional support. In particular, accountants and bookkeepers can help small businesses understand and manage new regulations that impact their tax affairs – and MTD for IT is no exception.
There are so many ways an accountant or bookkeeper can support your business – from helping you stay compliant and keep the right digital records, to ensuring you can manage and file your tax accurately and on time. They could even improve your invoicing and cash flow so you know where you stand.
Getting support from someone who’s in the know: Accountants and bookkeepers can help small businesses understand and manage the new regulations
If you are looking for an accountant or bookkeeper to support you with MTD for IT, you can get connected with an experienced accountant through the Xero advisor directory.
Also, by connecting with your accountant through software like Xero, your advisor can access your data in real time, helping you stay compliant, plan for growth, and perhaps identify ways to cut costs.
Ready to get started?
With the right digital tools, MTD for IT doesn’t have to be daunting – in fact, it could transform the way you run your business.
Like any big change, it may take time to get used to doing things differently, but MTD for Income Tax should make managing your business much easier in the long run as it will help ensure you always have an up-to-date view of your cash flow, avoid lost receipts and have a year-round view of your predicted tax bill.
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 view the range of MTD ready plans here.
*UK Government, Making Tax Digital for Income Tax: business population statistics.
**Beating the ‘digital drag’, Xero – October 2024.
***Beating the ‘digital drag’, Xero -October 2024.
†This offer is for organisations new to Xero only. Full terms apply.
