In just four months, millions of small businesses, sole traders and landlords will need to change how they track and report their finances to HMRC.
Making Tax Digital for Income Tax (MTD for IT) will come into effect and means moving away from annual, paper-based tax returns to more frequent, digital reporting.
Under the new rules, you’ll need to use HMRC recognised software to keep digital financial records, send quarterly updates on income and expenses and complete an annual declaration that confirms your final tax position for the year by the usual 31 January deadline. It’s a big change and the biggest shift in personal tax since self assessment was introduced more than 30 years ago.
MTD for IT will be rolled out in stages. If you’re a small business, sole trader or landlord that has an annual income of more than £50,000 then you’ll be included from April 2026. It will then be extended to include those earning over £30,000 by April 2027, and anyone turning over more than £20,000 from April 2028.
With such a big shift ahead, the coming months will be very important. Taking steps to get ready for the changes will help you move through the transition with confidence and build new habits that you’ll rely on for years to come.
Why MTD for IT is happening
The introduction of MTD for IT is part of the UK government’s wider push to modernise the tax system and bring it in line with the digital tools that already power much of the economy. For years, policymakers have emphasised the need to invest in technology and reduce the administrative burden created by outdated, paper-based processes. MTD for IT is one of the key steps in this ambition to build a more modern and future-ready tax system.
A fully digital approach to tax is intended to make financial admin feel easier and simpler. However, for those that still rely on paper notes or spreadsheets, the shift might feel overwhelming. More than two-fifths (42%) of the smallest businesses are not using any finance or accounting tools, and only 27% believe they get their tech and software choices right according to our survey. For many of you, MTD for IT will mean using digital accounting tools for the first time and getting comfortable with a whole new way of working.
Choosing the right tools to help
Getting ready for a new digital way of doing tax, starts with picking the right software for bookkeeping. Look for HMRC recognised options that are simple to use. Ideally, digital tools should bring your financial admin together so you have one place where you can log your expenses, manage tax and keep on top of your finances.
It also helps to choose tools that make your everyday jobs feel easier and quicker. Features like being able to snap a picture of a receipt on the go using a mobile app will mean that you can log expenses instantly and automatically update your accounts. It’s a small change but one that can save you time and cuts down the chance of making mistakes that often creep in with more manual ways of working.
What to consider next
Once software is in place, use the remaining time to become more comfortable with digital record-keeping and quarterly reporting. With the right set-up, your income and expenses should flow straight into your software and quarterly updates, giving you a good idea of how your business is doing and what your tax bill is looking like after each quarterly update. This should mean fewer end-of-year tax surprises.
Up-to-date digital records will also make it easier to understand what’s coming in and going out. Our research shows nearly two in five small business owners (38%) are unaware if they were in profit the month before, and over half (55%) struggle with cash flow management. With everything captured in one place, you will be able to get a clearer view of your numbers so you can spot early warning signs or issues – from unpaid invoices to unexpected costs, and changing profit margins.
Get ready now
If you want extra assurance that everything is set-up right, an accountant or bookkeeper can also be a huge help. They can translate HMRC’s guidance into practical steps, help you select the right digital tools and guide you on how to manage the new reporting requirements. This kind of support will make the changes feel more manageable.
The move to MTD for IT might take some time to get used to, but taking action now will make the transition much easier. By taking steps to get ready for the changes, you can ease the pressure of the looming deadline and put yourself on a stronger financial footing for the future.
Get ready for MTD for IT – sign-up for one of our webinars that will break-down everything you need to do to prepare for the changes and view our range of MTD ready plans here with new customers getting 95% off for six months.
By Stuart Miller, Director, Public Policy & Tech Research, Xero
Read more:
What will Making Tax Digital for Income Tax mean for small businesses in 2026 and beyond?