From April 2026, small businesses, sole traders and landlords will need to change how they report income tax to HMRC. New legislation, known as Making Tax Digital for Income Tax (MTD for IT), is set to be introduced, sparking a shift in financial reporting requirements.
To comply with MTD for IT requirements, businesses will need to do three things: send quarterly updates on business income and expenses, keep digital records, and submit returns annually using MTD-compatible software. The MTD for IT rollout will happen in phases. Anyone with an annual turnover of over £50,000 for the tax 24/25 year will need to start complying from April 2026. It will then extend to those earning over £30,000 from April 2027 and anyone earning over £20,000 from April 2028.
Master MTD for IT with confidence
MTD for IT will likely feel like a big change for many small businesses. Over two-fifths (42%) of the smallest businesses currently don’t use any finance or accounting tools, and just 27% believe they get their tech and software choices right. For many businesses, MTD for IT may mean investing in digital software or technology for the first time. Although the digital transition might feel daunting, Xero is here to support you. Our easy-to-use online accounting software will give you a clear picture of your finances so you’re more in control. With the right digital tools in place, and a streamlined process for how you manage and submit taxes, you can spend less time doing your taxes and more time on your business.
To help support you in complying with MTD for IT and to help you adopt good digital bookkeeping habits, we’ve added Xero Simple to the range of MTD-ready plans that are available directly to small businesses, sole traders and landlords. Like all our plans, it’s designed to give you confidence and support in mastering MTD for IT:
- HMRC recognised: Make secure online submissions to HMRC to comply with MTD for IT requirements using a platform trusted by millions
- End-to-end solution for total compliance: No need for multiple solutions; you’ll have access to everything you need – from digital record-keeping right through to final submissions – with our cost-effective solution; you can even manage a property and business with one Xero subscription
- Do MTD for IT easier and faster: Make the transition smooth and hassle-free using automation and AI. Your bank transactions flow into Xero automatically and you can snap receipts and extract data on the go so you have more time to focus on your work
- Get expert support: With free guides, online courses, live webinars and unlimited free online support 24/7, you can get real human help, whenever you need it.
We’re here to help you get ready
In a tough economic climate where many businesses are already juggling so much, thinking ahead about how you’ll manage the transition to MTD for IT will help. Start getting ready now and use the next 10 months to test out digital tools so you can get the hang of it in advance. It’s also a good idea to start building habits like capturing receipts instantly and doing daily reconciliation. Having a good bookkeeping routine where your data is up-to-date will set you up well for when the legislation comes into effect.
If you’re unsure about where to start, your accountant or bookkeeper is an invaluable partner who can help you better understand the changing nature of reporting requirements and the best way to approach MTD for IT compliance. They’ll be able to cut through the jargon and advise what it means when the legislation comes into effect.
We’re also here to help. Take a look at our range of MTD-for-IT–ready plans and the benefits they deliver, or sign-up for one of our free MTD for IT webinars. In these webinars, we’ll break down what MTD means for you, what you need to do, and show you our MTD solution in action.
For more information take a look at our MTD guide with advice on MTD for IT and insights that you can use to help you prepare.
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