Making Tax Digital software for income tax and VAT
Follow the new rules without the fuss. Xero’s HMRC-recognised accounting software records every financial transaction digitally in the cloud. And when it’s time for your quarterly updates or tax return, Xero autopopulates the forms before you send them straight to HMRC. Easy!
Why choose Xero for your small business
Xero doesn’t just simplify your Making Tax Digital (MTD) compliance. It gives you a whole digital system for your accounting.
Organise your digital records in one place
Xero automatically calculates and logs your income, expenses, and taxes – ready for your HMRC reporting.
Let automations do the work for you
For every tax update, Xero automatically fills in the details – and reminds you before your next deadline.
Check MTD submissions for mistakes
Xero live-tests your submissions with HMRC so you can make any corrections and feel confident.
Connect your bank accounts
Your data flows into Xero, where automations suggest transaction matches to speed up your reconciliations.
Making Tax Digital software for VAT
If you’re registered for VAT, you now need to use MTD software like Xero for your recordkeeping and returns. Xero accurately calculates and logs your VAT amounts as you go along. Check your tax bill and plan your spending anytime – and make your tax reporting a piece of cake.
Here’s more on Xero VAT features
Making Tax Digital for Income Tax
HMRC is replacing the annual self-assessment tax return with quarterly updates and a tax return for the year. Don’t worry – Xero helps you nail the admin with its easy digital system. Here are the deadlines for adopting the new way of reporting your income tax.
- If you earn over £50,000, you must use recognised software and follow the MTD rules straight away
- If you earn over £30,000, your deadline is 6 April 2027
- If you earn over £20,000, your deadline is 6 April 2028
Quarterly submission deadlines for income tax
You must update HMRC on your income tax every three months. Don’t worry – Xero reminds you each time and uses your digital records to autofill the paperwork. Here are the upcoming deadlines if you use the standard accounting period of 6 April to 5 April.
- Q1: 7 August 2026
- Q2: 7 November 2026
- Q3: 7 February 2027
- Q4: 7 May 2027
FAQs on Xero Making Tax Digital software
MTD-compatible software meets HMRC’s requirements for reporting your taxes digitally. It replaces spreadsheets and non-compliant software with fast and accurate digital processes.
Xero is MTD-compatible and works in the cloud, so you can report your finances from anywhere.
MTD-compatible software meets HMRC’s requirements for reporting your taxes digitally. It replaces spreadsheets and non-compliant software with fast and accurate digital processes.
Xero is MTD-compatible and works in the cloud, so you can report your finances from anywhere.
Yes! Xero is HMRC-recognised software for both Making Tax Digital for VAT and Income Tax.
Xero automatically keeps digital records of all your business’s financial transactions, including your income, expenses, and VAT.
You can also save time on quarterly updates. Xero autofills both your VAT and income forms straight from your accounting records. Likewise, Xero fills in your tax return for your income tax.
Xero also lets you send submissions to HMRC directly from the software.
Yes! Xero is HMRC-recognised software for both Making Tax Digital for VAT and Income Tax.
Xero automatically keeps digital records of all your business’s financial transactions, including your income, expenses, and VAT.
You can also save time on quarterly updates. Xero autofills both your VAT and income forms straight from your accounting records. Likewise, Xero fills in your tax return for your income tax.
Xero also lets you send submissions to HMRC directly from the software.
Yes. Your deadline depends on your annual qualifying income (your combined self-employment and property income). Sole traders and landlords must start using MTD-compatible software like Xero by these dates:
- If you earn more than £50,000, you must start using MTD-compatible software straight away
- If you earn more than £30,000, you must use the software by 6 April 2027
- If you earn more than £20,000, you must use the software by 6 April 2028
Yes. Your deadline depends on your annual qualifying income (your combined self-employment and property income). Sole traders and landlords must start using MTD-compatible software like Xero by these dates:
- If you earn more than £50,000, you must start using MTD-compatible software straight away
- If you earn more than £30,000, you must use the software by 6 April 2027
- If you earn more than £20,000, you must use the software by 6 April 2028
Your first quarterly update for your income tax is due on 7 August 2026. It’s then due every three months.
HMRC will not apply penalties for late quarterly updates during the 2026 to 2027 tax year (penalty points will apply for late tax returns, though). After that, if you reach a point threshold you’ll get charged £200.
Your first quarterly update for your income tax is due on 7 August 2026. It’s then due every three months.
HMRC will not apply penalties for late quarterly updates during the 2026 to 2027 tax year (penalty points will apply for late tax returns, though). After that, if you reach a point threshold you’ll get charged £200.
These are two separate HMRC initiatives with their own dates and requirements.
- MTD for VAT requires VAT-registered business owners to report their value added tax digitally using compatible software like Xero.
- MTD for Income Tax requires sole traders and landlords to report their income tax and expenses digitally every quarter, and make a tax return yearly.
These are two separate HMRC initiatives with their own dates and requirements.
- MTD for VAT requires VAT-registered business owners to report their value added tax digitally using compatible software like Xero.
- MTD for Income Tax requires sole traders and landlords to report their income tax and expenses digitally every quarter, and make a tax return yearly.
For anyone thinking of moving to Xero, I‘d say do it. It’s probably the best decision that your business is ever going to make.
Hitesh, the founder of construction company IKPE Ltd
Get one month free
Purchase any Xero plan, and we will give you the first month free.
All plans to suit your business
Ignite
for the first 6 months
Then £16 per month
An easy financial foundation - track cash flow with the essentials.
- Send quotes and 20 invoices†
- Accept online invoice payments^
- MTD for Income Tax ready
- Reconcile transactions (optional)
- Auto-reconcile transactions (optional)
- Smart document capture
- View real-time reports
- Enter 10 bills
- Submit VAT returns to HMRC
- Automate subcontractor CIS calculations and reports
- Make online bill and payroll payments (domestic) for £0.20 per payment††
- Payroll for £1.50 per person
- 30 day cash flow forecast
- Visualise performance with basic graphs
Grow
for the first 6 months
Then £37 per month
Go beyond the basics - automate tasks and access performance dashboards.
- Send invoices and quotes
- Accept online invoice payments^
- MTD for Income Tax ready
- Reconcile transactions
- Auto-reconcile transactions (Beta)
- Smart document capture
- View real-time reports
- Automate bill entry and track bills
- Submit VAT returns to HMRC
- Automate subcontractor CIS calculations and reports
- Make online bill and payroll payments (domestic) for up to 5 payments
- Payroll for 1 person
- 60 day cash flow forecast
- Visualise performance with graphs
- Customise performance dashboards
- Claim expenses and mileage for 1 user
Comprehensive
for the first 6 months
Then £50 per month
Optimise profitability - tailor your insights for greater control.
- Send invoices and quotes
- Accept online invoice payments^
- MTD for Income Tax ready
- Reconcile transactions
- Auto-reconcile transactions (Beta)
- Smart document capture
- View real-time reports
- Automate bill entry and track bills
- Submit VAT returns to HMRC
- Automate subcontractor CIS calculations and reports
- Make online bill and payroll payments (domestic) for up to 10 payments
- Payroll for 5 people
- 90 day cash flow forecast
- Visualise performance with graphs
- Customise performance dashboards
- Claim expenses and mileage for 5 users
- Use multiple currencies
- Tailored financial health scorecards
- Make online bill payments (International) - Optional add-on
Ultimate
for the first 6 months
Then £65 per month
Future proof your scaling business - with advanced tools and analytics.
- Send invoices and quotes
- Accept online invoice payments^
- MTD for Income Tax ready
- Reconcile transactions
- Auto-reconcile transactions (Beta)
- Smart document capture
- View real-time reports
- Automate bill entry and track bills
- Submit VAT returns to HMRC
- Automate subcontractor CIS calculations and reports
- Make online bill and payroll payments (domestic) for up to 15 payments
- Payroll for 10 people
- 180 day cash flow forecast
- Visualise performance with graphs
- Customise performance dashboards
- Claim expenses and mileage for 10 users
- Use multiple currencies
- Tailored financial health scorecards
- Make online bill payments (International) - Optional add-on
- Track time and costs for projects for 10 users
- Analyse KPIs and ratios
- Benchmark against the industry
