Two in five small businesses not ready for first Making Tax Digital for Income Tax deadline

London – 7 April 2026 – More than two in five (41%) small businesses, sole traders and landlords surveyed are not ready to comply with the Making Tax Digital for Income Tax (MTD for IT) mandate. Research from Xero, the global small business platform, shows 28% of respondents set to be affected in the first phase of the roll-out are behind schedule and unsure if they will meet the first quarterly filing deadline on 7 August. Meanwhile, one in seven (14%) have yet to take any action at all, and others are in the process of understanding their next steps.

The findings suggest businesses are actively preparing for the transition and taking steps towards readiness. The majority (58%) say they are on track to comply, and many are focusing on the foundational work required and moving through the process of understanding their requirements. Overall, 44% have read up about the changes or attended training, 42% have adopted new software or processes that are HMRC recognised, and 41% have signed up for MTD for IT with HMRC. Two in five (40%) have also sought advice from an accountant or bookkeeper.

“Small businesses are already juggling an incredible amount and it’s completely understandable that these changes might feel overwhelming,” said Kate Hayward, UK Managing Director, Xero. “However, the data shows that many are taking the right steps by seeking advice and doing research - and the good news is that there’s still time to prepare. For anyone feeling behind, start by taking small, manageable steps. For example, get set up with digital tools or speak with an accountant or bookkeeper for guidance.”

Confusion around core requirements; navigating the path forward

Uncertainty about MTD for IT also remains widespread, with 81% feeling like they need clarity on key areas of compliance. Under the new rules, sole traders and landlords with a gross income of over £50,000 must now keep digital records of income and expenses, submit quarterly updates using HMRC-recognised software and complete a final declaration the following January to confirm their final tax position.

Common areas of confusion include understanding the difference between what needs to be included in quarterly submissions and the final declaration (43%), how fines and penalties will be applied (41%), and whether thresholds are based on profit or turnover (31%). This lack of clarity is feeding concern and over a third (37%) are anxious about the risk of making mistakes that could lead to penalties or fines.

Despite the challenges, many recognise the longer-term benefits of a digital-first approach. Around three quarters believe MTD for IT will help reduce end-of-year “tax surprises” by giving them better visibility of their tax position (76%) and providing peace of mind over their tax obligations (73%). In addition, 74% of respondents said the changes will nudge them toward adopting digital processes and save them time compared to completing an annual self-assessment (72%)*.

To navigate the transition, small businesses are encouraged to sign up with HMRC and select HMRC-recognised software that brings financial admin together in one place. Building a good digital routine, for example by using instant receipt capture and linking business bank accounts to accounting software, will mean payments and income are captured automatically so digital records stay accurate and up-to-date. Finally, if small businesses need support navigating the new requirements, then they should seek out advice from an accountant or bookkeeper who can provide peace of mind.

* “Strongly agree” and “Somewhat agree” answer combined throughout.

-ENDS-

Media Contact

Xero Communications UK | Hannah Collett | ukpress@xero.com

About the research

Online research was conducted by Censuswide between 16th March and 24th March 2026. It surveyed 1000 UK small business owners and operators or directors that hold decision-making responsibilities for ac had an annual revenue of over £50,000 and will need to comply with MTD for IT from 6th April 2026. Respondents were not sourced through Xero’s users, but through independent panels. Censuswide is a member of the Market Research Society (MRS) and the British Polling Council (Accounting/tax services, banking, or financial services within their organisation. All respondentsPC), and a signatory of the Global Data Quality Pledge. We adhere to the MRS Code of Conduct and ESOMAR principles.

About Xero

Xero is a global small business platform that helps customers supercharge their business by bringing together the most important small business tools, including accounting, payroll and payments — on one platform. Xero’s powerful platform helps customers automate routine tasks, get timely insights, and connects them with their data, their apps, and their accountant or bookkeeper so they can focus on what really matters. Trusted by millions of small businesses and accountants and bookkeepers globally, Xero makes life better for people in small business, their advisors, and communities around the world. For further information, please visit xero.com.