Income Tax reporting is changing - here’s what businesses need to do
Stuart Miller from Xero explains what Making Tax Digital for Income Tax will mean for some small businesses, landlords and the self-employed
If you work for yourself, run a business, or rent out a property, the way you manage your income tax is about to change.
From April 2026, the once-a-year tax return will be replaced by HMRC’s Making Tax Digital (MTD) for Income Tax scheme.
As Stuart Miller, Director of Public Policy & Tech Research at Xero, explained: “This change means you’ll need to keep digital records of all your sales and expenses and submit quarterly updates to HMRC on incomings and outgoings using recognised software.
“You’ll also need to complete a final declaration by January 31 to confirm your tax position and final tax bill.”
How the rules will be rolled out
The new rules will be phased in over three years based on income levels.
Those with gross income over £50,000 from self-employment or property in the last financial year will need to comply from April 2026.
Those earning over £30,000 have until April 2027, and those earning more than £20,000 have until April 2028.
However, even those not in the first group would be wise to prepare early.
Get ready to go digital
For businesses that do not already use finance or accounting tools, the shift to digital tax may feel significant.
Stuart said the first step is choosing suitable software and signing up with HMRC.
“To comply, you’ll need something that is HMRC-recognised and simple to use.
“Ideally, you want a single platform that brings your financial admin together so you can log expenses, manage tax and keep on top of your finances across all of your business activities.”
Use the time before April wisely
Once software is in place, Stuart advised using the lead-in period to explore features that can save time and simplify processes.
“You can snap a photo of a receipt on your phone to log expenses instantly, or link your bank account so transactions flow in automatically.”
While more regular reporting may initially sound like extra work, he believes up-to-date digital records should offer greater visibility and help prevent unexpected tax bills at year end.
With the right set-up, income and expenses can flow directly into software and quarterly updates, providing a clearer picture of performance and a rolling estimate of the likely tax bill after each submission.
Don’t be afraid to ask for help
Stuart also stressed that business owners do not need to navigate the changes alone.
“Accountants and bookkeepers can be a huge help.
“They can break down HMRC’s guidance into practical steps, make sure everything is set up correctly, and guide you through the new process.”
With clearer financial visibility, they may also be able to advise on tax efficiencies or cash flow planning opportunities that might otherwise be missed.
Get ready now
With just over a month to go until the new rules take effect, Stuart encourages businesses to act promptly.
Taking steps now could ease the pressure of the deadline and put businesses in a stronger position to adapt.
He also noted that in the first year of MTD for Income Tax, two tax years will effectively run in parallel.
Filing the final non-MTD self-assessment as early as possible, where feasible, could help reduce pressure and allow businesses to focus on adapting to quarterly reporting.
Find out more
To support small businesses with the transition, Xero is offering new customers 95% off for six months when they sign up here in March 2026.*
*Offer available to new Xero customers only until 11.59pm on March 31, 2026. Discount applies to Ignite, Grow, Comprehensive and Ultimate subscriptions only and cannot be used with any other offer or exchanged for cash or alternative offers. After the offer period, standard Xero pricing applies.
