What will taxi digital do for small business income tax in 2026 and beyond?
In just four months, millions of small businesses, traders and landlords will need to change the way they track and report their money to HMRC.
Digitalization of the income tax (MTD) will come into force and can be removed from the year, based on the paper-based tax page in the most common, digital reporting.
Under the new rules, you will have to use HMRC’s recognized software to keep Digital Financial records, send quarterly updates on expenses and expenses and complete an annual declaration confirming your final position for the year on 31 January and the deadline is 31 January. The biggest change and evolution of personal taxation since self-assessment was introduced more than 30 years ago.
MTD because it will be released in phases. If you are a small business, a sole trader or a landowner with an annual income of more than $50,000 you will be included from April 2026. It will then be expanded to include those 20,000 by 20,000 from April 2028.
With such a big move ahead, the coming months are very important. Taking steps to prepare for change will help you navigate change with confidence and build new habits you’ll rely on for years to come.
Why MTD occurs
The introduction of MTD is part of the wider UK government’s push to bring the tax system up to date and bring it into line with digital tools that have already cooled the economy. For years, policy makers have emphasized the need to invest in technology and reduce the administrative burden created by outdated, paper-based processes. MTD because it is one of the important steps in this desire to create a modern and pleasant tax system.
A complete digital approach to taxation is designed to make Admin Admin feel simple and easy. However, for those who still rely on paper notes or spreadsheets, the transition can feel difficult. More than two-fifths (42%) of very small businesses do not use any financial or accounting tools, and only 27% believe they are getting their technology and software decisions right according to our research. For many of you, MTD will mean using accounting tools for the first time and getting comfortable with a new way of working.
Choosing the right tools can help
Preparing for the new digital way of doing taxes, starts with choosing the right bookkeeping software. Look for HMRC’s trusted and easy-to-use options. Ideally, digital tools should bring your financial admin together so that you have one place where you can enter your expenses, manage taxes and keep on top of your finances.
It also helps to choose tools that make your daily tasks feel easier and faster. Features such as being able to snap a photo of a receipt on the go using the mobile app will mean you can enter expenses instantly and automatically renew your accounts. It’s a small change but one that can save you time and cut the chance of making mistakes that are common in many applications.
What should you consider next
When the software is in place, use the remaining time to become more comfortable with digital record keeping and quarterly reporting. With the right setup, your income and expenses should flow directly into your software and quarterly updates, giving you a good idea of how your business looks after each tax update and what the tax update is. This should aim for the tax surprise of the years.
Digital marine records will also make it easier to understand comings and goings. Our research shows almost two of small business owners (38%) don’t know if they were profitable the month before, and more than half (55%) struggle with cash management. Since everything is taken in one place, you will be able to get a clear view of your numbers so that you can identify signs or problems that are not paid – 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 be of great help. They can translate HMRC guidance into practical steps, help you choose the right digital tools and guide you on how to manage the new reporting requirements. This type of support will make the changes feel more manageable.
Going MTD because it can take time to get used to, but taking action now will make the transition easier. By taking steps to prepare for change, you can ease the pressure of looming deadlines and position yourself financially for the future.
Get ready for MTD because signing up for one of our upcoming webinars is all you need to do to prepare for the changes and view our range of MTD-ready programs in six months.
By Stuart Miller, director, public policy and technology research, xero
