Millions of small businesses, sole traders, and landlords in the UK will need to adjust how they manage and report their finances starting April 2026, as the government introduces Making Tax Digital for Income Tax (MTD for IT). The new system will replace traditional annual, paper-based tax returns with quarterly digital updates, marking the biggest change to personal tax in more than 30 years.
Under MTD for IT, businesses and landlords with an annual income over £50,000 will be required to keep digital financial records using HMRC-recognised software. They must submit quarterly updates on income and expenses and complete an annual declaration by the usual 31 January deadline. The programme will gradually expand, including those earning over £30,000 by April 2027 and anyone with a turnover exceeding £20,000 from April 2028.
The government says the reform is part of a broader push to modernise the tax system and reduce administrative burdens from outdated, paper-based processes. Officials argue that digital tools can make managing finances simpler, reduce errors, and give businesses a clearer view of cash flow and profitability.
Research shows that a significant proportion of small businesses are currently unprepared. Around 42% do not use any finance or accounting software, and only 27% feel confident about their current digital tools. For many, MTD for IT will involve adopting digital accounting systems for the first time and learning to work with automated record-keeping.
Experts advise businesses to choose HMRC-recognised software that is simple to use and integrates multiple functions, such as expense logging, tax calculation, and reporting. Mobile features that allow receipts to be captured instantly and automatically entered into accounts can save time and reduce errors.
Once software is in place, businesses are encouraged to familiarise themselves with quarterly reporting. Up-to-date digital records can provide early insights into financial performance, helping to identify unpaid invoices, unexpected costs, or changes in profit margins before they become major issues. Research indicates that 38% of small business owners are unaware if they were profitable the previous month, while 55% struggle with cash flow management.
Professional support from accountants or bookkeepers can ease the transition. These advisors can help businesses select the right digital tools, set up systems correctly, and guide them through new reporting requirements.
The government is urging businesses to act now to avoid last-minute challenges. Early preparation will help ensure a smooth transition to digital reporting, reduce the risk of errors, and put businesses on a stronger financial footing for the future.
Webinars and support resources are being offered to help small businesses and landlords understand the requirements of MTD for IT and implement the necessary changes ahead of the April 2026 rollout.
