41% of small businesses “not ready to comply” with Making Tax Digital mandate, Xero reveals

A new survey has revealed that two in five small businesses simply aren’t ready for the Making Tax Digital (MTD) mandate, while nearly one third are unsure if they’ll actually make the first quarterly filing date. 

Concerningly, the vast majority of businesses also admitted they needed more clarity on key compliance areas, which, if not rectified, could have ramifications for them down the line.

Most taking the right steps, but some not ready

The research, collated by accounting software platform Xero in March, included 1000 UK small business owners and directors working at companies making more than £50,000 in annual revenue, who should be complying with the rules that came into force on April 6 2026.  Crucially, 41% said that they were “not ready to comply with the Making Tax Digital for Income Tax (MTD for IT) mandate.”

28% reported that they are “behind schedule” and unsure if they will meet the first quarterly filing deadline on 7 August. Additionally, 14% admitted to taking no action at all. 

On the whole, though, most businesses are taking the right steps. More than half (58%) of those surveyed shared that they are on track to comply with the first quarterly filing deadline in August. 

The research also revealed that 44% have read up about the changes or attended training, 42% have adopted HMRC recognised software or processes, and 41% have signed up for MTD for IT with HMRC. Around 40% have also sought out external advice from an accountant or bookkeeper.

Knowledge gaps persist

The research also revealed that there are knowledge gaps even among those who are pushing ahead with their MTD plans. A staggering 81% said that they need clarity on some of the key areas of compliance.

The Xero team shared that 43% are confused as to what to include on their quarterly statements versus their annual declaration, and 41% are confused about fines. A further third (31%) didn’t know whether thresholds are based on profit or turnover.

Anxiety abounds

Kate Hayward, UK Managing Director of Xero said that the findings do suggest that many business owners are feeling overwhelmed. However, she adds that “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.”

The move to MTD is also being seen as positive by the majority of respondents. Around three-quarters said that the approach will lessen the chances of end-of-year “tax surprises” as they will have better visibility over their tax responsibilities and more peace of mind over what they need to pay. 

The team adds that 74% of respondents saw the changes as positive in pushing them towards adopting digital processes, which will save them time in the long run. 

Hayward said that ventures still have time to comply. She encouraged: “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.”

If you don’t feel ready and you’d like some more help understanding things like compliance rules and penalties, then check out our guide to Making Tax Digital, which we put together with the help of licensed accountant and founder of Heelan Associates Dan Heelan.