A new survey has highlighted concerns among small businesses about the new Making Tax Digital (MTD) mandate, just a few months ahead of the deadline for the first quarterly filings.

The rules, which came into force on April 6 2026, mean that all self-employed business owners, sole traders and landlords with annual business income of more than £50,000 will have to submit quarterly updates to HMRC.

According to new research from accounting software platform Xero, which included 1,000 owners and directors at companies generating annual revenue of more than £50,000, many are unprepared for the new rules.

The survey found that around two-fifths (41 per cent) said they were not ready to comply with the Making Tax Digital for Income Tax (MTD for IT) mandate, while close to a third (28 per cent) said they were behind schedule and were unsure if they would meet the deadline for the first filing on August 7. 14 per cent, meanwhile, said they had taken no action at all.

Despite this, 58 per cent said that they were on track to comply with the first quarterly filing deadline. 44 per cent of respondents said they had read up on the changes or attended some form of training.

SMEs have taken various other measures to prepare for the changes. 42 per cent had adopted software or processes recognised by HMRC, 41 per cent said they had signed up for MTD for IT with HMRC, while approximately 40 per cent had sought advice from an external accountant or bookkeeper.

However, the survey also flagged major knowledge gaps, even among those SMEs that had taken steps to prepare for MTD, with 81 per cent of respondents saying they still needed clarity on certain aspects of compliance.

43 per cent said they were confused about what should be included on quarterly statements as opposed to annual filings, 41 per cent were unsure about fines and 31 per cent said they did not know whether the thresholds related to profits or turnover.

Overall, though, the move is seen as a positive among most respondents, with approximately three-quarters of those polled saying the new system will reduce the chance of “tax surprises” at the end of the year by providing greater visibility and certainty over what they have to pay.

74 per cent, meanwhile, said the changes would help push them towards greater adoption of digital processes, something that will ultimately save them time.

While acknowledging that many business owners feel overwhelmed by the changes, Xero UK Managing Director Kate Hayward said the research showed “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.”

Hayward added: “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.”