The study found that 41% of those surveyed are not prepared to comply with the new rules

More than 2 in 5 small businesses, sole traders and landlords are not ready for the introduction of Making Tax Digital for Income Tax, according to research from Xero.

The study found that 41% of those surveyed are not prepared to comply with the new rules. Among taxpayers due to be affected in the first phase of the rollout, 28% said they are behind schedule and unsure whether they will meet the first quarterly filing deadline on 7 August, while 14% have yet to take any action.

For landlords, the findings point to a continued lack of understanding ahead of the shift to digital tax reporting. Under the new rules, sole traders and landlords with gross income above £50,000 will need to keep digital records of income and expenses, submit quarterly updates using HMRC recognised software and complete a final declaration the following January.

Xero’s research suggests that while many are taking steps to prepare, there is still a sizeable group at risk of falling behind. Overall, 58% said they are on track to comply. Some 44% have read about the changes or attended training, 42% have adopted HMRC recognised software or processes, and 41% have signed up for Making Tax Digital for Income Tax with HMRC. In addition, 40% have sought advice from an accountant or bookkeeper.

Kate Hayward, UK Managing Director, Xero, said: Small businesses are already juggling an incredible amount and it’s completely understandable that these changes might feel overwhelming. However, 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. 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.