Sole and small practitioners must “pull the levers” to drive efficiencies and scale in their firm with MTD a key driver for change, according to Xero’s UK boss.
Speaking to Financial Accountant for Xero’s launch of its 2025 Accounting and Bookkeeping Industry Report, UK country manager Kate Hayward said there was broad positivity about the improvements that MTD for Income Tax’s 2026 introduction was creating among practices and their clients.
The report found that four in five (79%) of practices had increased revenues compared to a year earlier, while 74% increased their profits in the period. Half (49%) gained new clients.
Some 80% of sole practitioners said they were either ‘extremely positive’ or ‘positive’ about MTD for Income Tax.
“There is some negativity that exits [around MTD] in that some think ‘it’s too much change for me’, but there is an uptick from the stress and effort of driving change,” said Hayward. “There is a cohort of potential clients that haven’t used a bookkeeper or accountant before wanting help.”
Small but effective
There have been concerns about the ability of the smallest practices to manage a potential increase in workload due to the extra filings that clients require. Hayward said that, while larger firms have been merging and consolidating to drive synergies, small practices must also look to create efficiencies and scale up.
“Size doesn’t have to determine whether they can be efficient or drive scale – they have to look at those levers as much as anyone else.
“Without pulling those levers [small practices] won’t be as competitive – know your customer and drive the efficiencies as if you’re a bigger firm.”
Some 58% of sole practitioners flagged ‘improved accuracy and reduced errors in tax reporting’ as a key benefit of the next phase of MTD, at least nine percentage points higher than other sizes of firms.
Clients and quarterly reporting
The sole practitioner cohort had the largest split between those that expect to provide a full MTD service for clients (48%), compared to 43% that expect clients to manage their own quarterly filings.
“Various models can exist,” said Hayward, “but firms will have to price accordingly.”
“Marrying pieces up such as AI and literacy with accounting is the fascinating question. I think [accountancy] has to mould and change and adapt.”
Kate Hayward, UK Country Manager, Xero
Preparation time
Despite the positive messaging across the report, it found that 72% of firms consider themselves ready for MTD for Income Tax – leaving a sizeable chunk with more work to do. There is a range questions that are coming into Xero from practitioners about MTD, Hayward explained.
“Some ask: ‘is it bookkeeping or tax?’ ‘What processes will need to change’, or ‘how do I price for the service?’ Our big push at Xero is for practices to consider the end-to-end process, from the initial data through to returns: how will you interact with your staff and clients? How will data flow?”
Hayward expects more collaboration between clients and practitioners, as MTD closes the gap between data collection and who is responsible for what. “It has been ‘our jobs and their jobs’, but [optimising client workflows] is going to increase because of MTD.”
Xero has also released a toolkit for Xero customers to help them consider the mapping and processing of data. “Were taking a proactive approach to education,” said Hayward.
All about people
Hayward, an accountant herself, said that despite concerns about the profession’s ability to recruit new talent, the requirement for accountants would stay strong. “With advancements in technology, the more repetitive tasks should be automated and the interesting bits that go more around critical thinking and connecting dots for clients will happen more regularly, and at an earlier stage of the career for younger accountants.”
However, accountancy training must evolve. “Marrying pieces up such as AI and literacy with accounting is the fascinating question. I think [accountancy] has to mould and change and adapt.”
Xero’s report can be downloaded by clicking here.
More information on IFA’s range of continuing professional development (CPD) here.
