Last updated: 30 Jun 2025 09:00 Posted in: AIA
Accountancy practices are optimistic about Making Tax Digital for Income Tax – but are they ready? Kate Hayward reports.
The past year has been a strong one for UK accountants and bookkeepers. Our Accounting and Bookkeeping Industry Report 2025 revealed that nearly four in five (79%) reported increased revenue compared to the prior year, while 74% saw increased profits. Overall, practices are healthy and thriving, successfully growing both the top and bottom line.
Much of this has been driven by the evolving role of accountants and bookkeepers, who are striving to go beyond the numbers and do more to support their small business clients. Our research shows that while bookkeeping remains a core and lucrative offering, advisory services are becoming increasingly important and account for nearly a third (32%) of revenue.
As small businesses navigate an uncertain environment and an increasingly complex regulatory landscape, accountants and bookkeepers are key trusted advisors offering proactive tailored support – from financial planning to cash flow forecasting, tax strategy and scenario planning.
This move is paying off. Nearly half (49%) gained new clients and practices have grown their client base by 15% on average, with sole practitioners and small practices seeing a slightly larger increase than medium and large practices. In an increasingly competitive landscape, practices that prioritise client relationships and build human-to-human connections are doing particularly well. 73% of those with a relationship-led approach say client relationships are a key reason for practice growth.
Technology is doing more of the heavy lifting
Some of this momentum is powered by technology. More than two in five (42%) practices cite adopting new tools or software as one of the most significant changes in their practice in the past year. This may help them serve a growing number of businesses with complex needs by automating processes, improving efficiency and expanding service offerings to provide value.
Cloud adoption, in particular, is making an impact. Users report benefits ranging from improved workflows and simplified billing to better client experiences and greater job satisfaction. Among surveyed cloud users, 87% report improved client satisfaction, and 86% of users say that it has freed up time to focus on growth.
That said, there’s still room to increase usage. While most practices (86%) are using cloud technology with at least one client, only 59% of total bookkeeping is currently done in the cloud. Even fewer are making full use of automation and third-party app integration. While it can be challenging knowing where to start, understanding how technology can be implemented and the potential efficiencies it can drive will help to deepen adoption.
The use of technology creates efficiencies, which in turn leads to benefits for practice and their staff. Among practices who say they’ve become more efficient, 41% reported delivering greater quality of work, 39% cited increased productivity and 36% saw profit gains.
There are also cultural benefits that come along with achieving efficiencies too. A quarter of those surveyed (25%) report better employee wellbeing or morale, while others have used the time saved to upskill or improve their work-life balance. Those that lean into digital tools, particularly for client work and practice management, are becoming more efficient, resilient and client focused.
Preparing for Making Tax Digital for Income Tax
Looking ahead, technology is expected to remain a key focus – both as a continued driver of growth and as an immediate priority in preparation for Making Tax Digital for Income Tax (MTD for IT).
From April 2026, digital record keeping and quarterly submissions will become mandatory for self-employed businesses and landlords earning over £50,000 a year. It’s a major shift that will impact practices and their clients in equal measure. The good news is that 75% of the profession feel positive about MTD for IT, believing that it will benefit both their practice and/or clients.
Rather than seeing MTD for IT as a burden, many practices are viewing it as a timely nudge towards digital processes. More than four fifths believe it will lead to happier clients (81%) and new clients (82%). The perceived benefits for their clients are also clear. According to those surveyed, the main benefits of MTD for IT on small businesses include improved accuracy in tax reporting (46%), streamlined processes and increased efficiency (43%), and simplified tax compliance (42%).
However, of those planning to offer MTD for IT services, only 36% feel ‘fully prepared’. Nearly half (46%) feel ‘adequately prepared’, hinting that they still have some way to go in getting ready for the transition.
Practices will benefit from thinking about the end-to-end process for MTD for IT – everything from the initial data collection through to the final submission. It will also be important for accountants and bookkeepers to consider factors like how they are going to communicate or educate their small business clients on the changes or how internal workflows or processes will be optimised.
With finite time and resources available, there’s also likely to be a shift towards a more collaborative way of working – moving towards a situation where clients take on elements of digital record keeping and accountants and bookkeepers support them with some of the complex tasks and preparing and submitting the final declaration.
Making Tax Digital for Income Tax
Making Tax Digital for Income Tax (MTD for IT) will help sole traders, landlords and their agents to stay on top of their tax affairs. This is done by using compatible software to keep up to date digital records and send closer to real-time updates of income and expenses to HMRC each quarter.
You or your client will need to use MTD for IT to:
Your clients will need to use MTD for IT if they are a sole trader or a landlord registered for self-employment; and with qualifying income of more than £20,000 based on their gross annual income from self-employment and property (before expenses, allowances and tax deductions).
When they need to start using MTD for IT depends on their qualifying income within a tax year. If their qualifying income is over:
MTD for IT as an agent
An opportunity to lead
Ultimately, MTD for IT will give the industry an impetus to adapt. It’s an opportunity to raise the bar across the accountancy profession and create additional value for practices and clients. Many will find new and innovative ways to create opportunities from the change and make the accountant, bookkeeper and small business relationship even stronger.
It’s also worth remembering that the industry is already in a strong position. Accountants and bookkeepers have repeatedly shown that they can adapt and lead clients through change. The upcoming reforms are no different. By focusing on getting ahead of the regulatory curve and using technology to its full potential, practices will be able to unlock new ways to deliver value to small businesses and remain competitive.
Author bio
Kate Hayward leads Xero’s business in the UK, playing an active role as an advocate for its customer community.
