top of page

How Xero Helps You Get Ready for MTD


If you’re a sole trader, you’ve probably heard the phrase “Making Tax Digital” (MTD) more times than you’d like. Maybe you’ve even thought:


  • “Is this going to make my life harder?”

  • “Do I need to change everything I’m doing?”

  • “What on earth is Xero and do I really need it?”


The good news? MTD doesn’t have to be scary. With the right software in place, it can actually make your day‑to‑day bookkeeping easier, not harder. And that’s where Xero comes in.


In this blog, I’ll walk you through how Xero helps you get ready for MTD, step by step, so you can stay compliant and feel in control of your numbers.


What Is Making Tax Digital (MTD) 


Making Tax Digital is HMRC’s plan to move businesses away from paper records and manual submissions, and towards digital record‑keeping and online filing.


In simple terms, it means:


  • Keeping your business records in a digital format

  • Using compatible software to send information to HMRC

  • Moving away from “once a year panic” and towards more regular, accurate reporting


If you’re a sole trader, this will affect how you keep your records and how you submit information to HMRC. Using a system like Xero now means you’re not scrambling to catch up later.


Why Xero Is Ideal for Sole Traders Preparing for MTD


Xero is cloud‑based accounting software that keeps all your business finances in one place. You can log in from your phone, tablet, or laptop and see exactly what’s going on in your business.

For MTD, that matters because:


  • Xero is HMRC‑recognised and designed with digital tax in mind

  • It helps you keep accurate, up‑to‑date records without spreadsheets everywhere

  • It reduces the risk of errors that can creep in when everything is done manually


Instead of chasing bits of paper and scrolling through your bank account trying to remember what that £37.50 was for, Xero helps you capture everything as you go.


1. Digital Record‑Keeping 


MTD requires you to keep digital records. Xero makes that part straightforward:


  • Bank feeds: Connect your business bank account to Xero so your transactions flow in automatically each day.

  • Easy coding: You (or your bookkeeper) can quickly categorise each transaction to the right income or expense category.

  • Searchable history: Need to check something from months ago? It’s all there, neatly stored and easy to find.


This means your records are always up to date, and you’re not relying on memory or piles of receipts when it’s time to report to HMRC.


2. Keeping on Top of Your VAT (Now and in Future)


If you’re VAT‑registered, you’re already within MTD for VAT rules. Xero helps you:


  • Track VAT on sales and purchases automatically

  • Run VAT reports at the click of a button

  • Submit VAT returns directly to HMRC from within Xero (no more retyping figures into the HMRC portal)


Even if you’re not VAT‑registered yet, getting used to this way of working now makes future changes much easier. You’re building good habits that align with where HMRC is heading.


3. Real‑Time View of Your Business Numbers


One of the biggest benefits of using Xero for MTD is that you get more than just compliance , you get clarity.


With Xero you can see:


  • How much you’ve invoiced and what’s still unpaid

  • What your regular expenses look like

  • A snapshot of profit, not just turnover


That means you’re not waiting until the end of the year to find out how you’ve done. You can make decisions during the year – whether that’s putting money aside for tax, investing in new equipment, or adjusting your prices.


4. Fewer Mistakes, Less Stress


MTD is all about improving accuracy. Xero helps reduce errors by:

  • Pulling in bank transactions automatically instead of manual entry

  • Using consistent categories for your income and expenses

  • Allowing your bookkeeper to review and tidy things regularly


This lowers the risk of:


  • Duplicated entries

  • Missed expenses

  • Mis‑keyed figures when you’re rushing


The result? Cleaner records, more accurate figures, and less stress when it’s time to deal with HMRC.


5. Working Seamlessly With Your Bookkeeper


Software is only part of the picture. The real magic happens when you combine Xero with the support of a bookkeeper who understands both MTD and your business.


With Xero, your bookkeeper can:


  • Log in and see exactly what you see, no emailing spreadsheets back and forth

  • Keep your records up to date throughout the year

  • Spot issues early and help you fix them

  • Guide you through what MTD means for you specifically as a sole trader


Instead of you trying to figure it all out alone, you’ve got someone in your corner making sure everything is set up properly and running smoothly.


What You Can Do Now to Get Ready for MTD


If you’re a sole trader and you want to be ready for MTD, here are some practical next steps:


  1. Move onto Xero (if you’re not already).Get your business set up on Xero so your records are digital and centralised.

  2. Connect your bank feeds.This saves you time and ensures nothing gets missed.

  3. Start using Xero consistently.Even 10–15 minutes a week reviewing and categorising transactions can make a big difference.

  4. Work with a Xero‑savvy bookkeeper, like Josie Dayment Bookkeeping.We can make sure everything is set up correctly for MTD and keep you on track.


Need Help Getting Set Up in Xero?


You don’t have to tackle MTD or Xero on your own.


At Josie Dayment Bookkeeping, we work with sole traders to:


  • Set up Xero in a way that suits how you actually run your business

  • Keep your records accurate and up to date

  • Make sure you’re prepared for MTD without last‑minute panic


If you’d like to feel more in control of your numbers and confident you’re heading in the right direction for MTD, get in touch and let’s chat about how Xero can work for you and your business.



Comments

bottom of page