With the next phase of Making Tax Digital for Income Tax fast approaching, Xero’s UK Managing Director Kate Hayward argues that the shift isn’t just about compliance — it’s an opportunity to redefine how firms work, strengthen client relationships, and prepare for a new era of accounting driven by AI and automation.
In Partnership With Xero
As the next phase of Making Tax Digital for Income Tax (MTD IT) approaches, firms across the UK are facing a familiar dilemma: knowing it is coming, but not yet taking the steps to be ready. For Kate Hayward, UK Managing Director at Xero, this moment represents much more than a compliance deadline — it is a chance for firms to redefine how they work, serve clients and plan for the future of accounting.
Speaking with Mariette Armitage, Hayward explained that while awareness of MTD IT is high, genuine readiness is still mixed. “It’s a tale of two halves,” she said. “A lot of people say they’re prepared for it, but when you look more closely, many haven’t yet taken action. They see it as an opportunity, they’re excited by it, but the actual jobs to be done haven’t been ticked off.”
That gap between intent and implementation is where Hayward believes the biggest opportunity lies. She argues that MTD IT should be viewed not simply as a regulatory requirement but as a catalyst to strengthen client relationships, improve data quality and drive efficiency.
“Small businesses know it’s coming, but do they actually know what it means?” she asked. “It’s not just about tax; it’s about digitising bookkeeping and bringing more regular insight into the business.”
Firms that embrace this mindset are already using MTD IT as a differentiator. By automating processes and accessing real-time financial information, accountants can hold deeper and more regular conversations with clients. “It’s not just about simplifying tax compliance,” Hayward said. “It’s about having those conversations throughout the year, not just in a rush at year-end. That builds stronger, more informed relationships.”
While the initial transition may feel like a burden, she said, the long-term gains are significant. “Once firms get over that hump of doing things differently, there’s a much bigger return on investment over time.”
With less than seven months to go before the first wave of MTD IT in 2026, the difference between those who are prepared and those who are not is becoming clear.
“In our recent survey, 82% said they were somewhat prepared for MTD IT, but only 36% were fully prepared,” Hayward noted. “Being ready means thinking end-to-end: mapping the entire client journey, segmenting the client base, planning internal workflows and deciding how you’re going to communicate with clients.”
The most proactive firms, she explained, have already worked backwards from the adoption date and created step-by-step plans. “Others are in a bit of paralysis. They think they’re ready but haven’t taken the first step. My message is always: don’t try to eat the elephant whole. Take it one step at a time.”
Xero itself has been evolving rapidly to help firms manage this transformation. Hayward described how the platform is moving from being seen purely as a system of record to becoming a “system of action”, embedding artificial intelligence across the workflow.
“Before AI became fashionable, Xero already used predictive AI,” she explained. “Smart bank reconciliation and AI-driven cash flow projections have been around for years. What’s new now is the scale and speed of adoption, and the emergence of intelligent agents that can plan and take action.”
While there is much discussion about AI replacing human expertise, Hayward is clear that Xero’s philosophy is the opposite. “AI is there to elevate the role of the accountant and bookkeeper, not replace it. It helps streamline repetitive tasks so practitioners can focus on delivering expert advice. It’s about amplifying human expertise.”
She also highlighted one of the biggest pain points she hears from firms: software fragmentation. “Accountants tell us they use great tools for individual jobs, but stitching them together is hard. The efficiency you gain in one area can be lost if systems don’t talk to each other. That’s why we’re focused on connecting everything across the Xero platform, so the workflow feels unified.”
In a profession built on accuracy and accountability, Hayward recognises that trust is central to the adoption of AI. “We design everything with accountants and bookkeepers, not in a silo. Transparency is key. For example, our new AI-powered bank reconciliation shows users where AI is being used and why. It’s about giving them oversight and control.”
That balance between automation and empathy, she said, is what will define successful firms in the years ahead. “Automation delivers speed and accuracy, but clients still value personal advice and human judgment. The real power comes when both work together.”
For many firms, the biggest challenge is not the technology itself but managing the change that comes with it. Hayward believes the same principles of change management apply whether you’re a global firm or a two-partner practice.
“Don’t eat the elephant whole,” she repeated with a smile. “Map your processes, identify your early adopters and your futurists, and listen to those who are struggling. Communication and education are essential. Celebrate small wins along the way.”
Even within Xero, she said, the company continues to learn how to adapt quickly. “Twelve months ago I was using AI very differently to how I use it today. We have simple groups where we share wins, tips and examples of how people are using tools. It doesn’t have to be complicated. Collaboration builds confidence.”
Looking two years ahead, Hayward’s vision of a future-ready accounting practice is one where digital tools and digital processes work hand in hand. “Some firms have adopted software but still use old manual processes,” she said. “That’s not true digital transformation. For example, many still aren’t using bank feeds, which provide real-time, secure financial data.”
True readiness, she said, means mapping every step from data ingestion to advisory services and understanding the interactions between staff, clients and technology. “It’s about using best-in-breed tools, making sure they’re stitched together, and continuously improving as technology and client needs evolve.”
The ultimate outcome is not just efficiency but empowerment. “The more manual tasks we automate, the more we amplify human expertise. That deepens client relationships and improves financial understanding. Small businesses can make better decisions, whether that’s growing their business, increasing profit or simply gaining more control.”
Hayward’s final message to firms still on the fence is simple: start now. “If you’re stuck or waiting for the right moment, just take one step forward,” she said. “There are step-by-step guides and community resources built by accountants and bookkeepers themselves. The sooner you start, the smoother the journey will be.”
For her, MTD IT and AI together represent not disruption, but opportunity. “This is about future-proofing the profession,” she said. “Firms that act now will not only meet compliance requirements but redefine how they work with clients. It’s an incredibly exciting time for accounting.”
