MTD Software
MTD Software: Making Tax Digital Software Guide 2026
Choosing the right MTD software can make Making Tax Digital simpler. Discover what compatible software needs to do, who needs it and how to choose the right solution for your business or property income.
What is MTD software?
MTD software is accounting or tax software that works with HMRC's Making Tax Digital system. For Making Tax Digital for Income Tax, compatible software is used to create and maintain digital records, send quarterly updates to HMRC and complete and submit your tax return.
MTD for Income Tax is now live. From 6 April 2026, it applies to qualifying sole traders and landlords with combined gross self-employment and property income above £50,000, subject to the detailed eligibility and exemption rules.
Choosing MTD Software for Making Tax Digital
Choosing MTD software is no longer simply about finding a bookkeeping package you like. If you are within Making Tax Digital for Income Tax, the software you use needs to support the digital record-keeping and HMRC submission requirements relevant to your circumstances.
The right choice depends on whether you are a sole trader, landlord, VAT-registered business or a combination of these, as well as the complexity of your records and whether an accountant manages your submissions.
There is no single MTD software package that is automatically right for everybody. Some people will benefit from a full cloud accounting platform such as Xero, QuickBooks, Sage or FreeAgent, while others may prefer software designed primarily around tax reporting or existing spreadsheet records.
MTD for Income Tax Thresholds
Making Tax Digital for Income Tax is being introduced in stages. The relevant threshold is based on your qualifying income, broadly your gross income before expenses from self-employment and property combined.
| Start date | Qualifying income | Who may be affected? |
|---|---|---|
| 6 April 2026 | More than £50,000 | Qualifying sole traders and landlords |
| 6 April 2027 | More than £30,000 | Qualifying sole traders and landlords |
| 6 April 2028 | More than £20,000 | Qualifying sole traders and landlords |
Important: the threshold is not simply your taxable profit. Qualifying income is based on gross self-employment and property income before expenses. If you have more than one relevant income source, they may need to be considered together when deciding whether you fall within MTD for Income Tax.
What Does MTD Software Need to Do?
For Making Tax Digital for Income Tax, compatible software needs to support the digital journey between your underlying business records and the information submitted to HMRC.
Keep Digital Records
Create, store and correct digital records of relevant self-employment or property income and expenses.
Send Quarterly Updates
Your software must be capable of sending the required quarterly summaries of income and expenses to HMRC.
Submit Your Tax Return
For MTD for Income Tax, your software must support the information needed to complete and submit your tax return to HMRC.
MTD for VAT vs MTD for Income Tax
One of the most common sources of confusion is assuming that software described as “MTD compatible” automatically covers every part of Making Tax Digital.
| Feature | MTD for VAT | MTD for Income Tax |
|---|---|---|
| Main users | VAT-registered businesses | Qualifying sole traders and landlords |
| Digital records | VAT records | Relevant self-employment and property records |
| HMRC submissions | VAT Returns | Quarterly updates and tax return |
| Software check | Check VAT compatibility | Check specific MTD for Income Tax compatibility |
Do not assume that software capable of filing an MTD VAT Return automatically provides everything you need for MTD for Income Tax. Check the precise functionality of the product and plan you intend to use.
Your OptionsWhat Types of MTD Software Are Available?
Cloud accounting packages can combine bookkeeping and tax compliance in one system.
- Bank feeds
- Digital invoicing
- Receipt capture
- Expense categorisation
- Financial reports
- Accountant access
Often suitable for: businesses wanting bookkeeping, reporting and MTD functionality in one platform.
Some compatible products can connect existing digital records, including suitable spreadsheet-based systems, with HMRC.
- Retain familiar records
- Potentially lower software cost
- Useful for simpler circumstances
- Less need to migrate systems
Often suitable for: users who want to retain an established digital record-keeping process, provided the complete setup satisfies the relevant MTD requirements.
MTD Software Comparison
We work with the major accounting software packages used by UK businesses. The right choice depends more on your circumstances than the name on the software.
| Software | Typically Suits | Notable Strengths | Consider |
|---|---|---|---|
| Xero | Small businesses and growing businesses | Bank feeds, integrations, reporting and accountant collaboration | Check the chosen plan supports all the MTD functions you require |
| QuickBooks | Sole traders and small businesses | Bookkeeping automation, invoicing and mobile tools | Compare plan functionality rather than introductory price alone |
| FreeAgent | Freelancers, contractors and smaller businesses | User-friendly bookkeeping and tax-focused features | Check suitability if your business has more complex requirements |
| Sage | Established and growing UK businesses | Long-established accounting ecosystem, reporting and payroll options | Choose the product and plan appropriate to your business |
| Bridging / specialist software | Spreadsheet users and specific tax workflows | Can reduce the need to change an existing record-keeping system | Confirm the complete workflow meets HMRC's requirements |
HMRC recognition is not a recommendation. HMRC provides a software finder for products that have passed its recognition process, but HMRC does not recommend one software provider over another. Your choice should therefore be based on the functions you actually need.
How to Choose the Best MTD Software for You
Rather than choosing software because it has the longest feature list, start with the way you actually run your business.
Establish which MTD rules apply to you
Determine whether you need MTD for VAT, MTD for Income Tax, or both. If you are approaching an Income Tax threshold, plan before your mandatory start date.
Identify every income source
A sole trader who also receives UK or overseas property income may have different software requirements from someone operating one straightforward business.
Decide how you want to keep records
Consider whether you want bank feeds, automated transaction matching and receipt capture, or whether you prefer to retain existing digital records.
Check Income Tax functionality specifically
Do not rely simply on the phrase “MTD ready”. Confirm that the particular software and subscription you choose supports the MTD obligations that apply to you.
Speak to your accountant before subscribing
If an accountant will review your bookkeeping or make submissions for you, choosing software they can efficiently access and support can save considerable time.
Consider future requirements
Think about VAT registration, employees, payroll, additional properties, new businesses and integrations. Changing accounting software later can involve unnecessary work.
Which MTD Software Might Suit Your Situation?
| Your Situation | Features Worth Looking For |
|---|---|
| Sole trader | Simple bookkeeping, bank feeds, receipt capture, Income Tax functionality and easy accountant access. |
| Landlord | Clear separation of property income and expenses, support for the relevant property income source and straightforward quarterly reporting. |
| Sole trader + landlord | Software capable of handling the relevant income sources without creating an unnecessarily complicated workflow. |
| VAT-registered sole trader | Both MTD VAT and MTD Income Tax functionality where required. |
| Spreadsheet user | Consider whether compatible connected or bridging software can preserve your existing digital process. |
| Growing business | Scalable invoicing, reporting, payroll, user permissions and third-party integrations. |
Our accountant's view
The best MTD software is usually not the package with the most features. It is the system that keeps your records accurately, meets the HMRC requirements applying to you and is simple enough that you will use it consistently.
If your accountant will be managing your quarterly submissions or reviewing the records, involve them before changing software. A simple, well-managed system is generally preferable to an unnecessarily complicated one.
How Do I Set Up MTD Software?
Once you have established that Making Tax Digital for Income Tax applies to you and selected compatible software, the typical process is:
Choose compatible software
Check that it supports your relevant income sources and required submissions.
Complete the required MTD registration process
Make sure you have followed HMRC's current steps for joining or using Making Tax Digital for Income Tax.
Authorise the software with HMRC
Your compatible software needs permission to communicate with HMRC.
Check your accounting period
Make sure the accounting period settings are correct before your first quarterly update.
Start maintaining digital records
Record the relevant income and expenses through your chosen digital system from the appropriate date.
Learn More About Making Tax Digital & Accounting Software
Xero
Read our guide to Xero accounting software, its features and how businesses can use it.
Sage
Explore Sage accounting software and its suitability for UK businesses.
FreeAgent
Learn about FreeAgent accounting software for freelancers, contractors and small businesses.
QuickBooks
Our guide to QuickBooks accounting software for UK businesses and sole traders.
Making Tax Digital
Understand how Making Tax Digital works and when the rules may apply to you.
Self Assessment
Need professional help with your Self Assessment tax return and digital tax obligations?
MTD Software FAQs
What is MTD software?
MTD software is software that can work with HMRC's Making Tax Digital system. Depending on the relevant MTD regime, it can be used to maintain digital records and transmit required information to HMRC.
Do I need MTD software in 2026?
If you are a qualifying sole trader or landlord with qualifying income over £50,000, Making Tax Digital for Income Tax applies from 6 April 2026, subject to the detailed eligibility and exemption rules. VAT-registered businesses are already subject to MTD for VAT requirements.
What is the MTD threshold?
For MTD for Income Tax, qualifying income above £50,000 brings qualifying taxpayers into the regime from 6 April 2026. The threshold falls to above £30,000 from 6 April 2027 and above £20,000 from 6 April 2028.
Is MTD based on turnover or profit?
The MTD for Income Tax threshold is based on qualifying gross income before expenses rather than taxable profit. Relevant self-employment and property income may need to be combined when determining whether you exceed the threshold.
Can I use Excel for Making Tax Digital?
Spreadsheets can form part of some MTD record-keeping arrangements where suitable compatible software creates the required digital connection to HMRC. Whether this is appropriate depends on the MTD regime and your complete software setup.
Is bridging software allowed for MTD?
HMRC recognises different types of compatible software, including products that connect to existing digital records. You should check HMRC's current software finder and confirm that your proposed setup supports all the functions required for your circumstances.
Does MTD software replace Self Assessment?
MTD for Income Tax changes the way affected taxpayers keep records and provide information to HMRC. You still need to complete the required year-end tax return process, but for years in which MTD applies this is completed through compatible software.
Do I have to submit a tax return four times a year?
No. The quarterly updates are summaries of relevant income and expenses; they are not four separate tax returns. The tax return is completed after the end of the tax year.
What is the best MTD software?
There is no single best MTD software package for every taxpayer. The right choice depends on your income sources, business complexity, VAT status, bookkeeping preferences, integrations, budget and whether an accountant manages your records or submissions.
Is all accounting software MTD compatible?
No. You should check that the specific software product and plan supports the particular Making Tax Digital service you need. MTD for VAT compatibility does not by itself prove that a product provides all the functionality you require for MTD for Income Tax.
Can my accountant handle MTD for me?
An authorised agent can carry out many MTD tasks on your behalf. However, you still need an appropriate digital record-keeping process, so it is sensible to agree with your accountant who will maintain records, review transactions and make submissions.
Need Help With MTD Software?
We are ACCA qualified online accountants working with UK businesses, sole traders and landlords. We can help you understand your Making Tax Digital obligations, choose an appropriate bookkeeping system and keep your tax affairs on track.
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The Online Accountants — Owner Managed Limited Company Specialists.
ACCA qualified accountants providing online accounting and tax services throughout the UK.