How to Choose MTD-Compatible Software for Self-Employed
Compare MTD-compatible software options for sole traders. Covers record-keeping apps, bridging tools, free plans, and what to check before signing up.
Key Actions
- Check HMRC's software finder tool for the latest list of recognised providers
- Decide whether you need full accounting software or bridging software for your spreadsheet
- Compare at least two free options before committing to a paid plan
- Authorise your chosen software in your HMRC online account
- Submit a test quarterly update before your first deadline
Making Tax Digital (MTD) for Income Tax is now live for sole traders and landlords with qualifying income over £50,000 (2026/27 tax year). If you need to send quarterly updates to HMRC, you need MTD-compatible software to do it — you cannot submit updates through the HMRC website directly.
This guide helps you understand what types of software are available, what features to look for, and how to pick the right option without overpaying.
What Is MTD-Compatible Software?
MTD-compatible software is any HMRC-recognised application that stores digital records of your income and expenses and submits quarterly updates to HMRC electronically. At a minimum, it needs to:
- Create and store digital records of business income and expenses
- Submit quarterly updates to HMRC (four per year)
- File your final declaration (replaces the annual Self Assessment return)
- Maintain a digital link between your records and the data sent to HMRC
HMRC does not recommend any specific product. They maintain a software finder tool where you can search for recognised providers and filter by features.
Record-Keeping Software vs Bridging Software
There are two distinct approaches to MTD compliance, and the right one depends on how you currently manage your records.
| Feature | Record-Keeping Software | Bridging Software |
|---|---|---|
| What it does | Full accounting plus HMRC submissions | Connects your spreadsheet to HMRC |
| Record keeping | Built in | You keep your own spreadsheet |
| Bank feeds | Typically included | Not available |
| Cost | Free to £30-40/month | Often under £100/year |
| Best for | Starting fresh or wanting automation | Keeping your existing spreadsheet workflow |
Record-Keeping Software (Full Accounting Apps)
These are standalone accounting applications that handle everything: recording transactions, categorising expenses, generating reports, and submitting to HMRC. If you don't already have a system in place, this is the simpler route.
Examples: FreeAgent, Xero, QuickBooks, Sage, Zoho Books, Clear Books
Best for: Sole traders who want an all-in-one system, those starting fresh with digital records, or anyone who wants bank feed integration and automated categorisation.
Bridging Software
Bridging software connects your existing spreadsheet (Excel, Google Sheets) to HMRC's systems. It pulls summary totals from your spreadsheet and submits them as quarterly updates — without forcing you to change how you keep records.
Examples: VitalTax, 123 Sheets, AbraTax, My Tax Digital
Best for: Sole traders who already have a well-organised spreadsheet and don't want to migrate to new software.
Important: HMRC requires a digital link between your records and the submitted data. This means figures need to flow electronically from your spreadsheet into the bridging tool — you cannot manually retype numbers from one system to another.
How to Compare MTD Software Before You Sign Up
Not all MTD software works the same way. Before signing up, check these six things:
1. Does It Cover Your Income Sources?
If you have both self-employment and property income, confirm the software handles both. Some tools are designed for sole traders only, others for landlords only, and some cover both. Your qualifying income threshold combines all sources, so your software needs to report all of them.
2. Can It Submit Quarterly Updates and a Final Declaration?
Some early MTD tools only handle quarterly submissions but not the year-end final declaration. You need software that does both — otherwise you'll need a second tool to complete your tax year.
3. Does It Support Your Accounting Period?
You can choose standard periods (aligned with the 6 April tax year) or calendar periods (aligned with calendar quarters). Confirm your software supports whichever you've chosen. Our MTD guide for self-employed explains the difference.
4. What Does the Free Plan Actually Include?
Many providers offer a free tier, but limitations vary. Common restrictions include:
| Limitation | What to watch for |
|---|---|
| Transaction cap | Some free plans limit to 30-50 transactions per month |
| Single income source | Free tier may only cover one self-employment, not property too |
| No bank feeds | Manual entry only — no automatic transaction imports |
| No support | Email or chat support reserved for paid plans |
| Time-limited | Free for the first year, then paid |
It's worth reading the terms before committing. A free plan that doesn't cover your needs may cost more time than a paid plan that does.
5. Can You Export Your Data?
If you ever want to switch providers, you'll need to take your records with you. Check whether the software lets you export transactions in a standard format (CSV, Excel). It's worth steering clear of tools that offer no export option.
6. Is It VAT-Compatible?
If you're VAT-registered (or approaching the £90,000 VAT threshold for 2026/27), check whether the same software handles MTD for VAT as well. Using one tool for both simplifies your workflow.
Free MTD Software Options for Sole Traders
Several HMRC-recognised providers offer genuinely free plans:
- HMRC's own tool — HMRC is developing a free submission service for those with simple tax affairs. It covers basic digital record keeping and quarterly submissions at no cost.
- Sage Individual — completely free with no billing. Covers basic sole trader accounting and MTD submissions.
- FreeAgent — free if you hold a qualifying business account with NatWest, RBS, Ulster Bank, or Mettle (requires at least one transaction per month to stay eligible).
- Zoho Books — free plan available with MTD compatibility. Clean interface and links to the broader Zoho ecosystem.
- QuickFile — free cloud accounting with MTD support, popular with UK sole traders.
Free options work well for straightforward self-employment with a single income source. If you have property income, multiple businesses, or need payroll, a paid plan is more likely to meet your needs.
How to Set Up MTD Software and Connect to HMRC
Once you've chosen your software, you need to authorise it to communicate with HMRC on your behalf. Here's how the process typically works:
- Create your account with the software provider
- Enter your business details — business name, start date, accounting period
- Authorise the software — log into your HMRC online account (Government Gateway) and grant the software permission to submit on your behalf
- Import or enter your records — set up bank feeds, import existing data, or start recording transactions
- Submit a test update — most providers let you review what a quarterly submission looks like before you send it
Tip: Set up your software and submit a test before your first real deadline. The first quarterly update for 2026/27 (standard periods) covers 6 April to 5 July and is due by 7 August 2026 — giving you a few months to get comfortable.
Can You Use More Than One MTD Software Product?
Yes, HMRC allows you to use multiple MTD software products, provided each handles a distinct submission type. For example, you could use one tool for quarterly updates and a different one for your final declaration. However, using a single tool for everything is simpler and reduces the risk of errors.
You might also use bridging software alongside a spreadsheet for day-to-day records, then switch to full accounting software later. There's no penalty for changing providers mid-year.
Frequently Asked Questions
Can I use a spreadsheet for Making Tax Digital?
Yes, but you need bridging software to submit your quarterly updates to HMRC. The spreadsheet alone cannot connect to HMRC's systems. Bridging software pulls figures from your spreadsheet and submits them electronically, maintaining the required digital link.
How much does MTD software cost for sole traders?
MTD software for sole traders ranges from free to around £30-40 per month for full-featured accounting packages. Bridging software tends to be cheaper (often under £100 per year) since it handles submissions only, not record keeping. Several providers offer genuinely free plans for those with simple tax affairs.
What happens if I choose the wrong software?
You can switch providers at any time. Export your data from the current tool, import it into the new one, and authorise the new software with HMRC. There's no lock-in period and no penalty for switching. Keep your records backed up during the transition.
Do I need different software for MTD for VAT and MTD for Income Tax?
Not necessarily. Many providers (FreeAgent, Xero, QuickBooks, Sage) support both MTD for VAT and MTD for Income Tax within the same product. If you're already using MTD-compatible software for VAT, check whether your provider has added Income Tax support — many have.
This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.