Compare accounting software for Making Tax Digital (MTD)
Compare top HMRC-compliant accounting tools
See features and prices for sole traders, landlords and small businesses
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Sage UK
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- MTD-compliant VAT submissions
- Invoicing
- Expense tracking
- Bank reconciliation
- Cash flow monitoring
- Inventory management
| Recommended for | UK-based sole traders, small, and medium-sized businesses (SMBs) needing a scalable accounting solution. |
| Not recommended for | Large enterprises with highly complex, multinational financial needs that may require a full ERP system. |
| Integrations offered | Direct bank feeds with hundreds of UK banks. |
| AI tools | Sage Copilot provides AI-driven insights, automates data entry, and offers fraud detection |
Tide
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- integrated invoicing
- Expense management
- Auto-categorisation
- VAT filing tools
- Real-time tax estimates
| Recommended for | Freelancers, contractors, and small businesses who want banking and simple accounting in a single platform. |
| Not recommended for | Businesses that require advanced inventory management or multi-currency accounting without using a third-party integration. |
| Integrations offered | Connects to Tide bank accounts |
| AI tools | AI features include transaction auto-categorisation and business insights |
Xero
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- Invoicing
- Bill payments
- VAT returns (MTD)
- Bank reconciliation
- Project tracking
- Multi-currency support
- Purchase orders
- Expense claims
| Recommended for | Small to medium-sized businesses, accountants, and bookkeepers, particularly those who value a large ecosystem of third-party app integrations. |
| Not recommended for | Businesses looking for a free plan, as you'll need to pay a minimum of £7 a month. |
| Integrations offered | Connects to a wide range of UK and international banks via open banking feeds. |
| AI tools | AI used for bank reconciliation suggestions, invoice data capture, and anomaly detection. |
Zempler Bank – A Bank Account with accounting features
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- From £0 Monthly
- Includes free ‘Making Tax Digital’ VAT submission tool
- With 1 year free of ‘Making Tax Digital’ Income Tax Self Assessment Software (via Coconut)
- Categorise spend as you go
- Comes with digital receipt capture
- Generate Invoices
- Integrates with leading accountancy packages (Sage, Xero, Quickbooks etc.)
| Recommended for | Sole traders and SMEs who want banking and bookkeeping tightly coupled or have a poor credit history |
| Not recommended for | Businesses that rely heavily on cheque deposits or physical branch access |
| Integrations offered | Xero, Quickbooks, Sage, FreeAgent, Coconut & more |
| AI tools | Automatic transaction categorisation and spending insights |
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Making Tax Digital (MTD) and accounting software
Making Tax Digital (MTD) for income tax comes into force in April 2026, initially affecting sole traders and landlords with a qualifying income of more than £50,000.
From April 2027, MTD will affect sole traders and landlords with a qualifying income of more than £30,000
From April 2028, MTD will affect those with a qualifying income of more than £20,000
Under the new rules, small businesses must maintain digital records and submit tax returns via MTD-compatible software. This means that if you don’t already, you will need to start using the correct accounting software to ensure you are MTD-compliant.
If you don’t want to invest in full accounting software, you could connect existing spreadsheets to bridging software. But because this is more lightweight, it’s better suited to businesses with simple financial records.
Who it applies to
You must follow MTD for income tax if all of the following apply
You are a sole trader or a landlord registered for self-assessment
You receive income from self-employment, property or both
Your qualifying income exceeds the threshold set by the government
Why use accounting software as a small business
There’s a host of reasons why using accounting software can be beneficial for a small business:
Saves time
Automating tasks such as invoicing and expense management cuts down on manual admin, freeing you to focus on running the business
Reduces mistakes
Manual bookkeeping can often result in mistakes. Using accounting software reduces human error and keeps your records consistent
Ensures compliance
With MTD affecting many businesses from April 2026 onwards, using the correct accounting software ensures you stay complaint with HMRC rules
Clearer visibility
Accounting software makes it easier to see what’s been paid, what’s overdue and what’s coming up, so you can better manage cash flow
Tax calculations
Many platforms calculate VAT, track deadlines and prepare figures for tax returns, ensuring they are accurate and filed on time
How MTD for Income Tax works in practice
Note: VAT-registered businesses (those with an annual turnover of more than £90,000) should already be using MTD-compatible software, because MTD for VAT has been in place since 2019.
Key features to look for when comparing accounting software
Key features to look for when comparing accounting software
Bookkeeping and bank reconciliation
Choose software that links to your business bank account and automatically imports transactions. It simplifies bank reconciliation by comparing your records with your bank statements, helping you spot errors and keep accounts accurate.
Invoicing
Good software enables you to create and send professional invoices, track who has paid and automatically chase late payments, so you don’t have to. Features such as automatic reminders and online payment links can improve business cash flow.
Payroll
If your business hires staff, look for packages that can help you manage employees efficiently, whether by including payroll or integrating with a payroll service. This can help you pay wages correctly as well as calculate benefits and generate payslips.
Expense management and receipt capture
Good accounting software enables you to capture receipts instantly, track and categorise expenses, and automatically match receipts to banking transactions. You can easily record employee expenses and manage payments, without staff claims getting lost.
VAT calculations and tax returns
For many small businesses, built-in support for MTD and automated VAT return preparation is essential. The right accounting software helps you prepare for tax returns in advance, calculate how much you owe and file returns on time.
Stock management
If your business handles goods, look for software that can help you track your inventory levels. Some platforms monitor stock levels and provide alerts when stock runs low in real time, as well as manage products more efficiently and track their movements.
Reporting
Some platforms provide a range of financial reports, from simple statements and key reports, such as cash flow and balance sheets, to more complex tools that handle budgeting and forecasting. In some cases, you may have to pay extra for these benefits.
What software do I need for MTD ITSA?
With MTD for Income Tax Self Assessment (ITSA), you record everything digitally and send updates to HMRC through your chosen software directly. The options vary in cost and available features, so it helps to understand how each one works before you decide.
HMRC-recognised software: free vs paid
You must use HMRC-compatible software for MTD. Free software options tend to cover basic record-keeping and allow for standard quarterly updates. Paid options add enhanced features such as invoicing, business bank account integration and expense tracking.
Integrated tools vs bridging software
Integrated tools store and send all your digital records from one place.
Bridging software links a spreadsheet to HMRC, so you can submit your quarterly updates without switching systems. If you’re used to manual bookkeeping and don’t want to change too much, this might be the simplest option.
All-in-one business accounts
Some banks offer a business account with built-in accounting tools, usually for a fee. This enables you to manage payments and your digital records from one account - often with its own app - which reduces admin and keeps everything in sync.
Penalties for not complying with MTD
MTD for Income Tax uses the same points-based penalty system as MTD for VAT. Each missed deadline, whether for a quarterly update or final declaration, results in a penalty point. Once you reach four points, a £200 fine is issued. Points don’t expire automatically; they are only cleared after a period of consistent, on-time submissions.
In addition, businesses can face penalties of up to £3,000 for failing to keep digital records or for not using MTD-compatible software.
Late payment penalties are separate from submission penalties. Interest begins accruing from the day your tax becomes overdue. Further penalties may apply after 16 days and again after 31 days if the balance remains unpaid, with interest continuing to build until the debt is cleared.
Staying compliant comes down to good record-keeping and routine. Keeping accurate digital records, submitting updates on time and paying any tax owed by the deadline will help you avoid unnecessary penalties.