Making Tax Digital: your guide to compatible software

Whether you’re already submitting your VAT returns online or you’re getting close to the income tax threshold, the shift to digital record-keeping is something every business owner and landlord will need to navigate. But while the move can feel daunting, choosing the right compatible software is half the battle.

The right tools can streamline your admin, reduce errors and even save you time. In this guide, we break down what Making Tax Digital actually involves, the software options available and how to choose a solution that suits both your budget and the way you like to work.

Key takeaways

• You need HMRC-recognised software that records income and expenses digitally and sends updates directly

• You can use a full accounting software package or keep using spreadsheets and connect them with bridging software

• The right MTD software depends on your working preferences, budget and whether you manage VAT, income tax or both

What is Making Tax Digital?

Making Tax Digital (MTD) is a new way of reporting tax, income and expenses to HMRC if you’re a sole trader or landlord.

It replaces labour-intensive processes such as paper records and manual submissions, substituting them with digital record-keeping through compatible software.

It aims to reduce errors by keeping all your records in one place - enabling you to send updates via software that connects directly to HMRC.

MTD for income tax started in April 2026 for individuals with a qualifying income of over £50,000 from self-employment or property, and in April 2027 for those with a qualifying income of between £30,000 and £50,000. MTD for VAT started in April 2022. 

💡 Editor insight: 2 in 5 SMEs unprepared for Making Tax Digital as first filing deadline approaches

What is MTD software?

MTD software is any program that's compatible with HMRC and records: 

• Income

• Expenses

• VAT information

• Digital records and corrections

• Quarterly updates for MTD for Income Tax

• VAT returns for MTD for VAT

• Final tax return information for MTD for Income Tax

• Digital links between records, spreadsheets and HMRC, where needed

It must log this information as a digital record, which it then sends to HMRC on a quarterly basis and at the end of the financial year when you submit your final tax return.

It stores financial records in one system, including your VAT data if applicable, which keeps the process simple. Then, once you’re happy, the software sends the information directly to HMRC in the format it accepts.

What software do I need for MTD?

You need software that can record income, expenses and other tax information digitally. The software also needs to be able to send this directly to HMRC.

The right choice depends on how you like to work. For example, if you already use spreadsheets, bridging software enables you to continue using them, keeping your setup familiar.

If you run a business with regular invoicing, or you use an accountant, accounting software that links to your business bank account may help to keep everything organised and in one place.

A good place to start if you’re unsure is with the HMRC software finder tool.

VAT software for MTD

VAT software for MTD records digital VAT data, tracks VAT owed and prepares the information for submission to HMRC. Most accounting tools include VAT features, but some target VAT only. 

If your business only needs a direct way to send VAT information to HMRC, VAT-focused software may help keep costs down. But if your needs extend to invoices and general cash flow monitoring as well, you may want to look into accounting platforms that offer more enhanced features.

HMRC-recognised software: what it means

HMRC-recognised software connects directly to HMRC through its application programming interface (API). This is basically a secure digital link that enables the two systems to talk to one another.

HMRC checks that the program can keep digital records and send data in the correct format, but it neither endorses software nor ranks it.

Recognition only confirms that the program meets the technical standard and supports MTD requirements. Beyond that, you’re welcome to choose the software that best fits your needs.

💡 Editor insight: Tax is no longer a once-a-year job, and SMEs are spending £4.8bn on software to stay compliant

MTD-compliant software vs MTD bridging software

MTD-compliant software records every transaction inside the program and sends it to HMRC when required. It handles most bookkeeping tasks, such as invoicing and bill paying, and keeps everything inside one system.

MTD bridging software pulls data from a spreadsheet and sends it through to HMRC. This enables you to keep to your current record-keeping system and avoids a full software switch, typically suiting those who have simple records to manage through Excel or Google Sheets.

How to move from spreadsheets to bridging software

If you already work with spreadsheets, you simply need to adjust how you store and link your data. You can continue to keep records in a spreadsheet, tracking your sales, expenses and VAT calculations where necessary. Bridging software then imports those cells and sends the return to HMRC.

With bridging software, you need a clear structure to map the numbers correctly, so the key thing is to maintain clean spreadsheets with consistent tabs and column names. Keep formulas simple and avoid hiding data.

Once the spreadsheet is in good shape, bridging software connects it to HMRC and sends the return in a few quick clicks.

Free MTD software

Free MTD software exists, but it tends to offer fewer features. Some free options support only basic quarterly submissions, while others limit how many transactions you can record each month before asking you to upgrade your plan.

Free options tend to suit smaller businesses with simple records. If you need additional features, such as automated invoicing or multi-user access, a paid option might be worth exploring.

MTD software compared

There are many options that support MTD. The right choice depends on the size of your business, how you like to work, your budget, and whether you want full accounting features or a simple tool to submit your tax information and nothing else.

The table below compares common options, including free and paid-for tools, as well as bridging software.

How to choose the right software

The right choice ultimately depends on how you manage your records. If you want everything in one place, a full accounting software package tends to offer invoicing, expenses, reporting, bank feeds and VAT/income tax submissions.

If you only need an HMRC link, bridging software or fee-free options should keep your setup simple.

Key features to look for include:

• Direct HMRC integration – The software must send data to HMRC directly

• Clear digital record-keeping – It must store transactions in a compliant digital format

• Quarterly and final income tax submissions – The program must handle the quarterly updates and the final declaration for your income tax through self-assessment 

• Accurate VAT calculations – If applicable, it should track VAT information for your business

• Ease of use – You must be comfortable with the software and know how to navigate it

• Support and guidance – You should be able to access help if something goes wrong

• Cost structure – You need a plan that fits your volume of transactions and budget

These features keep the MTD process smooth and compliant. They also help you choose a program that supports your day-to-day without extra effort.

If you’re ever unsure, or you need additional support, you can find out more from HMRC directly.