UK’s Making Tax Digital (MTD) requires businesses to keep digital records, and to file their returns using software which is compatible. As of April 2022, all businesses registered are required to keep digital records and submit VAT returns through a HMRC approved software – whether you are a sole trader, a company, a landlord or a charity.
As our tax system continues to progress, making sure you have the right MTD software is key for compliance and productivity. In practice, this will require almost all smaller businesses and landlords to have HMRC-approved MTD software or bridging tools in place. Selecting the right MTD software is about more than ticking a compliance box – it’s about choosing the software that suits the way you work, eases bookkeeping, and helps you as your business grows. This guide offers some key considerations when selecting the best MTD software for your business.
MTD is the UK government’s new scheme to streamline taxation and make it more of the moment – it means businesses will be required to keep digital records and submit their returns online. This increases accuracy and helps limit the potential for tax reporting errors.
MTD is mandatory for all businesses that are registered for VAT. And from April 2026, those who are self-employed and who are business landlords with annual business and property income above £50,000 will have to comply with MTD for Income Tax also. The threshold will fall to £30,000 from April 2027.
These are full-featured bookkeeping packages. They handle your income, expenses, invoicing, bank feeds, and VAT returns all in one. Think of them as the digital equivalent of a full set of books. They are usually cloud-based (so accessible from anywhere) and automatically update with the latest tax rules. Well-known examples include several cloud accounting platforms (e.g. Xero, Sage, QuickBooks, and others) that have built MTD compliance into their systems. These systems often offer additional features – like payroll integration, time tracking or business analytics – which can make them the best MTD software choice for growing businesses.
Bridging software connects existing spreadsheets or non-compatible software to HMRC systems, facilitating MTD compliance without overhauling current processes. MTD Bridging Software – These are “bridge” tools for businesses that prefer to keep their current system (often a spreadsheet or non-MTD software). A bridging solution lets you upload or connect your existing records and then submit the VAT return to HMRC in the required digital format.
Bridging software is generally cheaper (often free) and simpler, making it a popular choice for very small businesses or sole traders who track finances in Excel. But remember that bridging software for MTD VAT does not handle bookkeeping – you still update your own spreadsheets – it just takes care of submission. In summary, if you want an all-in-one solution, go with an accounting package that’s on HMRC’s list. If you prefer minimal change and have straightforward records, consider Excel bridging software for MTD to begin with. Lanop Business and Tax Advisors can help evaluate which route suits you best.
| Software | Description | Pros | Cons |
|---|---|---|---|
| Sage Accounting | Full-service accounting software covering invoicing, VAT, MTD and more. | HMRC-approved MTD software; easy interface; scalable plans. | Advanced features only in higher tiers; limited customisation. |
| QuickBooks Online | Cloud accounting for freelancers and small businesses with invoicing, expenses, and VAT. | HMRC-recognised MTD software; real-time accounting; integrates with hundreds of apps. | Advanced features can be expensive; higher learning curve. |
| Xero | Cloud accounting with real-time financials, bank feeds and MTD support. | Unlimited users; strong add-ons and integrations. | Higher cost than competitors; limited phone support. |
| FreeAgent | Built for freelancers and small businesses for easy invoicing, expenses and VAT submissions. | HMRC-recognised MTD VAT software; intuitive dashboard; time tracking. | Not ideal for scaling; fewer integrations than competitors. |
| Zoho Books | Low-cost accounting with invoicing, expenses and MTD-compliant VAT. | Best free MTD software for sole traders; multi-currency; great mobile app. | No payroll in UK edition; fewer features overall. |
| FreshBooks | User-friendly invoicing and time tracking software, fully MTD-ready. | HMRC-recognised; excellent support; great reporting; easy setup. | Missing advanced accounting features; charges for extra users. |
| Ember | Automated accounting and MTD compliance for freelancers and small businesses. | Plans from £4.95/mo; free MTD for sole traders earning under £10k; automated expense categorisation; real-time tax estimates. | Not suitable for businesses with 5+ employees; lacks advanced features. |
| Clear Books | UK-based accounting with invoicing, expenses and MTD VAT compliance. | HMRC-recognised; simple; affordable. | Limited customisation. |
| Bridge | Excel-based bridging tool for filing VAT returns digitally under MTD. | Best bridging software; easy installation; very cost-effective. | Limited to VAT; manual data entry required. |
| Absolute Excel Income Tax Filer | Excel-based bridging solution for digital income tax submissions. | HMRC-recognised; ideal for landlords and sole traders. | Simple interface; few automation features. |
Ensure the software is listed on HMRC’s approved software list, confirming its compatibility with MTD requirements. Before purchasing, use HMRC’s search tool to confirm the provider is listed for VAT. Only software listed by HMRC can be used to submit VAT returns under MTD rules.
Keep in mind there is a separate HMRC list for MTD for Income Tax (ITSA), which will become relevant once MTD is mandatory for your business from 2026.
The software should have an intuitive interface, making it easy for users to navigate and perform necessary tasks without extensive training. A steep learning curve can negate many benefits. Ideally it should use terminology you understand and common tasks, like sending a VAT return or reconciling a bank statement, straightforward.
Look for software that integrates seamlessly with your existing systems, such as bank feeds, payroll, and inventory management. The best accounting solutions let you tag income and expenses to categories and will even auto-calculate VAT due, so you don’t have to add it up manually. For companies with staff, integration with payroll is useful, as you won’t have to export data separately. Also check if it supports multiple VAT schemes if you use those. Some software even offers mobile apps for on-the-go bookkeeping.
Choose software that can grow with your business, accommodating increasing data volumes and additional functionalities as needed. If you expect more sales, employees, or even multiple trading streams (like renting properties in addition to sales), make sure the software can accommodate that without excessive cost or data conversion later. The software should receive regular updates to stay compliant with evolving tax legislation. Avoid software built only for sole traders or single-entity businesses if you expect to grow or diversify.
Choose providers that offer robust customer support and training resources to assist with any issues or questions. Look for providers with solid customer service – ideally real human support (phone or chat) and online help resources or training videos.
Online tutorials are helpful, but you want timely expert help when you have a tight deadline or technical issue. Also, consider if they offer training guides or customer forums. Similarly, read independent reviews to see what real users say about reliability and support.
Sole traders often benefit from straightforward, cost-effective solutions. Look for software that offers essential features without unnecessary complexities.
Landlords require software that can handle rental income, expenses, and property management. Some solutions are specifically designed to cater to landlords’ unique needs.
Small businesses benefit from software that offers comprehensive features, including invoicing, expense tracking, and VAT submissions, all within a single platform.
Free MTD software can be suitable for very small businesses or those with simple tax affairs. However, they may come with limitations in features and support.
Paid solutions often provide more comprehensive features, better support, and scalability, making them a worthwhile investment for growing businesses.
No matter how good the marketing sounds, always test the software with your own data if possible. Use free trials or demo versions whenever you can. Load in sample transactions and run a mock VAT return. Does it generate the numbers you expect? Are your usual tasks intuitive? Checking in advance helps avoid surprises. Experts even suggest choosing software with monthly rolling plans or a demo first, so you can switch if it doesn’t fit.
Also, consider how long implementation takes. A big system may require data migration and staff training, while a bridging tool might be ready to go in minutes. If the MTD deadline (or a pending VAT quarter) is near, you might opt for a quicker setup, then transition later. In any case, don’t leave the choice to the last minute. Give yourself time to learn the software well before your next filing.
At Lanop Business and Tax Advisors, we specialize in guiding businesses like yours through the MTD transition. Our experts can help you choose and implement the best MTD software tailored to your needs. We start by understanding your business size, industry, and current processes. Then we compare solutions — from the latest cloud accounting packages to the leading bridging tools — ensuring any recommendation is fully HMRC MTD compliant. We’ve helped many sole traders and landlords select affordable digital tools, and larger firms to adopt sophisticated platforms that save hours of work.
Lanop can assist with every step: setting up the software, migrating your existing data, and training you or your team. We also offer ongoing support, so if you run into a tricky issue when preparing a return, we’re just a call away. For example, if you need to integrate payroll or track property income, we’ll ensure your software handles those correctly. And if you’re on a budget, for sole traders or free trials, then plan an upgrade path as your business grows.
We can recommend suitable free MTD options based on your business profile are in expert hands. We keep up with HMRC’s evolving rules, so you don’t have to. Whether you just need a recommendation or want us to manage your digital records entirely, Lanop is ready to help. Let us handle the technicalities of tax software so you can focus on running your business.
Yes, if the bridging software for MTD still meets HMRC standards, you can keep using it. Software that bridges the gap between businesses that keep their records in spreadsheets and have no other accounting software – bridging software aids the business in being able to submit VAT returns digitally without being required to have functional compatible software. However, it is crucial to have HMRC-approved software to make sure that your files are following the necessary regulations.
VT Software has MTD compliant products, developed exclusively for use with HMRC systems. You upload your VAT returns digitally through their software – which fits the requirement for MTD. Check you are using the most up-to-date version and that it’s listed on HMRC’s approved software to comply.
Bridging software is a bit like a bridge that connects your current method of record keeping (such as spreadsheets) to HMRC’s online export service. It allows companies to become MTD-compliant without altering its current accounting system. It pulls all the data it needs from your accounts and compiles it into the right format for submitting to HMRC online.
You will need to authorize your MTD software to:
Make sure your software provider can provide you with some directions here; steps could be different depending on the application.
MTD bridging software works by taking your current financial records (usually in a spreadsheet) and connecting them to HMRC’s digital submission gateway. It takes the information from your books and maps this to the necessary fields on the VAT return and sends this electronically. It means that you can continue to keep records in a particular way, to fulfill the record-keeping requirements of your business, and still be MTD-compliant.
MTD compatible software is software that meets HMRC requirements – recording and submitting data to HMRC. These services allow businesses to keep digital records and send tax returns to HMRC. It’s about being compliant so the software can make a secure and authentic interface with HMRC systems, those for easy communication of tax matters.
Aurangzaib Chawla is a UK-based tax advisor and Managing Partner at Lanop Business & Tax Advisors.
With nearly two decades of experience, he supports individuals, landlords, and SMEs with proactive tax planning and compliance. Known for simplifying complex tax legislation, Zaib helps clients minimise liabilities while building sustainable, tax-efficient strategies for long-term success.
Aurangzaib Chawla is a UK-based tax advisor and Managing Partner at Lanop Business & Tax Advisors. With nearly two decades of experience, he supports individuals, landlords, and SMEs with proactive tax planning and compliance. Known for simplifying complex tax legislation, Zaib helps clients minimise liabilities while building sustainable, tax-efficient strategies for long-term success.
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At Lanop, I am providing my services as the Managing Partner and Tax Specialist. My expertise includes helping medium and small-scale businesses in their accountancy and legal requirements, business start-up support, strategic review, payroll system review and implementation, VAT and tax compliance to cloud accounting. I am also an expert in financial reporting, identifying and monitoring risks, strategic business development, client retention, market acquisition and deals closure by carefully planning my sales cycle.
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