MTD Software for Sole Traders: What You Actually Need

Quick answer: what software do I need for MTD?

For Making Tax Digital for Income Tax, you need software that can:

• keep digital records of your income and expenses
• submit quarterly updates to HMRC
• help you complete your final tax return after the end of the tax year

The software must be compatible with MTD for Income Tax, not just MTD for VAT.

This is important because some software may support VAT submissions but not Income Tax submissions.

Before choosing software, check HMRC’s official list of compatible Making Tax Digital for Income Tax software.

What HMRC actually requires from your software

HMRC does not provide its own MTD software for Income Tax.

Instead, taxpayers must use commercial software that can connect to HMRC’s systems.

Your software should allow you to:

• keep digital records
• send quarterly updates to HMRC
• submit your final tax return
• maintain a clear digital link

If you use spreadsheets and bridging software, your records should connect digitally rather than relying on manual copying and pasting.

The key point is this: a spreadsheet on its own is usually not enough. You need either full accounting software or bridging software that can submit the figures to HMRC.

The three main types of MTD software

There are three main ways to handle MTD software.

All-in-one accounting software

All-in-one accounting software lets you record income, track expenses, connect your bank account, upload receipts, prepare reports, and submit MTD updates.

Examples include tools such as:

• Xero
• FreeAgent
• QuickBooks
• Sage
• other HMRC-recognised accounting platforms

For many sole traders, this is the simplest and cleanest option.

You log your income and expenses throughout the year. When a quarterly update is due, the software helps prepare and submit the figures to HMRC.

Best for: sole traders, freelancers, consultants, contractors, and landlords who want a simple system and do not want to manage spreadsheets manually.

Spreadsheets plus bridging software

If you already use Excel or Google Sheets, you may be able to continue using spreadsheets with bridging software.

Bridging software connects your spreadsheet to HMRC and submits the required information.

This can work well if your records are simple and you are disciplined with your spreadsheet.

However, it can become risky if:

• your spreadsheet layout changes
• formulas break
• figures are manually copied between tabs
• categories are inconsistent
• you forget to update records regularly
• you are not confident with spreadsheet structure

For some people, spreadsheets plus bridging software will be cheaper and familiar.

For others, it may create more work than using proper bookkeeping software.

Best for: sole traders who are confident with spreadsheets, have simple income and expenses, and want to keep their existing record-keeping system.

Multiple tools in combination

Some people use one tool for bookkeeping and another tool for MTD submission.

For example, you might use one app to track income and expenses, then another tool to send the quarterly updates.

This is allowed in some cases, but it adds more moving parts.

The more tools you use, the more carefully you need to manage your data.

This approach may suit more complex businesses, but it is not usually the easiest option for a simple sole trader.

Best for: people with more complex systems, industry-specific software, or an accountant managing the process.

What to look for when choosing MTD software

Before signing up for any software, check the following points.

HMRC recognition

This is the first thing to check.

The software should be recognised as compatible with Making Tax Digital for Income Tax.

Do not rely only on marketing wording such as “tax ready” or “MTD compatible”. Some software may only support MTD for VAT.

Check the official HMRC software list before committing.

Income Tax support, not just VAT support

MTD for VAT and MTD for Income Tax are different.

A software product may support VAT returns but not quarterly Income Tax updates.

If you are a sole trader or landlord affected by MTD for Income Tax, make sure the software specifically supports MTD for Income Tax.

Ease of use

The best software is not always the one with the most features.

For many sole traders, the best software is the one they will actually use every week.

Look for software that makes it easy to:

• connect your bank feed
• categorise transactions
• upload receipts
• separate business and personal costs
• check your profit
• prepare tax information
• share access with your accountant

If the software feels too complicated, you may avoid using it — and that defeats the point.

Mobile app and receipt capture

This is very useful if you are often on the move.

A good mobile app can help you:

• photograph receipts
• record expenses straight away
• check your income
• avoid losing paperwork
• keep records up to date

For delivery drivers, tradespeople, mobile workers, consultants, and landlords, this can save a lot of time.

Bank feeds

Bank feeds allow your software to pull transactions from your business bank account.

This can make bookkeeping much easier because you can match, categorise, and review transactions instead of entering everything manually.

If possible, keep a separate business bank account. It makes MTD record-keeping much cleaner.

Support for property income

If you are a landlord, check that the software can handle property income properly.

This is especially important if you have:

• more than one property
• both self-employment and rental income
• joint property income
• mortgage interest
• repairs and maintenance
• agent fees
• service charges
• furnished holiday lets or overseas property income

Not every simple bookkeeping app handles property income well.

Accountant access

If you work with an accountant, choose software that allows accountant access.

This means your accountant can review your records, fix errors, and help with submissions without you needing to send spreadsheets back and forth.

This is one reason many accountants prefer tools such as Xero, FreeAgent, QuickBooks, or Sage.

Cost

Software pricing can change, so always check the provider’s website before signing up.

Some tools charge monthly, some charge annually, and some offer free access through certain business bank accounts.

When comparing cost, do not only look at the cheapest monthly price.

Also check:

• whether MTD for Income Tax is included
• whether bank feeds are included
• whether receipt capture is included
• whether support is included
• whether there are submission limits
• whether you need a higher plan later
• whether your accountant can access it

The cheapest software is not always the cheapest option if it creates more bookkeeping time or more accountant corrections.

A plain-English look at the main options

The software market is changing as MTD for Income Tax develops, so always check HMRC’s software list and the provider’s own website before choosing.

Here is a simple overview of the main types of tools sole traders often consider.

Xero

Xero is one of the most widely used cloud accounting platforms for UK small businesses and accountants.

It is often a good option if you want a professional bookkeeping system that can grow with your business.

Xero is useful for:

• bank feeds
• invoice tracking
• expense categorisation
• receipt capture
• reports
• accountant access
• VAT and tax workflows

It may be more powerful than some very small sole traders need, but it can be a strong choice if you want a proper business finance system.

FreeAgent

FreeAgent is popular with freelancers, contractors, and small businesses.

It is generally simpler than some larger accounting platforms and has a clear dashboard.

FreeAgent may be especially worth considering if you bank with NatWest, Royal Bank of Scotland, Ulster Bank, or Mettle, because eligible business account holders may be able to access FreeAgent for free, subject to the bank’s terms.

FreeAgent is useful for:

• simple bookkeeping
• invoicing
• expenses
• bank feeds
• tax estimates
• Self Assessment features
• accountant access

Good for: freelancers and sole traders who want a straightforward system without too much complexity.

QuickBooks

QuickBooks is another well-known accounting platform used by many sole traders and small businesses.

It can be useful for:

• bank feeds
• invoicing
• expense tracking
• receipt capture
• reporting
• tax preparation
• accountant access

Before signing up, check which QuickBooks product and plan supports MTD for Income Tax. Do not assume every version or plan has the same MTD features.

Sage

Sage is a long-established accounting software provider in the UK.

It is often used by accountants, bookkeepers, and more established businesses.

Sage can be useful for:

• bookkeeping
• invoicing
• reporting
• VAT
• accountant workflows
• small business accounting

Some users find Sage more structured than simpler apps, so it may suit people who want a more traditional accounting setup.

Spreadsheets plus bridging software

This option can work if you prefer Excel or Google Sheets.

You continue recording your income and expenses in a spreadsheet, and bridging software submits the data to HMRC.

This may suit you if:

• your business is simple
• you are confident with spreadsheets
• your spreadsheet is well structured
• you update it regularly
• you understand categories and totals
• you do not keep changing the layout

The risk is that spreadsheets are easier to break.

A wrong formula, missing row, copied number, or changed layout can create problems.

Good for: organised sole traders with simple records who are confident using spreadsheets.

What if you already use accounting software?

If you already use accounting software, do not assume you are ready for MTD for Income Tax.

Check two things:

1. Is your software compatible with MTD for Income Tax?
2. Have you completed the MTD authorisation/sign-up process?

Many people already use bookkeeping software, but that does not automatically mean they are enrolled for MTD for Income Tax.

MTD for Income Tax usually requires a separate sign-up and authorisation process so the software can communicate with HMRC.

This is sometimes called a digital handshake.

How your accountant fits in

If you work with an accountant, they can usually help you:

• check whether MTD applies to you
• choose suitable software
• set up your chart of accounts
• connect bank feeds
• clean up old records
• review income and expenses
• submit quarterly updates
• prepare the final tax return

At Aurestone Advisory, we work primarily with Xero, but the right software depends on the client.

For some sole traders, Xero may be the best fit.

For others, FreeAgent, QuickBooks, Sage, or a spreadsheet plus bridging software may be more suitable.

The goal is not to choose the most famous software.

The goal is to choose a system you can actually maintain.

The one thing to avoid

Do not leave software selection until the week your quarterly update is due.

Setting up software can involve:

• choosing the right plan
• creating an account
• connecting your bank feed
• setting up categories
• importing transactions
• uploading receipts
• correcting old records
• authorising the software with HMRC
• checking that your figures are accurate

If your records are already behind, this can take longer than expected.

The earlier you choose your software, the easier your first quarterly update will be.

Simple decision guide

Here is a quick way to think about it.

If you want the simplest ongoing system, choose all-in-one accounting software.

If you are already good with spreadsheets and your records are simple, consider spreadsheet plus bridging software.

If you have property income, check carefully that the software handles landlord records properly.

If you work with an accountant, ask which systems they support before you sign up.

If you are unsure, get advice before committing to a tool that may not suit your situation.

What should you do now?

If MTD applies to you, take these steps:

• Check HMRC’s list of compatible MTD for Income Tax software.
• Decide whether you want all-in-one software or spreadsheets plus bridging software.
• Check whether the software supports your income type.
• Check whether it allows quarterly updates and final tax return submission.
• Compare pricing and features.
• Ask your accountant which software they support.
• Set up the software before your first quarterly deadline.
• Start keeping digital records as soon as possible.

What to read next

Post 1: Making Tax Digital for Income Tax — Are You Affected?

Find out whether MTD applies to you, when your deadline is, and what the income thresholds mean.

Post 3: What to do this month if MTD applies to you

Step-by-step actions for people who need to get compliant now, including how to sign up, what your first quarterly update involves, and how to catch up if you are behind.