MTD-Compatible Software: How to Choose for Your Business
To follow Making Tax Digital, you need software that can talk to HMRC. The choice looks overwhelming at first, but most options fall into a few clear types. This guide compares bridging software and full bookkeeping apps, explains which features actually matter, and helps you choose with confidence. It is general information, not tax advice, and products change often, so always check HMRC's current list of compatible software.
Key takeaways
- Start with HMRC's list of compatible software and filter for what you need: MTD for VAT, MTD for Income Tax, or both.
- Bridging software suits tidy spreadsheet users; full bookkeeping software suits anyone who wants bank feeds, receipts and invoicing in one place.
- Check support for every income type you have, including property income and the final declaration.
- Compare price models over a full year and confirm your accountant can work with the software you pick.
Making Tax Digital for VAT has applied to all VAT-registered businesses since April 2022, and MTD for Income Tax became mandatory on 6 April 2026 for sole traders and landlords with qualifying income over £50,000. Lower thresholds follow in April 2027 (£30,000) and April 2028 (£20,000). Every one of those businesses needs software that can keep digital records and submit to HMRC.
The market has responded with a wide range of products, from free bridging tools to full accounting suites. Rather than ranking brands, which change features and prices often, this guide gives you a way to judge any product against your own needs.
Start with HMRC's list of compatible software
HMRC publishes lists of software that has been recognized as compatible with MTD for VAT and with MTD for Income Tax. These lists are your starting point. A product that is not on the relevant list may not be able to submit what you need.
When you use the lists, filter carefully:
- Which MTD service? Some products support VAT only, some Income Tax only, and some both.
- Which income types? For Income Tax, check support for self-employment, UK property and foreign property if you have it.
- Which tasks? Confirm whether the product handles quarterly updates and the final declaration, or only part of the process.
- Who is it for? Some products are aimed at individuals, others at agents such as accountants.
Common mistake
Assuming that because a product handled your VAT returns, it also covers MTD for Income Tax. They are separate services with separate requirements. Check the Income Tax list specifically before you rely on existing software.
Bridging software vs full bookkeeping software
This is the first big decision. The two types solve the same compliance problem in very different ways.
Bridging software
Bridging software connects digital records you already keep, usually in a spreadsheet, to HMRC. You keep working in your spreadsheet, and the bridging tool reads the figures and sends the update. It is often simple and inexpensive, and some options are free for basic use.
It suits people who already keep clean, consistent spreadsheets and do not want to change how they work. The trade-off is that you still do the bookkeeping manually: no automatic bank feeds, no receipt capture, and more room for formula errors.
Full bookkeeping software
Full bookkeeping software, sometimes called cloud accounting software, is where your records live. It typically pulls in bank transactions, lets you categorize them, stores receipts, creates invoices and prepares the MTD submissions. Well-known examples in the UK include Xero, QuickBooks, FreeAgent and Sage, among many others. Features and plans vary between products and change over time, so compare them directly rather than relying on reputation.
It suits most businesses that want to spend less time on admin overall, especially if you have many transactions, send invoices or work with an accountant.
| Factor | Bridging software | Full bookkeeping software |
|---|---|---|
| Where records live | Your own spreadsheet | Inside the software |
| Bank transactions | Entered or imported manually | Usually pulled in by bank feeds |
| Receipts | Stored separately | Often captured and attached in the app |
| Learning curve | Low if you know spreadsheets | Moderate at first, then faster |
| Cost | Often low, sometimes free | Usually a monthly subscription |
| Best for | Few transactions, confident spreadsheet users | Growing businesses, invoicing, accountant collaboration |
Pro tip
Count your monthly transactions. If you have only a handful of income and expense entries a month, a spreadsheet plus bridging software may be all you need. If you have dozens or hundreds, the time saved by bank feeds usually pays for a subscription.
The features that matter most
Once you know which type fits, compare individual products on the features that affect your daily work.
Bank feeds
A bank feed pulls transactions from your business account into the software automatically. It is the single biggest time saver in bookkeeping. Check that the software supports your bank, how often transactions update, and whether you can set rules to categorize regular payments automatically. Feeds sometimes need reconnecting periodically for security, so expect a small amount of maintenance.
VAT and Income Tax support
If you are VAT-registered and a sole trader in MTD for Income Tax, you need both. Check that one product handles both well, rather than running two systems. For VAT, check support for the VAT scheme you use, such as the Flat Rate Scheme or Cash Accounting. For Income Tax, check support for each income source, quarterly updates and the final declaration.
Mobile receipt capture
Many apps let you photograph a receipt and attach it to a transaction, sometimes reading the amount and supplier automatically. This is valuable if you buy things on the move. Test it on a few crumpled receipts during a trial, since quality varies.
Invoicing and getting paid
If you send invoices, built-in invoicing keeps sales and records in one place and shows who owes you money. Some products also connect with payment providers so clients can pay online.
Accountant access
If you use an accountant or bookkeeper, ask which software they prefer before you buy. Many accountants work mainly with a few products and may offer support, or even discounted plans, for those. Being able to give your accountant direct access saves a lot of emailing of spreadsheets.
Comparing price models
Software pricing changes often, so this guide does not quote prices. Instead, understand the common models and compare the total over a year:
- Free tiers or free products. Some bridging tools and basic plans are free. Check limits on transactions, income types or features.
- Monthly subscriptions in tiers. Higher tiers usually add features such as more users, multi-currency, payroll or projects.
- Introductory discounts. A low first-months price can rise sharply afterward. Compare the ongoing price, not the promotion.
- Add-ons. Payroll, extra users or receipt capture may cost extra.
- Bundled access. Some business bank accounts or accountancy packages include bookkeeping software. Check what happens if you leave the bank or accountant.
Example
Imagine a freelance designer with one bank account, about fifteen transactions a month and no VAT registration. She already tracks everything in a neat spreadsheet. She picks a bridging tool from HMRC's list and keeps her process. Her friend, a VAT-registered plumber with daily material purchases and dozens of invoices a month, chooses full bookkeeping software with bank feeds and receipt capture, because the time saved each week matters more than the subscription cost.
How to choose: a step-by-step approach
- List your obligations. MTD for VAT, MTD for Income Tax, or both, and which income types.
- Describe how you work now. Spreadsheet, paper, or existing software, and how many transactions a month.
- Ask your accountant. Find out which products they support.
- Shortlist two or three products from HMRC's compatible software lists that match your needs.
- Run free trials side by side. Connect your bank, categorize a month of transactions and test receipt capture.
- Check data export. Make sure you can download your records if you switch later.
- Compare the full-year cost including add-ons, after any promotional period ends.
Signs a product is a good fit
- On HMRC's list for every service you need
- Supports your bank and your income types
- Your accountant knows it well
- Easy to export your data
Warning signs
- Unclear which MTD services are supported
- Price rises sharply after the first months
- No clear way to export your records
- Missing support for the final declaration
Your MTD software checklist
- Confirm which MTD services and income types you need
- Check HMRC's compatible software list for each service
- Decide between bridging software and full bookkeeping software
- Ask your accountant which products they support
- Test bank feeds with your actual bank during a trial
- Test mobile receipt capture with real receipts
- Confirm support for your VAT scheme and the final declaration
- Compare full-year costs, including add-ons and post-promotion prices
- Check how to export your data before you commit
Frequently asked questions
Is there free MTD-compatible software?
Some products offer free versions or free bridging tools, often with limits. HMRC's lists of compatible software can help you find them. Check that a free option covers every part of the process you need, including the final declaration.
Can I switch software later?
Yes, but it takes some work, especially in the middle of a tax year. Check before you buy how you can export transactions and reports, and plan any switch for a quiet period, ideally at the start of a new tax year.
Do I need the same software as my accountant?
Not strictly, but it makes life easier. If you and your accountant use the same product, they can review your records directly, which usually saves time and fees.
Is software from a big brand always better?
Not necessarily. Well-known products often have more integrations and support resources, but a simpler product can suit a small business perfectly. Judge each option on your own needs and on HMRC's compatibility lists.
Related reading
The bottom line
Choosing MTD-compatible software comes down to three questions: which MTD services you need, how you prefer to keep records, and who else needs access. Use HMRC's compatible software lists as your starting point, run a couple of trials with real data, and compare the full-year cost.
Features, prices and compatibility change over time, so this is general information rather than a recommendation of any product. Check the latest lists on GOV.UK and ask a qualified accountant if you are unsure which option fits your business.
