Best MTD-Compatible Accounting Software for UK Businesses

After the introduction of Making Tax Digital (MTD) for Income Tax in the UK, many businesses, landlords, and self-employed individuals have changed the way they keep records and submit tax to HMRC. Choosing the right MTD-compatible accounting software has become more important than ever.

The best MTD software not only helps you comply with HMRC regulations but also simplifies bookkeeping, automates tax calculations, and saves you time. This blog explains the best MTD-Compatible accounting software 2026 options and highlights their key features, benefits, and suitability for different types of businesses.

What is Making Tax Digital?

MTD is a government initiative that changes how individuals and businesses keep records and report taxes to HM Revenue and Customs (HMRC).

For landlords and sole traders, MTD replaces paper-based record-keeping by requiring digital records and digital submissions to HMRC. These digital records can be maintained using MTD-compatible accounting software or compatible spreadsheets connected through bridging software. The purpose of this initiative is to improve efficiency and reduce errors by keeping records digitally and submitting updates directly to HMRC through MTD-compatible software. It also makes it easier for you to manage tax obligations.

From 6 April 2026, MTD for Income Tax became mandatory for landlords and sole traders. If your annual income from self-employment and property is over £50,000, you must use MTD for Income Tax. From April 2027, the threshold will reduce to £30,000 and then to £20,000 from April 2028.

What is MTD-Compatible Accounting Software?

MTD-compatible software refers to software that meets HMRC’s requirements for Making Tax Digital. It allows individuals and businesses to keep digital financial records, submit tax returns directly to HMRC, and send quarterly updates under MTD for Income Tax. This helps reduce errors through automation and maintain compliance with current UK tax regulations. You should use HMRC-recognised Making Tax Digital software to ensure that you remain compliant as MTD requirements continue to expand.

Why is MTD-Compatible Accounting Software Important?

HMRC is working to modernise the UK tax system and is replacing manual record-keeping and paper-based submissions with digital. It has become mandatory for sole traders and landlords, with annual income over £50,000 to use MTD accounting software.

What are the Benefits of Using Accounting Software?

Using a reliable MTD-compatible accounting software can provide several advantages, such as:

• It ensures compliance with HMRC regulations.
• It reduces the risk of errors and penalties.
• It automates routine bookkeeping tasks and saves time.
• It gives you real-time insights into your business finances.

• It simplifies Value Added Tax (VAT) and Income Tax submissions.

What are the Best MTD Software for Sole Traders and Landlords?

Here are some of the best MTD software for landlords and sole traders to use to ensure compliance and reduce the risk of errors:

QuickBooks

QuickBooks is one of the most widely used cloud accounting platforms in the UK. It offers comprehensive MTD-compatible accounting software features, such as direct MTD submissions to HMRC, automatic expense tracking, invoice creation and management, VAT reporting, and bank account integration.

This software is best for small businesses, freelancers, and self-employed individuals. It has an easy setup, excellent reporting capabilities, and strong mobile app functionality. However, the advanced features require higher-tier plans.

Xero

Xero is one of the most popular choices for UK businesses looking for MTD-compatible accounting software. The key features include real-time financial reporting, automatic bank feeds and reconciliation, payroll integration, and inventory management tools.

It is best for small businesses, growing enterprises, and limited companies. Its user-friendly interface, extensive app integrations, and cloud-based access from anywhere make it one of the leading cloud accounting platforms. However, it may be a little pricey compared to other accounting software.

FreeAgent

Another MTD-compatible accounting software is FreeAgent, specifically designed for UK small business owners, freelancers, and contractors. It offers invoicing and cash flow management, automatic tax timelines and reminders and expense and mileage tracking. It also ensures compliance with MTD requirements and accurate Corporation Tax estimates.

FreeAgent is designed specifically for UK tax rules, features a simple, intuitive dashboard, and offers excellent customer support. However, it has limited advanced inventory features.

Sage Accounting

Sage has been a popular, trusted name in UK accounting. It provides robust MTD-compatible accounting software solutions, such as MTD-compliant VAT submissions, automated bookkeeping, cash flow forecasting, payroll integration, and invoice and payment tracking.

It is best for small to medium-sized businesses. It has an established reputation and strong compliance features, but its interface may feel complex for beginners.

Coconut

Coconut is a newer platform designed primarily for self-employed professionals and sole traders. It has MTD-ready functionality, automated expense categorisation, Bank account integration, and invoice creation features.

This software is best for sole traders and freelancers, as it is affordable and easy to use. However, it has fewer advanced accounting features.

It is best to use the HMRC software finder tool to get a list of MTD-compatible accounting software.

Do I Need Special Software for MTD If I Already Have an Accountant?

You must keep digital records using MTD-compatible software to comply with MTD. However, if you have an accountant and they manage your tax submissions and bookkeeping, they can use their own software on your behalf.

You just need to provide your accounting records, like invoices and receipts, and bank statements. Your accountant can maintain the records and submit updates to HMRC for you.

What is MTD-Compatible Software vs MTD Bridging Software?

MTD-compatible accounting software allows you to manage bookkeeping tasks, keep digital records, and submit information directly to HMRC from within the software. Some software also includes features, such as invoicing, expense tracking and bank feeds.

On the other hand, MTD bridging software allows you to continue keeping records in spreadsheets, such as Google Sheets or Excel, while connecting those records to HMRC for submission. It is commonly used for VAT but is also available for MTD for Income Tax, provided it supports HMRC’s requirements.

How to Move from Spreadsheets to Bridging Software?

If you have used spreadsheets, you can continue recording your income and expenses in them. To use bridging software, your Excel or Google Sheets should be well organised, with accurate formulas, clear headings, and consistent formatting.

This software maps the relevant data from your spreadsheet and submits the required information to HMRC. This helps you comply with MTD without moving to a full accounting software package.

What is Free MTD Software?

Some MTD-compatible accounting software offers free plans or free versions, although these usually have limitations.. Some software offer only basic record-keeping and HMRC submissions, while others restrict the number of transactions. Some may also require you to upgrade to a paid plan.

Free software can be suitable for landlords and sole traders with simple tax affairs and relatively few transactions. Nevertheless, if you are a business that needs additional features, such as automated invoicing, payroll, or bank feeds, you may realise that a paid package offers better value and flexibility.

Free HMRC MTD Software List

Some software providers offer free plans or free access under certain conditions. Always check the provider’s pricing and whether the free version supports your MTD obligations.

• Coconut Free (certain features like invoicing are free)
• FreeAgent (only free for customers of certain banks like Royal Bank of Scotland, NatWest, Mettle, or Ulster Bank)
• GetGround (mostly aimed at landlords)
• Nomi (it has a free element depending on the plan)
• Quickfile (Mostly free below transaction limits)
• Zoho (limited features are free)

How to Choose the Right MTD-Compatible Accounting Software?

When selecting HMRC-approved accounting software for MTD, consider the following factors:

Budget

Budgeting is an essential part of choosing the right software. Before selecting accounting software, you should compare subscription costs and ensure the software offers value for money based on your requirements.

Business Size

If you are a larger business, you may need to look at payroll, advanced reporting, and inventory tools; however, if you are a sole trader, you may need software with only basic bookkeeping functions.

Ease of Use

Choose an MTD-compatible accounting software with a user-friendly interface. You must be comfortable using it and be able to navigate it easily.

Integration Options

Check whether the software integrates with your existing bank accounts and payment platforms. It must integrate with your business applications as well.

Customer Support

Look for features like customer support and training resources. These features can be crucial when dealing with tax deadlines or technical issues.

Which Accounting Software is Best for MTD?

There is no single accounting software that offers everything and suits every business. The best MTD-compatible accounting software depends on your business needs and structure. Some of the best and most popular accounting software are:

Xero: Ideal for growing businesses that need advanced features.

QuickBooks Online: It offers excellent all-round functionality.

FreeAgent: It is particularly suitable for contractors and freelancers.

Sage Accounting: It works well for established businesses.

Coconut: It is perfect for sole traders seeking simplicity.

The Bottom Line

Choosing accounting software for MTD is no longer optional; it is essential for businesses that want to stay compliant with HMRC’s MTD requirements in 2026. Working with the right software can help you automate tax submissions, reduce errors, save time and make better financial decisions.

If you are unsure which MTD-compatible accounting software is right for your business, a qualified accountant can help you choose the best option and ensure you remain compliant with HMRC’s Making Tax Digital requirements.

You can focus on your business growth by working with an accountant. The best way to find an accountant near you is by using our platform, AccountingFirms. Our platform helps you find a qualified accountant in just a matter of minutes.

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.