---
title: "UK Bookkeeping Software and MTD: 2026/27 Guide"
description: "**UK businesses are not required to use one particular bookkeeping brand, but taxpayers within Making Tax Digital must use software that is compatible with the relevant HMRC service.** The right product depends on entity type, VAT, payroll, stock, multiple currencies,…"
url: "https://www.accountingfirms.co.uk/knowledge-bank/what-bookkeeping-software-do-businesses-in-the-uk-need-to-use/"
updated: "2026-08-12"
category: Bookkeeping
---

# UK Bookkeeping Software and MTD: 2026/27 Guide

**UK businesses are not required to use one particular bookkeeping brand, but taxpayers within Making Tax Digital must use software that is compatible with the relevant HMRC service.** The right product depends on entity type, VAT, payroll, stock, multiple currencies, reporting and adviser workflows.

## When compatible software is mandatory

From 6 April 2026, qualifying sole traders and landlords with relevant 2024/25 gross income above £50,000 must use MTD for Income Tax. The threshold extends to more than £30,000 from April 2027 and more than £20,000 from April 2028.

HMRC says software must support:

- creating, storing and correcting digital records;
- sending quarterly updates;
- adding other personal income; and
- submitting the final tax return by 31 January.

VAT-registered businesses generally also use MTD-compatible software for VAT Returns.

## Types of bookkeeping software

### Full accounting software

These products create the bookkeeping records and often include:

- bank feeds and reconciliation;
- sales invoices and debtor management;
- supplier bills and payment workflows;
- receipt capture;
- VAT and MTD submissions;
- payroll or integrations;
- fixed assets, stock or projects; and
- management reports.

### Bridging software

Bridging products connect existing spreadsheets or accounting tools to HMRC. For MTD for Income Tax, some can send quarterly updates and the final return.

The spreadsheet must still contain complete digital records, and the products must work together without breaking required digital links.

### Specialist systems

Retail, construction, hospitality, charities, property businesses and ecommerce sellers may need sector-specific till, stock, project or donor systems integrated with the ledger.

## Essential selection criteria

| Area | Questions to ask |
| --- | --- |
| Tax compatibility | Does it support MTD for Income Tax, VAT and the required accounting period? |
| Income sources | Can it handle each trade and property business separately? |
| Transactions | Are bank, card, cash, marketplace and foreign-currency records supported? |
| Controls | Does it provide user permissions, approvals and audit logs? |
| Reporting | Can it produce profit, balance sheet, cash flow, debtors and project reports? |
| Integration | Can it connect securely to payroll, ecommerce, stock and adviser systems? |
| Data | Can all records and attachments be exported in a usable format? |
| Support | What onboarding, training, uptime and recovery support is available? |

## MTD for Income Tax requirements

HMRC's July 2026 guidance says the chosen product or combination must:

- support every relevant MTD income source;
- send quarterly updates and the tax return;
- report other income needed for the return;
- support the chosen standard, calendar or other accounting period; and
- work together where multiple products are used.

Only one product can be used for each separate submission, although different products can handle different sources or stages.

## Does HMRC approve or recommend software?

HMRC maintains a finder of products that passed its recognition process. It does not recommend a particular supplier. Recognition confirms compatibility for listed functions, not overall suitability, bookkeeping accuracy or commercial quality.

## Free software

HMRC notes that free products exist for simple tax affairs, but they may limit transactions, income sources, users, support or features.

Compare the full cost of:

- subscriptions and add-ons;
- receipt capture and bank feeds;
- payroll and VAT modules;
- training and migration;
- accountant corrections; and
- data export when leaving.

## Bank feeds

A bank feed imports transaction information but does not explain business purpose, VAT evidence or correct classification. The user must still:

- match invoices and bills;
- identify transfers;
- separate loan principal and interest;
- exclude private spending;
- prevent duplicates; and
- complete bank reconciliation.

## Receipt capture and artificial intelligence

Automated extraction can save time but may misread dates, VAT, currencies or credit notes. AI coding can confidently select the wrong account.

Use approval rules and review unusual, capital, private, entertainment and cross-border transactions. Keep the original document.

## Security and ownership

Check:

- multi-factor authentication;
- role-based permissions;
- encryption and backups;
- data location and subprocessors;
- incident and recovery processes;
- administrator ownership;
- complete export capability; and
- access after cancellation.

The business should not lose its records because an adviser owns the only subscription.

## Testing before migration

1. Document requirements and transaction volumes.
2. Trial products using realistic data.
3. Test VAT, MTD, payroll and reports.
4. Confirm opening balances and outstanding invoices.
5. Reconcile the old and new systems.
6. Train users and restrict permissions.
7. Keep the old records securely.
8. Review the first filings before submission.

## When spreadsheets remain suitable

A controlled spreadsheet can suit a simple business and can connect through bridging software. It must still meet record, digital-link, security and submission requirements.

See [using spreadsheets for bookkeeping](https://www.accountingfirms.co.uk/knowledge-bank/can-i-use-spreadsheets-for-bookkeeping-instead-of-accounting-software/).

## Frequently asked questions

### Does HMRC require cloud software?

No specific delivery model is mandated, but the solution must meet the relevant digital-record and submission requirements.

### Can the accountant choose the software?

They can advise, but the business should understand costs, ownership, controls and whether the product supports operational needs.

### Can one program handle VAT and Income Tax MTD?

Some can. HMRC advises checking whether existing VAT software also supports MTD for Income Tax or works with the chosen product.

## Official source

Use HMRC's [software-selection guidance](https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax), last updated 13 July 2026, and its recognised-software finder.