From April 2026, most UK sole traders and landlords above certain income thresholds must use making tax digital software recognised by HMRC to report their income tax. With over 860,000 taxpayers affected in the first wave alone, choosing the right software now is one of the smartest moves you can make for your business.
The right making tax digital software must keep digital records, support quarterly updates, submit digital tax returns and link securely to a business bank account where needed. Incomes over £50,000 must comply by 6 April 2026. Incomes over £30,000 must comply by 6 April 2027. Incomes over £20,000 must comply by 6 April 2028. These thresholds will likely fall further, so preparing early is essential.
We at The Taxcom can help you assess software options, set up digital record keeping for income and expenses, and stay compliant with Making Tax Digital for income tax and VAT.
Understanding Making Tax Digital for Income Tax
HMRC Making Tax Digital (MTD) is the UK government initiative that aims to improve accuracy and efficiency in tax reporting by moving self assessment online through compatible software.
MTD for Income Tax starts on 6 April 2026, and it requires software for digital record-keeping from that date. Making Tax Digital software or tax digital compatible software, is HMRC-recognised accounting software for digital tax reporting. It replaces the old approach of keeping paper records and filing a single annual tax return.
Under MTD for income tax self assessment (often shortened to MTD ITSA), taxpayers must use compatible software to create digital records of their income and expenses, send quarterly updates to HMRC, and file a final declaration at year end.
Sole traders with income over £50,000 must comply with MTD by April 2026, while those earning above £30,000 follow from April 2027. HMRC has confirmed it intends to extend mandation to more taxpayers after that.
The key difference between MTD for income tax and the existing MTD for VAT (which already applies to VAT registered businesses) is scope and frequency. MTD for VAT covers vat returns for VAT registered entities, whereas digital for income tax targets sole traders and landlords filing self assessment.
What Making Tax Digital Software Must Be Able to Do
HMRC sets clear minimum functionality standards for any tool marketed as MTD compliant software. Before you compare products, understand what every option must deliver.
- Digital record keeping: Making tax digital software must record income and expenses for all relevant income sources, including self employment, UK property income and overseas property. Each entry must be time-stamped and detailed enough to show the nature, date and amount of every transaction.
- Quarterly submissions: MTD-compliant software must submit quarterly updates to HMRC. These summaries cover income and expense totals by category for each income source. Quarterly updates are due one month after each period ends, specifically by the 7th of the month after each quarter.
- End of period and final declaration: The software must compile an End of Period Statement and support a final digital tax return via secure API connections, not manual keying.
- Error-checking tools: Making tax digital software should support digital record-keeping and error-checking tools to help identify potential submission errors, flag missing data, send deadline reminders and provide real-time tax estimates.
These are not optional extras. They are the baseline for any making tax digital software listed as HMRC recognised software.
Types of Making Tax Digital Software: All-in-One vs Bridging
Businesses can choose from full cloud accounting software or simpler tax filing applications for MTD compliance. The choice usually comes down to two broad categories.
All-in-one packages are cloud-based bookkeeping tools that let you record income and expenses, reconcile bank transactions, prepare quarterly updates and submit digital tax returns from a single dashboard. Cloud accounting packages are popular choices among businesses for MTD compliance because they offer strong automation and a clear audit trail. If HMRC ever queries your records, everything sits in one place.
Bridging software connects existing records to MTD requirements. It sits on top of spreadsheets or legacy systems, pulls the necessary totals from your digital records and transmits them as quarterly updates and final declarations. This approach may suit those heavily invested in spreadsheets, though it carries a higher risk of manual error and offers fewer built-in prompts.
HMRC allows you to combine different compatible software products, but each submission must flow through a single tool, and all products must be digitally linked. Check integrations carefully before committing to other software alongside your chosen software.
Assessing Software Options for Sole Traders and Landlords
Shortlisting the right software depends on how your business earns its income. Here is what to prioritise for each type of making tax digital software.
Self employed sole traders should look for simple income and expense capture, mileage and home office cost tracking, links to a business bank account, and the ability to handle other income sources such as freelancing, construction industry scheme payments or online sales. The goal is to track income and easily manage day-to-day transactions without overcomplicating the accounting period.
Landlords need support for multiple properties, tracking of rental income, service charges, repairs and mortgage interest, plus property-level summaries for quarterly updates and the year-end declaration. Property income reporting can be complex, especially where joint ownership or overseas property is involved.
Both at once? If you are a self employed sole trader and a landlord, favour making tax digital software that handles several sources of income in one account. Juggling separate logins risks inconsistent digital records and duplicated data.
We recommend testing usability with free trials or sandbox accounts where available. Focus on how quickly you can add transactions, record income from each income source and produce draft quarterly updates without needing technical support.
How The Taxcom Helps You Choose and Implement MTD Software
At The Taxcom, we are a specialist tax and accountancy firm based in Manchester, working closely with small business owners across the UK on HMRC compliance, investigations, VAT reviews and day-to-day tax affairs.
We do not build our own making tax digital software, but we work daily with a range of HMRC recognised accounting software, so we understand how to match specific software options to a client’s sector, size and complexity.
Our typical support process starts with reviewing your current bookkeeping and digital record keeping. We map existing spreadsheets and systems, identify gaps for MTD, then recommend a shortlist of compatible software for digital for income tax and VAT.
From there, we help with practical implementation: setting up a chart of accounts, linking to your business bank account, building template categories to record income and expenses correctly, and testing quarterly updates before go-live.
We also assist clients facing HMRC enquiries, tax investigations or corporation tax queries, using clear digital records from their making tax digital software to respond quickly through efficient tax advisory and compliance services. Our aim is to reduce stress and risk so you can focus on running your business.
Key Features to Compare When Choosing Making Tax Digital Software
Choosing appropriate MTD software involves evaluating features like user-friendliness and HMRC compliance side by side. Here is a feature-by-feature guide.
Core functionality:
- Ease of recording income and expenses across multiple income sources (sole trader, landlord, partnership)
- Quality of reports and clarity of the quarterly update and year-end workflows
- How the making tax digital software handles the accounting period, calendar update periods and the final declaration
Connectivity:
- Automatic feeds from your business bank account to import and categorise transactions
- Ability to pull data from payment processors and invoicing apps
- Options for migrating existing data from spreadsheets without losing history
User experience:
- How intuitive the dashboard is for small businesses
- Whether mobile apps support on-the-go tasks such as receipt capture
- Whether the software offers alerts for MTD deadlines, missing data or unusual transactions
Cost and scalability:
- You can choose from free and paid MTD software options. Free tiers suit those with simple tax affairs, while paid plans typically unlock multiple agents, additional bank accounts or property-level features.
- Making tax digital software provides a real-time view of finances, aiding in cash flow management, and reduces human errors in tax submissions by automating calculations. These benefits often justify the subscription cost, and most providers let you cancel anytime.
Practical Steps to Get Your Business Ready for Digital Record Keeping
Moving to making tax digital software is manageable when broken into clear, time-based steps. Digital record-keeping is mandatory for MTD compliance, so the earlier you begin, the smoother the transition.
Suggested timeline:
- Review your current records now. Identify how much tax you owe or expect to owe, and confirm whether your qualifying income puts you in scope for April 2026 or April 2027.
- Choose MTD-compatible software before signing up for MTD, ideally at least six months before your relevant start date.
- Run the new system in parallel with existing methods for one or two quarters to catch any gaps.
Clean your data before importing: ensure income and expenses are categorised consistently, separate personal and business transactions, and align dates with the tax year used for digital tax returns.
Build daily routines: capture invoices and receipts promptly, reconcile the business bank account each week, check that all cash or card sales are recorded income, and review error or mismatch alerts from your software.
Involve your accountant or tax adviser early so that sending quarterly updates and final declarations are reviewed professionally, reducing the risk of HMRC queries once making tax becomes mandatory.
When to Ask for Professional Help with Making Tax Digital
The combination of new MTD rules, multiple software providers and tight deadlines creates real pressure for small business owners who lack time or confidence with technology.
Consider involving a firm like The Taxcom if you have:
- Multiple income sources (sole trader, landlord and employment combined)
- Historic tax issues, previous late filings or outstanding HMRC disputes
- Planned changes such as incorporating your business or registering for VAT
Professional advisers can interpret HMRC’s detailed guidance on tax digital for income, choose suitable making tax digital software and ensure that quarterly updates reflect the right accounting basis and reliefs. Our team provides ongoing support: periodic reviews of digital records, checking that income thresholds are monitored correctly, and helping clients respond promptly if HMRC raises questions about digital tax returns with our dedicated tax investigation experts.
Ready to check your MTD readiness? Contact us to book a consultation.
FAQs about Making Tax Digital Software
Below are answers to practical questions we hear regularly from small business owners choosing making tax digital software.
Do I need a separate business bank account for Making Tax Digital?
HMRC does not legally require a separate business bank account, but having one makes digital record keeping significantly easier. It allows your making tax digital software to import and categorise business transactions without mixing in personal spending, which reduces errors and speeds up quarterly submissions.
Can I still use spreadsheets if I also use compatible software?
Yes, but only if your spreadsheets are digitally linked to bridging software or another mtd compatible software product that handles the actual submissions. Spreadsheets alone will not meet HMRC’s requirements. You must still submit quarterly updates and the final declaration through software that connects to HMRC’s API.
What happens if my income drops below the MTD threshold after I have signed up?
Once you are within scope of making tax digital, the obligation generally continues even if your qualifying income falls in a later tax year. HMRC may grant exemptions in limited circumstances, such as digital exclusion, but you should not assume the requirement will lift automatically.
Is free making tax digital software enough for a growing business?
Free software options can work well for those with simple tax affairs and a single income source. However, if your business is growing, you may quickly need features such as support for multiple properties, multiple agents access, or advanced reporting. Evaluate whether a paid tier offers better value as your mtd obligations expand.
How can The Taxcom support me if HMRC queries my digital tax returns?
We specialise in HMRC disputes and tax investigations. If a query arises, we use your digital records and submission history from your chosen software to build a clear, evidence-based response. Contact us early so we can review your records and advise before any deadlines pass.