Best Accounting Software for Self-Employed People Under MTD

The best accounting software for a self-employed person under Making Tax Digital is whichever HMRC-recognised product can create digital records of every business transaction, submit four quarterly updates a year and file a final declaration, at a cost proportionate to the size of the business, which in practice means a full bookkeeping package for traders with staff or stock, a lightweight app for simple service businesses, and bridging software for anyone already working comfortably in spreadsheets. Making Tax Digital self-employed 2026 rules took effect on 6 April 2026 for sole traders and landlords with qualifying income above £50,000, and the choice of software is now the single decision that determines how much administrative time the regime costs. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, guides sole traders through that choice. This article covers who is in scope, what the software must legally do, how the categories of product differ, and what to check before committing.

Key Takeaways

• Making Tax Digital for Income Tax applies from 6 April 2026 to sole traders and landlords with qualifying income above £50,000, based on the figures reported in the 2024/25 tax return.
• The threshold falls to £30,000 from April 2027 and to £20,000 from April 2028, so most self-employed people will be in scope within three years.
• Quarterly updates are due by 7 August, 7 November, 7 February and 7 May, followed by a final declaration by 31 January after the tax year ends.
• Qualifying income is gross turnover before expenses, added together across all self-employment and property income, not taxable profit.
• Only software on HMRC's recognised list can submit MTD updates, and HMRC recognition confirms technical compatibility rather than product quality.
• Spreadsheets remain permitted under MTD for Income Tax provided they are linked to HMRC through bridging software with digital links preserved.

Who has to use MTD-compatible software in 2026/27?

Sole traders and landlords with qualifying income above £50,000 must keep digital records and file through MTD-compatible software for the 2026/27 tax year, which began on 6 April 2026. HMRC identifies who is in scope from the total gross income reported on the 2024/25 self-assessment return and writes to those affected.

Qualifying income is turnover, not profit. A self-employed consultant billing £58,000 who claims £14,000 of allowable expenses has qualifying income of £58,000 and is inside the regime, even though taxable profit is £44,000. Self-employment and property income are added together, so a sole trader with £35,000 of trading income and £20,000 of rent crosses the threshold at £55,000.

Anyone below £50,000 stays on the existing self-assessment system for now, filing one return by 31 January. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. Genuine exemptions exist for people who are digitally excluded by age, disability, location or religion, but these must be applied for and granted by HMRC rather than assumed. For the wider picture, see our guide to Making Tax Digital for the self-employed.

What must MTD software actually do?

MTD-compatible software must create and preserve digital records of individual transactions, submit quarterly updates through HMRC's API, and file the final declaration that replaces the old self-assessment return. Recording a monthly total typed in by hand does not satisfy the digital record-keeping requirement.

For each transaction the software needs the date, the amount and the category of income or expense, held digitally from the point of entry. Where data moves between programs, for example from a till system into a bookkeeping package, the transfer must be a digital link rather than a manual retype. Copy and paste between spreadsheets does not count.

The quarterly returns self-employed traders now file are cumulative totals by category for the year to date, not a tax calculation and not a payment. They are a running summary, and errors in one quarter are corrected simply by filing the next. Tax remains payable on 31 January and 31 July as before.

Which type of software suits which sole trader?

The right category depends on transaction volume and whether the business carries stock, staff or VAT. Three broad options exist, and each has a clear natural user.

Full bookkeeping platforms such as Xero, QuickBooks, Sage and FreeAgent suit traders with employees, stock, VAT registration or more than roughly 50 transactions a month. They handle bank feeds, invoicing, payroll and VAT alongside MTD ITSA sole trader submissions, typically for £15 to £35 a month.

Lightweight MTD apps suit simple service businesses: a freelancer, a tradesperson or a small consultancy with a single bank account and modest expense volume. Several cost under £10 a month, and free tiers exist for very small businesses and for landlords with a small number of units.

Bridging software suits anyone whose records already live in Excel or Google Sheets and who has no wish to change. Products in this group sit on top of an existing workbook and submit the totals to HMRC, usually for £30 to £60 a year. The spreadsheet must still hold transaction-level detail and be digitally linked to the bridging tool.

What does the choice actually cost?

The cost difference between software categories is real but usually small relative to the risk of getting the records wrong. Consider a self-employed electrician with turnover of £72,000, around 40 transactions a month, no employees and VAT registration.

A full platform at £28 a month costs £336 a year. A lightweight MTD app at £9 a month costs £108. Bridging software over an existing spreadsheet costs about £45. All three are deductible business expenses, so at a 20% basic rate the net cost after tax relief and Class 4 national insurance at 6% is roughly £249, £80 and £33 respectively.

The deciding factor is not the £300 spread. It is that the electrician is VAT registered, which makes a platform handling both VAT and MTD ITSA from one set of records materially less work than maintaining two systems. For a non-VAT-registered gardener with 12 transactions a month, the reverse holds and the lightweight app wins comfortably.

Frequently Asked Questions

Can I still use a spreadsheet under Making Tax Digital for Income Tax?

Yes. Spreadsheets are permitted under Making Tax Digital for Income Tax provided each transaction is recorded individually and the spreadsheet is connected to HMRC through bridging software using a digital link. Manually typing totals into a submission portal does not comply. Bridging software typically costs £30 to £60 a year and is the cheapest compliant route for existing spreadsheet users.

Do I need to pay tax quarterly under MTD?

No. Quarterly updates under Making Tax Digital for Income Tax are information submissions, not payments or tax calculations. Income tax and Class 4 national insurance remain payable on 31 January and 31 July under the existing payments on account system. The quarterly update simply reports cumulative income and expense totals by category for the tax year to date.

What are the MTD quarterly update deadlines?

Quarterly updates are due by 7 August, 7 November, 7 February and 7 May, covering the quarters ending 5 July, 5 October, 5 January and 5 April. A final declaration confirming the full year position is due by 31 January following the end of the tax year, so the 2026/27 final declaration is due by 31 January 2028.

Does HMRC approve or recommend any particular MTD software?

No. HMRC publishes a list of software that is recognised as technically compatible with Making Tax Digital for Income Tax, but recognition confirms the product can communicate correctly with HMRC's systems and is not an endorsement of quality, price or suitability. Choosing between recognised products is entirely a commercial decision for the business.

What happens if my income is below £50,000?

Sole traders and landlords with qualifying income of £50,000 or less remain outside Making Tax Digital for Income Tax in 2026/27 and continue filing a single self-assessment return by 31 January. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028, so most self-employed people should expect to join within the next two years.

How Blue Tick Can Help

Blue Tick Accountants sets sole traders up on MTD-compatible software, migrates existing records across, and files the quarterly updates and final declaration on their behalf so the deadlines are somebody else's responsibility. Where a business is close to the £50,000 threshold, Blue Tick Accountants checks the qualifying income calculation before any software is bought. Head to our website and book a meeting now.

Conclusion

Software choice under Making Tax Digital comes down to transaction volume, VAT registration and how comfortable you already are with your current records. A VAT-registered trader with staff or stock will save time on a full platform; a simple service business will not, and a committed spreadsheet user can comply for under £60 a year with bridging software. Check whether your 2024/25 turnover put you above £50,000, then choose from HMRC's recognised list well before the next quarterly deadline.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps the self-employed, landlords and limited company owners across the UK. Leon advises sole traders on Making Tax Digital readiness, record-keeping and self-assessment. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: MTD ITSA and Landlords with a Self-Employed Business: How the Rules Combine.

Related reading: Penalties for Missing MTD Quarterly Deadlines: What Sole Traders Risk.