Do I Need Making Tax Digital Software? The Complete 2026 Guide

Last updated: June 2026. Covers MTD for VAT (mandatory since April 2022) and MTD for Income Tax Self Assessment (mandatory from April 2026). All thresholds, deadlines, and penalty figures are current as of the date above. Source: HMRC Making Tax Digital guidance.

What Making Tax Digital Actually Requires

Making Tax Digital is HMRC's programme to digitise UK tax administration. It is not optional. It is not a suggestion. It is a legal requirement that applies to millions of businesses and individuals, and the penalties for non-compliance are real.

At its core, MTD requires three things:

1. Digital record keeping. You must maintain your financial records using software, not paper ledgers, not handwritten notebooks, not filing cabinets full of receipts. The records must be stored digitally from the point of entry.

2. Software-based submissions. You must submit your tax returns to HMRC through MTD-compatible software that connects to HMRC's API. You cannot log into the HMRC website and type in your figures manually. The software must transmit the data digitally.

3. Digital links between systems. If you use more than one piece of software (for example, a spreadsheet for recording transactions and separate software for submitting), the data must flow between them digitally. You cannot print figures from one system and manually type them into another. This is the "digital link" requirement, and it catches out more people than any other rule.

If your current process involves writing income and expenses in a notebook, totalling them up at year end, and typing the figures into the HMRC Self Assessment portal, that process is no longer compliant. You need software.

Who Needs MTD Software Right Now

MTD has rolled out in phases. Where you fall determines whether you need software today, in 2027, or in 2028.

MTD for VAT: mandatory since April 2022

Every VAT-registered business in the UK must already use MTD-compatible software. This applies regardless of your turnover, business structure, or whether you registered voluntarily. If you have a VAT registration number, you must:

• Keep digital VAT records using compatible software
• Submit your VAT returns through that software (not through the HMRC portal)
• Maintain digital links between any systems you use

The VAT registration threshold is currently £90,000 (raised from £85,000 in April 2024). If your taxable turnover exceeds this, you must register for VAT and comply with MTD. If you voluntarily registered below the threshold, the same MTD rules apply.

This phase has been live for over four years. If you are VAT-registered and still submitting through the HMRC website, you are already non-compliant.

MTD for Income Tax: phased rollout from April 2026

MTD for Income Tax Self Assessment (MTD for ITSA) is the second major phase. It applies to self-employed individuals and landlords, not limited companies.

Phase	Start date	Who is affected	Estimated numbers
Phase 1	6 April 2026	Self-employed and landlords with qualifying income over £50,000	~780,000
Phase 2	6 April 2027	Self-employed and landlords with qualifying income over £30,000	~970,000 additional
Phase 3	6 April 2028	Self-employed and landlords with qualifying income over £20,000	~1.4 million additional

Qualifying income means gross income from self-employment and/or property. It is measured before expenses, allowances, or deductions. A landlord collecting £55,000 in rent but spending £40,000 on mortgage interest, repairs, and management fees has qualifying income of £55,000. They are in scope from April 2026.

Critically, the threshold is assessed on gross income, not profit. This catches many people who assume their net profit is what matters.

What does not count as qualifying income:

• PAYE salary
• Dividends from a limited company
• Pension income
• Investment income (interest, capital gains)
• State benefits

A company director earning a £12,570 salary and £50,000 in dividends has zero qualifying income for MTD purposes. They are not in scope unless they also have self-employment or property income.

MTD for Corporation Tax: cancelled

HMRC cancelled plans for MTD for Corporation Tax. Limited companies do not need MTD-specific software for their Corporation Tax returns. CT600 filings continue through the existing HMRC online service.

However, VAT-registered limited companies must still comply with MTD for VAT. And directors who personally earn self-employment or property income above the threshold must comply with MTD for ITSA in their personal capacity.

The common trap for company directors

Many directors believe MTD does not apply to them. For their company accounts, that is correct. But directors who also own buy-to-let properties, do freelance consulting on the side, or have partnership income are personally in scope if their qualifying income crosses the threshold. A director with a limited company and three rental properties generating £60,000 gross must comply from April 2026, even though the company itself is exempt.

What MTD-Compatible Software Must Do

Not every piece of accounting software qualifies for MTD. HMRC maintains a list of approved software, and the software must meet specific technical requirements.

The five core requirements

1. Record transactions digitally. The software must let you record every income and expense transaction with the date, amount, and category. Monthly summaries or rounded totals do not comply. Each individual transaction must be recorded.

2. Store VAT information (for MTD for VAT). For each transaction, the software must record the VAT amount and the VAT rate applied. It must be able to calculate the nine-box VAT return from these records.

3. Connect to HMRC's API. The software must be able to transmit returns directly to HMRC through their Application Programming Interface. This is a technical requirement that the software vendor handles. You do not need to understand the API yourself, but you do need to verify that your software is on HMRC's approved list.

4. Submit returns electronically. For MTD for VAT, this means submitting the 9-box VAT return. For MTD for ITSA, this means submitting quarterly updates and the annual Final Declaration. In both cases, the submission happens through the software, not through the HMRC website.

5. Maintain digital links. If you use multiple systems (for example, a spreadsheet for data entry and separate software for submission), the data must flow digitally between them. Copy-pasting cell values from a spreadsheet into submission software counts as a digital link. Printing a spreadsheet and retyping the figures does not.

What about spreadsheets?

Spreadsheets (Excel, Google Sheets) are not MTD-compatible software on their own. You cannot submit a VAT return or quarterly update directly from a spreadsheet.

However, spreadsheets can be part of an MTD-compliant system if you use them alongside "bridging software." Bridging software reads data from your spreadsheet and submits it to HMRC in the required format. The data must flow digitally from the spreadsheet to the bridging software. No manual retyping.

This is a legitimate approach, particularly for businesses with complex spreadsheet-based systems they do not want to abandon. But it adds another piece of software to maintain, and the digital link requirement means your spreadsheet structure must match what the bridging software expects.

For most small businesses, using a single piece of MTD-compatible accounting software is simpler than maintaining a spreadsheet plus bridging software. The spreadsheet-plus-bridge approach is most common in larger businesses with bespoke financial models.

How to check if your software is approved

HMRC publishes a searchable list of MTD-compatible software at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat. The list is split into:

• Software for MTD for VAT
• Software for MTD for Income Tax

Check that your software appears on the relevant list. Some software supports MTD for VAT but not MTD for ITSA (or vice versa). If you need both, confirm your chosen software covers both.

The list is updated regularly. New software is added as vendors complete HMRC's approval process. If your current tool is not listed, contact the vendor to ask about their MTD timeline before assuming you need to switch.

Software Comparison: Your Options for MTD Compliance

The market for MTD-compatible software ranges from free tools with basic features to full accounting platforms with AI-powered automation. Here is an honest comparison of the main options.

AccountsOS

Price: Free 14-day trial, then £19/month (flat, all features included)

AccountsOS is an AI-native accounting platform built specifically for UK company directors and small business owners. Rather than navigating menus and forms, you talk to Finn, the AI accountant, in plain English. Ask "what's my VAT liability this quarter?" or "categorise last month's transactions" and get an immediate answer.

MTD features:

• Direct HMRC API connection (HMRC-recognised software provider)
• MTD for VAT: live now. VAT obligations sync automatically, returns calculated from your transactions, submit directly to HMRC
• MTD for Income Tax: in active development, with quarterly update submission shipping for the April 2026 deadline
• Digital record keeping compliant with all HMRC requirements
• 14/14 Fraud Prevention Headers validated
• AI-powered transaction categorisation (no manual data entry for most transactions)
• Deadline tracking with automatic reminders
• Receipt scanning and document upload (unlimited)

Best for: Business owners who want MTD compliance handled automatically without learning accounting software. Directors with multiple income streams (company plus rental, company plus freelance) who need clarity on which MTD obligations apply to them personally.

Limitations: Newer platform, still building some features that established tools have had for years (payroll, multi-user permissions).

Xero

Price: £16/month (Starter), £33/month (Standard), £46/month (Premium). All prices plus VAT.

Xero is one of the most widely used cloud accounting platforms in the UK. Originally built in New Zealand, it has strong UK adoption driven largely by accountant recommendations.

MTD features:

• MTD for VAT: supported on all plans
• MTD for Income Tax: supported
• Direct HMRC API connection
• Digital record keeping
• Bank feeds from 1,300+ banks

Best for: Businesses whose accountant uses Xero and wants shared access. Businesses needing extensive third-party app integrations (1,000+ apps in the Xero marketplace).

Limitations: Starter plan limits you to 20 invoices and 5 bills per month. Receipt capture limited to 5/month on Starter. Pricing has increased significantly: the Standard plan rose from £27 to £33/month in 2025. UK-specific features sometimes lag behind the New Zealand and Australian versions. No AI chat capability.

QuickBooks Online

Price: £10/month (Simple Start), £22/month (Essentials), £32/month (Plus), £46/month (Advanced). Frequent promotional pricing (often 90% off for the first 3-6 months).

QuickBooks, owned by Intuit, is a major global accounting platform. Its UK version supports MTD and has a large user base.

MTD features:

• MTD for VAT: supported on all plans
• MTD for Income Tax: supported
• Direct HMRC API connection
• Automatic bank feeds
• Receipt capture via mobile app

Best for: Sole traders and freelancers who want a budget entry point (Simple Start at £10/month is the cheapest major platform). Businesses familiar with QuickBooks from previous versions.

Limitations: Simple Start limits you to one user. Multi-currency requires the Plus plan (£32/month). The promotional pricing can be misleading: the headline "90% off for 6 months" means you pay full price from month seven onwards. QuickBooks has also increased prices significantly in 2025/26.

FreeAgent

Price: £14/month (Starter), £24/month (Plus), £34/month (Complete). Free for NatWest, RBS, Mettle, and Lloyds business banking customers.

FreeAgent is a UK-built accounting platform designed for freelancers and small businesses. Its biggest draw is the free access through banking partnerships.

MTD features:

• MTD for VAT: supported
• MTD for Income Tax: supported
• Direct HMRC API connection
• Self Assessment tax return filing
• National Insurance and dividend tax calculations

Best for: Freelancers and sole traders, especially those with NatWest, RBS, Mettle, or Lloyds business accounts (who get it free). Businesses that want a UK-focused tool with Self Assessment support built in.

Limitations: Not designed for limited companies with complex structures. The free banking partnerships can end if you switch banks. No AI-powered features. Interface can feel cluttered for straightforward use cases.

Sage Accounting

Price: £14/month (Start), £28/month (Standard), £35/month (Plus).

Sage is one of the longest-established accounting software companies in the UK. Sage Accounting (formerly Sage Business Cloud Accounting) is their cloud product.

MTD features:

• MTD for VAT: supported
• MTD for Income Tax: supported
• Direct HMRC API connection
• Auto-reconciliation
• Cash flow forecasting

Best for: Businesses already in the Sage ecosystem. Companies that prefer a traditional accounting software interface over newer alternatives.

Limitations: The Start plan does not include VAT or multi-currency. More expensive than competitors for equivalent features. Can feel dated compared to newer platforms. The transition from desktop Sage to cloud Sage has caused confusion for long-standing users.

HMRC's Own Free Tools

HMRC does not provide its own full accounting software. However, HMRC lists several free software options on its approved list.

Free MTD Software Options

Software	MTD for VAT	MTD for ITSA	Key limitation
QuickFile	Yes	Yes	Ad-supported, basic reporting
My Tax Digital	Yes	Yes	Bridging only, not full accounting
FreeAgent (via NatWest/Mettle/Lloyds)	Yes	Yes	Requires qualifying bank account
AccountsOS (Early Access)	Yes	In development	Newer platform
Tax Filer	Yes	Yes	Limited to tax filing, not bookkeeping
ANNA Money	Yes	No	Requires ANNA business account

The trade-off with free tools: Every free option either limits features, displays advertising, requires a specific bank account, or is a bridging tool rather than full accounting software. For MTD compliance alone, free tools are perfectly adequate. They submit to HMRC using exactly the same API as paid software. HMRC does not distinguish between a free and paid submission.

The difference is in what else you get: reporting, receipt scanning, bank feeds, multi-currency support, AI categorisation, payroll, and the general quality of the bookkeeping experience. If your needs are simple (sole trader, one income source, straightforward expenses), a free tool will work. If you run a limited company with multiple income streams, VAT, and regular invoicing, you will likely outgrow a free tool quickly.

Feature Comparison Table

Feature	AccountsOS	Xero (Standard)	QuickBooks (Essentials)	FreeAgent (Free)	QuickFile (Free)
Monthly price	£19	£33+VAT	£22	Free (bank partner)	Free
MTD for VAT	Yes	Yes	Yes	Yes	Yes
MTD for ITSA	In dev	Yes	Yes	Yes	Yes
Direct HMRC API	Yes	Yes	Yes	Yes	Yes
Unlimited invoices	Yes	Yes	Yes	Yes	Yes
Receipt scanning	Unlimited	Unlimited	Unlimited	Yes	Yes
Bank feeds	Yes	Yes (1,300+ banks)	Yes	Yes	Yes
AI chat with books	Yes	No	No	No	No
Voice commands	Yes	No	No	No	No
Multi-currency	Yes	Yes	No (Plus required)	Limited	No
Users included	Unlimited	Unlimited	3	Unlimited	Unlimited
UK-specific tax	Yes	Yes	Yes	Yes	Yes
Self Assessment filing	Coming	Via partner	Yes	Yes	No

How to Connect MTD Software to HMRC: Step by Step

Once you have chosen your software, you need to connect it to HMRC. The process is the same regardless of which software you use.

Step 1: Register for MTD with HMRC

Before your software can submit anything, you need to register for the relevant MTD service.

For MTD for VAT (if not already registered):

1. Go to gov.uk/vat-record-keeping/sign-up-for-making-tax-digital-for-vat
2. Sign in with your Government Gateway credentials
3. Follow the registration steps
4. Allow 72 hours for HMRC to process the registration

Most VAT-registered businesses will already be signed up, as MTD for VAT has been mandatory since 2022.

For MTD for Income Tax:

1. Go to the HMRC sign-up page for MTD for Income Tax (link will be on gov.uk)
2. You will need your Government Gateway user ID and password
3. You will need your National Insurance number
4. You will need your business details (UTR number, business start date, accounting period)
5. Complete the registration process
6. HMRC will confirm your registration and your first quarterly deadline

You should register at least one month before your first quarterly update is due to allow time for any issues to be resolved.

Step 2: Connect your software to HMRC

Once registered, connect your software:

1. Open your accounting software and navigate to the HMRC or MTD settings (the exact location varies by software)
2. Click "Connect to HMRC" or similar
3. You will be redirected to the HMRC website to authorise the connection
4. Sign in with your Government Gateway credentials
5. Grant permission for the software to submit on your behalf
6. You will be redirected back to your accounting software
7. The connection is now active

In AccountsOS, this is handled through Settings > Integrations > HMRC. The OAuth connection takes about 30 seconds, and your VAT obligations sync automatically once connected.

Step 3: Ensure your records are digital

Before your first submission, verify that:

• All transactions for the current period are recorded in the software
• VAT codes are correctly applied to each transaction (for MTD for VAT)
• Income and expense categories are set up correctly (for MTD for ITSA)
• Bank transactions are reconciled
• Receipt images are attached where applicable

Step 4: Submit your first return or quarterly update

For MTD for VAT: Your software will calculate the 9-box VAT return from your digital records. Review the figures, confirm they are correct, and submit. The submission goes directly to HMRC through the API. You will receive a confirmation receipt.

For MTD for ITSA: At the end of each quarter, your software will prepare a summary of your income and expenses. Review the figures and submit. The quarterly update is a lighter process than a full tax return. It is a summary, not a calculation of tax owed.

Step 5: Keep records current throughout the year

MTD is not a once-a-quarter activity. The requirement is to keep digital records continuously. This means recording transactions as they happen (or at least regularly throughout each quarter), not leaving everything until the deadline.

In practice, the easiest approach is to connect your bank account to your software (most MTD-compatible tools support automatic bank feeds) and categorise transactions as they appear. If you use AccountsOS, Finn can auto-categorise most transactions using AI, reducing the manual work to reviewing and confirming.

Cost Comparison: Free MTD Tools vs Paid Software vs Accountant

The cost of MTD compliance depends on how much of the work you want to do yourself.

Option 1: Free software, self-managed

Cost: £0/month

What you get: Basic digital record keeping, VAT or ITSA submission to HMRC, transaction recording.

What you do not get: Bank feeds (some free tools include them, others do not), AI categorisation, advanced reporting, receipt scanning, multi-currency, payroll. Support is typically community forums rather than direct help.

Best for: Sole traders with simple finances, one income source, and the time to do their own bookkeeping. Businesses that genuinely cannot afford any software cost and need the absolute minimum to comply.

The hidden cost: Your time. If you spend 3 hours per quarter manually recording transactions and preparing submissions, that is 12 hours per year. Value your time at £30/hour and the "free" software costs you £360/year in opportunity cost.

Option 2: Paid software, self-managed

Cost: £10-46/month (£120-552/year) depending on the platform and plan.

What you get: Full digital record keeping, automatic bank feeds, receipt scanning, invoicing, reporting, MTD submission, and (with some platforms) AI assistance. Most things that an accountant would do for basic bookkeeping, the software handles.

What you do not get: Tax advice, strategic planning, complex structuring, someone to call when you have a question. Though with AI-native platforms like AccountsOS, you can ask questions in plain English and get specific answers about your tax position.

Best for: The majority of micro-businesses and sole traders. Company directors who want to understand their numbers without paying £200/month for an accountant. Anyone who wants control over their finances with modern tooling.

Option 3: Accountant-managed

Cost: £100-400/month (£1,200-4,800/year) for a standard small business accounting service, depending on complexity and location.

What you get: Someone else handles your bookkeeping, MTD submissions, annual accounts, Corporation Tax return, and provides tax advice. The accountant uses MTD-compatible software on your behalf.

What you should know: Having an accountant does not exempt you from MTD. Your accountant must use MTD-compatible software. If your accountant is still filing through the HMRC website manually, they are not MTD-compliant, and neither are you.

Best for: Businesses with complex structures (multiple companies, international income, large employee count), businesses that genuinely need ongoing professional tax advice, and anyone who would rather pay someone than learn software.

Option 4: AI accounting platform, self-managed

Cost: £19/month (AccountsOS), with AI handling categorisation, VAT calculations, and question-answering.

What you get: The coverage of paid software with many of the benefits of having an accountant. You can ask questions like "am I ready to file my VAT return?" or "what expenses am I missing?" and get specific answers based on your actual data. AI categorises transactions automatically. You still make the final decisions, but the heavy lifting is done.

Best for: Business owners who want more than basic software but do not want (or cannot justify) the cost of an accountant. Directors who want to understand their numbers, not just file them.

Annual cost comparison

Approach	Annual cost	Your time per quarter	What it covers
Free software	£0	3-4 hours	MTD compliance only
Paid software (basic)	£120-264	1-2 hours	MTD + bookkeeping + invoicing
Paid software (full)	£228-552	30 min-1 hour	MTD + full accounting + reporting
AI platform (AccountsOS)	£228	15-30 min	MTD + AI bookkeeping + tax Q&A
Accountant	£1,200-4,800	Near zero	Everything, plus tax advice

MTD Quarterly Updates: What You Actually Need to Report

Under MTD for Income Tax, you submit four quarterly updates and one Final Declaration each year. Here is what each involves.

The quarterly update schedule

Quarter	Period	Deadline
Q1	6 April to 5 July	7 August
Q2	6 July to 5 October	7 November
Q3	6 October to 5 January	7 February
Q4	6 January to 5 April	7 May
Final Declaration	Full tax year	31 January (following year)

What each quarterly update contains

A quarterly update is a summary of:

• Total income received during the quarter (sales, rental income, fees, commissions)
• Total expenses incurred during the quarter, broken into HMRC categories (office costs, travel, utilities, professional fees, etc.)

You are not calculating tax. You are not claiming capital allowances. You are not making pension adjustments. Those all happen at year end in the Final Declaration. The quarterly update is a progress snapshot, not a tax return.

If you are already recording income and expenses in accounting software, submitting a quarterly update is essentially pressing a button. The software pulls the figures and transmits them.

The Final Declaration

The Final Declaration replaces the traditional Self Assessment tax return. It is submitted through your MTD software (not through the HMRC Self Assessment portal) and is due by 31 January following the end of the tax year.

The Final Declaration is where you:

• Confirm your total income and expenses for the year
• Claim capital allowances
• Apply pension relief, charitable donations, and other adjustments
• Calculate your tax liability
• Account for any income not covered by MTD (employment income, dividends, interest)

For the 2026/27 tax year (the first year of MTD for ITSA), the Final Declaration is due by 31 January 2028.

Common Mistakes and Penalties for Non-Compliance

The penalty points system

HMRC uses a points-based penalty system for late MTD submissions, introduced to replace the old fixed penalty regime.

How it works:

1. Each late submission earns one penalty point
2. When you reach the penalty threshold, you receive a £200 fine
3. Every subsequent late submission after reaching the threshold triggers another £200 fine
4. Points expire after 24 months of full compliance (all submissions on time)

Penalty point thresholds:

Submission frequency	Points threshold
Annual	2 points
Quarterly (MTD standard)	4 points
Monthly	5 points

For most people on MTD for ITSA (quarterly submissions), you would need to miss four deadlines before receiving a £200 fine. But once you hit that threshold, every subsequent late submission costs £200 immediately.

Late payment penalties

Separate from submission penalties, HMRC charges interest and penalties on late tax payments:

• 0-15 days late: No penalty, but interest accrues from day one at the Bank of England base rate plus 2.5%
• 16-30 days late: 2% of the tax owed
• 31+ days late: An additional 2% of the remaining balance
• After 31 days: A further daily penalty of 4% per annum on the outstanding amount

As of June 2026, HMRC's late payment interest rate is 7% (base rate of 4.5% plus 2.5%). On a £10,000 tax liability, that is £1.92 per day in interest alone.

The 2026/27 soft landing

HMRC has confirmed a soft landing for the first year of MTD for ITSA (2026/27 tax year). During this period:

• No penalty points will be issued for late quarterly updates
• You are still expected to submit, and HMRC will track compliance
• Late payment penalties still apply (the soft landing only covers submission timing, not payment)
• From 2027/28, the full penalty points system applies

This does not mean you can ignore MTD in the first year. It means HMRC is giving businesses time to adjust without immediate financial consequences for late submissions. Use the soft landing to establish your process, not to procrastinate.

The seven most common mistakes

1. Assuming spreadsheets are automatically compliant

A standalone spreadsheet is not MTD-compatible software. You need either full accounting software or a spreadsheet connected to bridging software via a digital link. Using a spreadsheet to calculate your figures and then manually entering them into submission software breaks the digital link requirement.

2. Using software that is not on HMRC's approved list

Not all accounting software is MTD-compatible. Before relying on any tool, check it appears on HMRC's official list. Some popular international accounting tools have UK versions that support MTD, but older or desktop-only versions may not.

3. Recording monthly summaries instead of individual transactions

MTD requires you to record each individual transaction with its date, amount, and category. Recording "January office expenses: £450" as a single line does not comply. You need each purchase logged separately.

4. Assuming your accountant's compliance covers you

Having an accountant file your returns does not exempt you from MTD. However, your accountant can use MTD-compatible software to submit on your behalf. The key is that the records must be digital and the submission must go through the API. Confirm with your accountant which software they use and whether their process is MTD-compliant.

5. Waiting until the deadline to start

MTD is about ongoing digital record keeping, not a quarterly filing exercise. If you leave everything until the deadline, you are technically non-compliant for the weeks or months when your records were not digital. Start recording digitally from day one of each quarter.

6. Forgetting about the digital link requirement

If you use a spreadsheet for tracking and separate software for submission, the data must flow digitally. Printing your spreadsheet and retyping figures into submission software is not a digital link. Copy-pasting values from Excel cells into the submission tool does count, but downloading a CSV from one system and uploading it to another is cleaner.

7. Not registering for MTD before your first deadline

You must register with HMRC for the relevant MTD service before your software can submit. Registration can take up to 72 hours to process. Do not leave this until the week your first quarterly update is due.

MTD for Different Business Types

Sole traders

If your gross self-employment income exceeds the threshold (£50,000 from April 2026, £30,000 from April 2027, £20,000 from April 2028), you must use MTD-compatible software for your Income Tax reporting. You will submit four quarterly updates and a Final Declaration each year.

If you are also VAT-registered, you already need MTD software for your VAT returns. Ideally, use one piece of software that handles both MTD for VAT and MTD for ITSA. Most major platforms (Xero, QuickBooks, FreeAgent, AccountsOS) support both.

Landlords

Rental income counts as qualifying income for MTD. If your gross rental income (before mortgage interest, repairs, management fees, or any other deductions) exceeds the threshold, you are in scope.

Multiple properties are aggregated. Five properties each generating £12,000 in rent equals £60,000 of qualifying income. You are in scope from April 2026.

Landlords must record rental income and property expenses digitally and submit quarterly updates. The quarterly updates cover total income received and expenses incurred during each quarter. Capital allowances and other adjustments are handled in the Final Declaration at year end.

Limited company directors

The company itself is not subject to MTD for Income Tax. Corporation Tax MTD has been cancelled. Your company's CT600 continues to be filed as normal.

However, you personally may be subject to MTD for ITSA if you have qualifying income outside the company. The most common scenarios:

• Rental properties owned personally (not through the company)
• Freelance or consulting income received personally
• Partnership income from a business outside your company

Your salary and dividends from the company do not count as qualifying income.

If you are a director with no self-employment or property income, MTD for ITSA does not apply to you. But make sure your company is compliant with MTD for VAT if it is VAT-registered.

Partnerships

General partnerships where any partner has qualifying income over the threshold are in scope. However, HMRC has deferred the full partnership rollout of MTD for ITSA, and the exact implementation date has not been confirmed. Individual partners with qualifying personal income may still be in scope for their own MTD obligations.

Limited Liability Partnerships (LLPs) are also deferred. Check HMRC's latest guidance for updates.

How to Choose the Right MTD Software

The choice depends on four factors: your business type, your budget, what your accountant uses, and how much automation you want.

Decision framework

If you want the cheapest compliant option: Use QuickFile (free) or FreeAgent via a NatWest/Lloyds partnership (free with qualifying bank account). These cover MTD compliance at zero cost. You will do more manual work, but you will be compliant.

If you want full accounting software at a reasonable price: AccountsOS (£19/month flat) or QuickBooks Simple Start (£10/month for sole traders). Both include digital record keeping, bank feeds, invoicing, and MTD submission. AccountsOS adds AI chat and voice commands. QuickBooks adds a large ecosystem of integrations.

If your accountant recommends a specific tool: Use it. Accountant compatibility matters more than feature comparisons. If your accountant works in Xero, use Xero. If they work in QuickBooks, use QuickBooks. The friction of using different systems to your accountant is not worth the marginal feature differences.

If you want AI to do the heavy lifting: AccountsOS is the only MTD-compatible platform with a full AI accounting agent. Finn categorises transactions, answers tax questions in plain English, and explains your MTD obligations in context. If the idea of navigating accounting software menus fills you with dread, this is the option designed for people who feel that way.

If you manage rental properties: Any of the major platforms work. The key requirement is recording rental income and property expenses by property, and submitting quarterly updates for your total property income. FreeAgent and AccountsOS both handle property income well for UK landlords.

What to check before committing

1. Is it on HMRC's approved list? Non-negotiable. Check the HMRC website.
2. Does it support both MTD for VAT and MTD for ITSA? If you need both, avoid having to use two separate tools.
3. Does it offer automatic bank feeds? This saves hours of manual data entry.
4. What does it cost after any promotional period? The "£1/month for 3 months" headline means you pay full price from month four.
5. Can your accountant access it? If you use an accountant, check they can log in and review your records.
6. Does it handle your specific needs? Multi-currency, multiple properties, CIS (Construction Industry Scheme), flat-rate VAT.

Exemptions from MTD

In limited circumstances, HMRC may grant an exemption from MTD. You can apply for an exemption if:

• It is not reasonably practical for you to use digital tools due to age, disability, remoteness of location, or any other reason
• Your religion prevents you from using electronic communications (this is a specific legal provision)
• You are a practising member of a religious society whose beliefs are incompatible with using electronic communications

Exemptions must be applied for through HMRC. Having an accountant does not exempt you, though your accountant can use MTD software to submit on your behalf. Being technologically inexperienced does not qualify for an exemption on its own.

Certain business types are also outside the scope of MTD for ITSA:

• Foster carers (automatically exempt)
• Trustees of registered charities
• Partnerships (deferred, not exempted)
• Limited companies (Corporation Tax MTD cancelled)

If you believe you qualify for an exemption, apply to HMRC at least three months before your MTD start date.

Frequently Asked Questions

Do I need accounting software for Making Tax Digital?

Yes. MTD requires you to keep digital records and submit returns through HMRC-compatible software. You cannot file through the HMRC website manually. Free options exist (QuickFile, FreeAgent via bank partnerships), so the cost need not be a barrier, but you must use some form of approved software.

Is there free MTD software available in the UK?

Yes. QuickFile is fully free and supports both MTD for VAT and MTD for ITSA. FreeAgent is free for customers of NatWest, RBS, Mettle, and Lloyds business banking. My Tax Digital offers free bridging software. AccountsOS offers a free 14-day trial. For compliance purposes, free software submits to HMRC through exactly the same API as paid software.

Can I use a spreadsheet for MTD?

Not on its own. You must use MTD-compatible software to submit to HMRC. However, you can use a spreadsheet alongside bridging software that reads your spreadsheet data and submits it digitally. The data must flow between the systems via a digital link (copy-paste or file export), not manual retyping.

What happens if I do not comply with MTD?

HMRC uses a points-based penalty system. Each late submission earns one penalty point. At four points (for quarterly submissions), you receive a £200 fine. Every subsequent late submission after reaching the threshold triggers another £200 fine. Late payment attracts separate interest charges at the Bank of England base rate plus 2.5% (currently 7%).

Does MTD apply to limited companies?

MTD for Income Tax does not apply to limited companies. Corporation Tax MTD has been cancelled by HMRC. However, VAT-registered limited companies must comply with MTD for VAT. And directors who personally earn self-employment or property income above the threshold must comply with MTD for ITSA in their personal capacity.

Can my accountant handle MTD for me?

Yes. Your accountant can use MTD-compatible software to submit quarterly updates and your Final Declaration on your behalf. However, having an accountant does not exempt you from MTD. The records must be digital, and the submission must go through the API. Confirm which software your accountant uses and whether their process is fully MTD-compliant.

When does MTD for Income Tax start?

MTD for Income Tax Self Assessment starts on 6 April 2026 for individuals with qualifying income over £50,000. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income means gross self-employment and property income, not salary, dividends, or pension income.

What is the MTD Final Declaration?

The Final Declaration replaces the traditional Self Assessment tax return under MTD for Income Tax. It confirms your final income and expenses for the tax year, applies capital allowances and adjustments, and calculates your tax liability. It is submitted through your MTD software and is due by 31 January following the end of the tax year. For the 2026/27 tax year, that means 31 January 2028.

Do I need separate software for MTD VAT and MTD Income Tax?

Not necessarily. Most major MTD-compatible platforms (Xero, QuickBooks, FreeAgent, AccountsOS) support both MTD for VAT and MTD for ITSA. Using one tool for both is simpler than maintaining two separate systems. Check that your chosen software covers both before committing.

What counts as qualifying income for the MTD threshold?

Qualifying income is your gross income from self-employment and/or UK property, measured before expenses, allowances, or deductions. It does not include PAYE salary, dividends, pension income, or investment income. If your combined gross self-employment and property income exceeds the threshold, you are in scope. The threshold is assessed on total qualifying income across all self-employment and property sources combined.