With the government’s Making Tax Digital (MTD) initiative now a reality for VAT-registered businesses and upcoming for self-assessment taxpayers, knowing how to stay compliant is essential.
Ultimately, the shift means that manual bookkeeping and traditional spreadsheets will, in most cases, have to switch to digital accounting solutions. Here, we review some of the best software tools that can help your business stay compliant with MTD regulations.
What is MTD?
MTD is the government’s initiative to digitise the UK tax system, thereby promising to modernise it. They say it’s about making the tax system easier for businesses to manage their taxes – and make fewer mistakes that mean they end up paying less tax than they should.
MTD currently applies to VAT-registered businesses, but will expand to self-employed individuals and landlords with an income of more than £50,000 from April 2026. Those with an income of between £30,000 and £50,000 will need to do this from April 2027.
To comply with MTD, businesses need to:
- Keep digital records of their finances.
- Use software that integrates directly with HMRC to submit VAT returns.
- Ensure there is no manual transfer of data between systems — everything must be digitally linked.
Key features of MTD-compliant software
When selecting software for MTD compliance, look for these features:
- HMRC compatibility: The software should be recognised by HMRC for MTD submissions. Check if it is on HMRC’s website.
- Digital record-keeping: The software should allow you to store your financial data digitally and make it easy to update it in real time.
- Return submission: Look for tools that allow you to submit your VAT and self-assessment return submissions directly to HMRC through your software.
- Automation: The more key tasks your software can handle, including invoice creation, expense tracking and bank reconciliation, will help minimise errors and save you significant time.
Top digital accounting software for MTD compliance
The biggest cloud accounting software platforms offer MTD for VAT support and compliance, and either do or will be able to do the same with MTD for self-assessment in the future. So what sets them apart? Quite simply, all the other services they offer.
1. Xero
Xero is one of the most popular accounting platforms that supports MTD compliance. It offers an intuitive interface and a wide range of features. It enables you to keep digital records, automate VAT returns, and connect your bank accounts for easy reconciliation — along with a range of other services. Xero’s strong integration with third-party apps also means you can customise your software to suit your business needs.
2. QuickBooks Online
QuickBooks is a powerful tool for complying with MTD, designed to simplify financial management for small and medium-sized businesses. With built-in VAT tracking and automatic VAT returns submission, QuickBooks makes it easy to stay compliant with MTD. It also offers robust reporting and customisable dashboards to help you gain insights into your business’s financial health.
3. Sage
Sage offers a comprehensive solution for businesses looking to handle MTD regulations, particularly for those that also want advanced features like cashflow forecasting, invoicing, and expense tracking. It’s also a good option for businesses that need multi-currency functionality.
4. FreeAgent
FreeAgent is a simple, user-friendly accounting software designed specifically for freelancers, contractors, and small businesses. It provides all the essentials for MTD compliance, including VAT filing directly with HMRC, real-time banking integration, and invoicing tools. It’s a great option for smaller businesses looking for a straightforward solution.
Need help with MTD?
The transition to Making Tax Digital (MTD) marks a significant change in how businesses and self-employed individuals manage their tax obligations. As more businesses become subject to these new regulations, adapting to digital accounting solutions is no longer optional – it’s a necessity. While this shift may seem daunting, it also brings opportunities for greater accuracy, efficiency, and streamlined processes.
By embracing the right digital tools, businesses can not only ensure compliance with MTD but also enhance their overall financial management. From automated VAT returns to seamless bank reconciliation, software like Xero, QuickBooks, Sage, and FreeAgent can help you take control of your finances while reducing the risk of costly mistakes. The key is selecting a platform that suits your unique business needs, ensuring it supports compliance and offers features that simplify day-to-day operations.
The reality is that MTD is here to stay, and the sooner businesses embrace digital accounting, the better positioned they will be to meet their obligations and thrive in an increasingly digital tax landscape. If you’re unsure about where to start or need support in transitioning to a fully digital system, we’re here to help..
With the right guidance, you can turn this regulatory shift into an opportunity to streamline your processes and stay ahead.
All you have to do is get in touch with us.