The UK’s Making Tax Digital (MTD) strategy is an initiative aimed at transforming the tax administration system by making it more efficient and accessible through digital technology.

Initially launched by HM Revenue and Customs (HMRC) in 2019, since 2022 MTD now requires all VAT-registered businesses to maintain digital records and submit their tax returns online, thereby reducing the risk of errors and simplifying compliance. The strategy initially focused on VAT-registered businesses but is expanding to include income tax and corporation tax.

Software for Making Tax Digital

By mandating the use of compatible software, MTD promotes real-time tax reporting and enables businesses to better understand their tax liabilities and manage cash flow. By streamlining the tax process, HMRC also wants to improve accuracy and enhance the overall taxpayer experience. As such, MTD represents a significant shift towards a more modern, digital approach to taxation in the UK, reflecting broader trends in financial management and reporting.

Now that Making Tax Digital is here, you should be moving your accounting software to an online or cloud platform if you haven’t done so already.

HMRC has no plans to provide their own free software. This forces the majority of businesses to obtain an MTD software package which will be suitable for their type of business.

Which is the best accounting software for making tax digital?

It largely depends on the type of business you run. Each business has to decide based on their personal circumstances. For SMEs specifically there are a number of different cloud software systems currently out there that are MTD-compatible.

Here are some platforms to consider:

• Sage
• Xero
• QuickBooks
• Zoho Books
• FreeAgent
• Kashflow
• QuickFile (free)
• adminsoft (free)

Sage Business Cloud Accounting

Sage is a cloud-based accounting tool for small businesses, recognised by HMRC and compatible with Making Tax Digital. It offers features like invoicing, VAT submissions, bank syncing, and AI-powered tools. Plans scale with your business needs, from sole traders to growing teams.

Plans & Pricing (excl. VAT):

• Start – £18 per month: Invoicing, bank reconciliation, VAT submissions
• Standard – £39 per month: Includes Start + CIS, cash flow, quotes, advanced reporting
• Plus – £59 per month: Includes Standard + inventory, multi-currency, and budgeting

Intro offer: 90% off for 12 months

Xero

Xero has several plans which businesses can choose from depending on their needs. The prices quoted are for standard packages (as at time of publishing) but the company has regular promotions and there are optional add-ons as well.

Plans and pricing (excl. VAT)

• Simple – £7 per month: Quotes, MTD for ITSA, bank reconciliation, Hubdoc receipt capture
• Ignite – £16 per month: All Simple features + enter bills, VAT filing to HMRC, optional bill payments and CIS returns
• Grow – £33 per month: All Ignite features + pay up to 5 bills, expenses & mileage for 5 users (£2.50 per additional user), 5-person payroll, optional project tracking (£5 per user)
• Comprehensive – £47 per month: All Grow features + bill payments for 10, multi-currency support, project tracking (for 10 users)
• Ultimate -£59 per month: All Comprehensive features + bill payments for 15, advanced analytics, up to 10-person payroll, enhanced budgeting and insights

Intro offer: 90% off for 12 months. Each package has a 30-day free trial.

QuickBooks

QuickBooks is a popular cloud-based accounting platform, ideal for sole traders to growing SMEs. HMRC-recognised for Making Tax Digital, it offers invoicing, VAT and CIS submissions, real-time insights, and AI-powered bookkeeping.

Plans & Pricing (excl. VAT):

• Sole Trader – £1/month (6 months, then £10): Invoicing, cash flow, MTD for Income Tax, Self Assessment tools
• Simple Start – £8/month (then £16): Adds VAT submissions, CIS returns, and accountant access
• Essentials – £16.50/month (then £33): Multi-user, bills, time tracking, multi-currency
• Plus – £23.50/month (then £47): Stock tracking, project profitability, budgeting
• Advanced – £46/month (then £115): Up to 25 users, automation, batch invoicing, advanced reporting

Zoho Books

Zoho Books is a feature-rich, cloud-based accounting tool for small to mid-sized businesses. It’s MTD-compliant, ICB-accredited, and offers automation, inventory, CIS, and custom reports—scaling from sole traders to advanced SMEs.

Plans & Pricing (billed annually):

• Free – £0 per month: VAT tracking, client portal, online payments, mileage
• Standard – £10 per month: Recurring invoices, bank feeds, EC Sales List
• Professional – £20 per month: Multi-currency, CIS, inventory, time billing
• Premium – £25 per month: Budgeting, asset management, vendor portals
• Elite – £85 per month: Advanced inventory and warehouse tools
• Ultimate – £165 per month: BI dashboards, forecasting, deep insights

FreeAgent

FreeAgent offers different accounting software packages to suit different business structures.

FreeAgent also has specialist packages for Landlords (starting at £5 per month +VAT) and Accountants or Bookkeepers (as part of their ‘Partner Programme’.

There is a Free option as well for those who have business current accounts with either NatWest, RBS, and Ulster Bank, as well as for those who have a Mettle bank account and make at least one transaction per month.

• Sole trader – £9.50 + VAT per month: Gives you access to all the features of the software including expense tracking, automatic bank feeds and corporate tax forecasting, plus self assessment filing.
• Partnership/LLP – £13.50 + VAT per month: Access to all of the features plus profit-sharing calculations.
• Limited company – £16.50 + VAT per month: This package has everything else plus dividend vouchers.

Every plan ahs a 30-day free trial.

KashFlow

IRIS KashFlow has a range of plans aimed at sole traders, contractors and small businesses. Each allows you to submit your VAT return online and has a customisable dashboard so you can tailor the platform to your needs.

• Starter – £12.50 + VAT per month: Starter is suitable for contractors, sole traders and small businesses. Its features include unlimited quotes, up to ten invoices, reconcile 25 bank transactions, access to other 50 reports and bank feeds.
• Business – £25.50 + VAT per month: This package is ideal for many limited companies and those that are fast-growing. Invoices, bank transactions and quotes are unlimited, with multi-currency available.
• Business and Payroll – £34.00 + VAT per month: Business and Payroll provides a similar package to Business with a payroll package of up to five employees added to it.

Every plan is 90% off for the first six months and has a 14-day free trial.

What about free software for Making Tax Digital?

For small businesses that don’t want to incur any costs, there are a number of free software systems that are worth checking out. Zoho (as detailed in the section above) has its free package. Two others worth exploring are:

QuickFile

QuickFile‘s small and medium-sized accounts are free. They provide professional invoicing, purchase/receipt management, banking automation and full multi-currency support. And it’s all MTD compliant. For larger businesses requiring over 1,000 ledger entries per year the package is £60 + VAT per year.

adminsoft

Business owners can download adminsoft for free. It’s a full double accounts entry system with accounts receivable, accounts payable, general ledger, stock control/inventory, purchase order processing, invoice software, human resources and payroll software. It’s also has multi-user, multi-company and multi-currency capabilities.

Special modules are available free of charge for retail, cafés and restaurants as well as point of sale and workshop operations in the autotrade.

It’s Windows only and whilst there is a support function, users are encouraged to visit the (quite active) online ‘Forum’ where answers to most questions can be sought.

Further reading on accounts

Which digital accounts software is right for your small business?