Making Tax Digital (MTD) requires HMRC-recognised software to maintain digital records and submit quarterly updates. You cannot use paper records or spreadsheets alone—you need software that connects to HMRC's MTD API.
This guide compares MTD software options for self-employed individuals and landlords, with features, pricing, and recommendations for different use cases.
MTD Software Requirements
HMRC requires MTD-compatible software that can:
- Store digital records of all income and expenses
- Calculate tax liability accurately
- Submit quarterly updates to HMRC via the MTD API
- File the final declaration at year-end
- Maintain records for the required 6-year period
HMRC publishes an official list of recognised MTD software on GOV.UK.
Types of MTD Software
Full Accounting Software
Complete solutions that handle all MTD requirements plus additional features:
- Automatic bank connections via Open Banking
- Transaction categorisation (manual or AI-powered)
- Invoice creation and payment tracking
- Tax calculations and estimates
- Direct HMRC submissions
Best for: Most self-employed individuals and landlords who want an all-in-one solution.
Bridging Software
Minimal solutions that connect existing records to HMRC:
- Takes data from spreadsheets
- Formats and transmits to HMRC via the MTD API
- Does not provide accounting features
Best for: Those who want to keep using spreadsheets (though this adds complexity and manual effort).
Specialist Software
Industry-specific tools with MTD capability:
- Construction Industry Scheme (CIS) software
- Agricultural accounting software
- Property management platforms
- Trade-specific solutions
Best for: Businesses with unique industry requirements not met by general software.
MTD Software Compared
TaxFolio
Best for: UK self-employed and landlords who want simplicity and AI automation
TaxFolio is HMRC-recognised MTD software built specifically for UK sole traders and landlords. It connects to UK banks via TrueLayer (FCA-authorised Open Banking provider) and uses AI to categorise transactions automatically.
Pricing:
- Lite: £69.99/year
- Pro: £129.99/year
Key Features:
- Open Banking connections to all major UK banks
- AI-powered transaction categorisation
- Handles SA103 (self-employment) and SA105 (property income)
- Quarterly MTD submissions included
- Real-time tax position calculations
- Automatic deadline reminders
Pros:
- Purpose-built for MTD compliance
- Simple, focused interface
- AI reduces manual categorisation
- Annual pricing (no monthly fees)
- UK-based support
Cons:
- No invoicing features (focused on tax, not billing)
- Newer to market than established competitors
FreeAgent
Best for: Freelancers who need invoicing alongside MTD compliance
FreeAgent is a full accounting platform popular with UK freelancers. It offers invoicing, expense tracking, and MTD submissions in one package.
Pricing:
- £14.50/month (with NatWest, Mettle, or Tide)
- £29.50/month (standard)
Key Features:
- Full double-entry accounting
- Invoicing and estimates
- Project tracking and time logging
- Multi-currency support
- MTD submissions
- Payroll add-on available
Pros:
- Comprehensive feature set
- Free with some UK banks
- Good mobile app
- Strong UK accountant network
Cons:
- Complex for users who only need tax filing
- Expensive without bank partnership discount
- No AI categorisation
QuickBooks Self-Employed
Best for: Those familiar with the QuickBooks ecosystem
QuickBooks Self-Employed is the simplified version of QuickBooks designed for sole traders. It offers basic MTD features at a lower price than the full QuickBooks Online.
Pricing:
- From £12/month
Key Features:
- Bank feeds and transaction import
- Receipt capture via mobile app
- Mileage tracking
- Basic invoicing
- Tax estimates
- MTD submissions
Pros:
- Established brand
- Reasonable mobile app
- Integrates with other Intuit products
Cons:
- Limited property income features
- US-headquartered (UK support can vary)
- Interface less UK-focused than competitors
Xero
Best for: Growing businesses and those working with accountants
Xero is a powerful cloud accounting platform favoured by UK accountants. It offers extensive features but may be more than simple sole traders need.
Pricing:
- Starter: £15/month (limited features)
- Standard: £30/month
- Premium: £42/month
Key Features:
- Full double-entry accounting
- Unlimited users (higher tiers)
- Extensive app marketplace
- Multi-currency support
- Inventory tracking
- Bank reconciliation
- MTD submissions
Pros:
- Powerful and scalable
- Accountants know and trust it
- Huge integration ecosystem
- Regular feature updates
Cons:
- Overkill for simple tax needs
- Steeper learning curve
- Can become expensive with add-ons
- No AI categorisation in base product
Sage Accounting
Best for: Traditional businesses and those familiar with Sage products
Sage is a long-established UK accounting software provider. Sage Accounting is their cloud-based offering with MTD capability.
Pricing:
- From £14/month
Key Features:
- Invoicing and quotes
- Cash flow forecasting
- Bank feeds
- VAT returns
- MTD submissions
- Inventory management
Pros:
- Established UK brand
- Strong UK-based support
- Comprehensive features
- Good for VAT-registered businesses
Cons:
- Interface can feel dated
- Complex for simple needs
- Learning curve for new users
HMRC Free MTD Software
Best for: Those with very simple affairs on a tight budget
HMRC offers basic free software for MTD compliance. It meets minimum requirements but lacks the features of commercial alternatives.
Pricing: Free
Key Features:
- Basic digital record-keeping
- Quarterly submission capability
- Final declaration filing
Pros:
- No cost
- Directly from HMRC
- Meets basic requirements
Cons:
- No bank connections
- No automatic transaction import
- Manual data entry for everything
- Very limited support
- No AI or automation
Comparison Table
| Software | Annual Cost | Bank Feeds | AI Categorisation | SA103 | SA105 | Best For | |----------|-------------|------------|-------------------|-------|-------|----------| | TaxFolio | £69.99-129.99 | Yes | Yes | Yes | Yes | Simplicity | | FreeAgent | £174-354 | Yes | No | Yes | Yes | Invoicing | | QuickBooks | £144+ | Yes | Limited | Yes | Limited | Mixed use | | Xero | £180-504 | Yes | No | Yes | Yes | Growth | | Sage | £168+ | Yes | No | Yes | Yes | Traditional | | HMRC Free | Free | No | No | Yes | Yes | Minimum |
Annual costs calculated from monthly pricing where applicable.
Choosing the Right MTD Software
For Simple Self-Employment
If you primarily need to track income and expenses and submit to HMRC:
Recommended: TaxFolio
Focus on:
- Easy bank connections
- AI-powered categorisation to save time
- Simple interface without unnecessary features
For Freelancers Who Invoice Clients
If you send invoices and need to track client payments:
Recommended: FreeAgent or QuickBooks
Look for:
- Professional invoice templates
- Payment tracking and reminders
- Client management features
For Landlords
If you have rental property income:
Recommended: TaxFolio
Ensure the software handles:
- SA105 property income reporting
- Multiple property tracking
- Mortgage interest recording (for tax credit)
For Growing Businesses
If you're scaling, have employees, or work closely with an accountant:
Recommended: Xero or Sage
Consider:
- Multi-user access
- Accountant collaboration features
- Scalability as you grow
- Integration with other business tools
Switching MTD Software
Already using accounting software? You can switch:
- Export your data from current software (most offer CSV export)
- Import historical records to new software
- Connect your banks to the new system
- Verify opening balances match
- Allow 2-4 weeks to get comfortable before your next deadline
Most MTD software offers import tools and migration guides.
Key Features to Evaluate
Must-Have Features
- HMRC recognition — must be on the official approved list
- Bank feeds — automatic transaction import
- Quarterly submissions — direct to HMRC via MTD API
- Digital record storage — meets 6-year requirement
- Accurate tax calculations — current rates and allowances
Nice-to-Have Features
- AI categorisation — reduces manual sorting
- Multiple income sources — self-employment + property
- Mobile app — capture receipts on the go
- Deadline reminders — never miss a submission
- Real-time tax estimates — see your position throughout the year
Questions to Ask Before Choosing
- Is it on HMRC's recognised software list?
- Does it handle my income types (self-employment, property, or both)?
- Does it connect to my bank?
- What is the total annual cost (including any add-ons)?
- Is there a free trial?
- What support is available if I have problems?
Why TaxFolio for MTD?
TaxFolio is HMRC-recognised software built from the ground up for Making Tax Digital:
- AI-powered categorisation — transactions sorted automatically using machine learning
- Open Banking via TrueLayer — FCA-authorised, read-only bank connections
- Self-employed + landlord support — handles both SA103 and SA105
- Quarterly reminders — automatic alerts before each deadline
- One-click submission — direct to HMRC via the MTD API
- Fair annual pricing — from £69.99/year with no monthly fees
- UK-based — built specifically for UK tax requirements
Start your free 30-day trial and see why UK freelancers and landlords choose TaxFolio for MTD compliance.