Best Making Tax Digital (MTD) Software

Making Tax Digital (MTD) Software Guide

Making Tax Digital (MTD) software is designed to help businesses and individuals in the UK comply with HM Revenue and Customs (HMRC) requirements for digital recordkeeping and tax submissions. MTD represents a significant shift from traditional paper-based processes to a system that emphasizes accuracy, efficiency, and real-time reporting. MTD software streamlines the process of recording financial data, categorizing expenses, and calculating tax obligations by integrating directly with HMRC systems, enabling seamless and timely submissions.

The core functionality of MTD software typically includes automated data entry, bank feed integration, VAT calculations, and digital tax filing. It eliminates the need for manual spreadsheets and reduces the risk of human error by automating key accounting tasks. Many MTD-compliant platforms also offer real-time dashboards, multi-user access, and compliance alerts to help businesses stay on top of tax deadlines and reporting requirements. These tools are especially valuable for small and medium-sized enterprises that may lack dedicated finance departments but still need to meet regulatory standards.

As MTD continues to roll out across different tax types—including VAT, income tax, and eventually corporation tax—the software ecosystem supporting it has evolved to offer more advanced features like AI-driven insights, integration with payroll systems, and customizable reporting tools. Choosing the right MTD software often depends on business size, industry, and specific accounting needs, but the overall goal remains the same: to simplify tax compliance and promote better financial management through digital transformation.

Making Tax Digital (MTD) Software Features

• Digital Recordkeeping: Stores financial records electronically to comply with HMRC rules and improve data accuracy.
• Direct Submission to HMRC: Allows users to file VAT returns and other reports directly to HMRC from within the software.
• Automated VAT Calculations: Calculates VAT on transactions using built-in tax rules, reducing errors and saving time.
• Tax Reporting Tools: Produces summaries, audit trails, and transaction reports for better oversight and preparation.
• Bank Integration & Reconciliation: Syncs with bank accounts to import transactions and match them with financial records.
• Compliance Validation: Checks that digital submissions meet MTD requirements, including proper formatting and linking.
• Multi-user Access: Supports multiple user roles with customizable permissions for staff, accountants, or bookkeepers.
• Deadline Alerts: Sends reminders for filing and payment deadlines to help avoid late submissions and penalties.
• Accounting Software Sync: Integrates with platforms like Xero or QuickBooks for seamless financial data management.
• Secure Cloud Storage: Provides encrypted cloud-based storage with backups to protect against data loss or breaches.
• Digital Linking Support: Maintains digital trails between systems, replacing manual copy-paste methods for compliance.
• Advisor Collaboration: Lets accountants or advisors access the system for easier collaboration and professional support.
• Mobile Accessibility: Offers mobile apps for managing taxes, uploading receipts, or viewing submissions on the go.
• Flexible Tax Settings: Adapts to different VAT schemes and industries through customizable tax configuration options.
• Audit Logs: Tracks user actions and changes, ensuring accountability and transparency during audits.
• Cloud-based Updates: Delivers automatic updates and improvements without manual installation, always staying current.

Different Types of Making Tax Digital (MTD) Software

• Bridging Software: Connects spreadsheets or non-compliant software to tax platforms by converting VAT data into a digital submission format; ideal for small businesses wanting to retain existing processes.
• Cloud-Based MTD Software: Fully online platforms offering real-time accounting, tax filing, and collaboration features; suitable for startups and remote teams seeking flexibility and automation.
• Desktop MTD Software: Installed locally on a computer or server, offering robust features and data control; best for organizations preferring on-premise storage and tighter data governance.
• Industry-Specific MTD Software: Tailored to meet the tax requirements of particular sectors like retail or construction, often integrating with POS systems or sector tools for accurate reporting.
• Agent-Oriented MTD Software: Designed for accountants and tax agents managing multiple clients, enabling batch submissions, client dashboards, and centralized compliance workflows.
• API-Enabled ERP Software: Large enterprise systems with built-in MTD functions that automate compliance within broader financial and operational processes; ideal for complex, high-volume organizations.
• Mobile MTD Applications: Simplified apps for smartphones and tablets offering on-the-go tax tracking and submissions; a good fit for freelancers and sole proprietors.
• Middleware Integration Tools: Custom solutions that link legacy systems to tax portals by extracting and converting data; useful for businesses with bespoke or outdated software environments.

Advantages of Making Tax Digital (MTD) Software

• Improved Accuracy in Record-Keeping and Tax Filing: MTD software reduces human error by automating calculations and consolidating data from different sources in real time. Traditional bookkeeping involves manual entries, which can be error-prone. With MTD-compliant software, figures are calculated using consistent logic, reducing misstatements and increasing trust in the data.
• Time Savings Through Automation: Automating recurring processes such as transaction logging, invoice generation, and tax return preparation saves significant administrative time. MTD software often includes direct bank feeds and smart categorization, making it faster to reconcile accounts.
• Real-Time Financial Insights: MTD platforms typically come with built-in dashboards and financial reporting tools. These provide up-to-date insights into business performance, cash flow, liabilities, and profit trends.
• Seamless Integration with Other Business Tools: Many MTD solutions are cloud-based and designed to integrate with popular platforms such as ecommerce tools (Shopify, Amazon), banking apps, payroll software, and inventory systems.
• Centralized and Digitally Stored Records: MTD requires businesses to maintain digital records, which are stored in the cloud or secure local environments. This eliminates the need for manual filing systems or paper-based archives.
• Direct Digital Submission to HMRC: MTD software submits tax returns directly to HMRC through API connections, replacing the need for manual entry on government portals.
• Enhanced Data Security: Reputable MTD providers employ encryption, user authentication, and backup protocols to protect sensitive tax and financial information.
• Better Deadline and Compliance Management: Most MTD software includes reminders, calendars, and real-time notifications about upcoming tax deadlines, payment schedules, or submission windows.
• Scalability for Growing Businesses: As businesses expand, their financial complexity increases. MTD software can often scale from handling a sole trader’s tax to managing multi-entity group reporting.
• Collaboration and Multi-User Access: With cloud-based systems, multiple users (e.g., accountants, business owners, finance teams) can access and work on the same data set in real time, from different locations.
• Remote Accessibility and Flexibility: Cloud-based MTD software can be accessed anywhere with an internet connection, whether via a desktop, tablet, or smartphone.
• Future-Proofing Your Business for Tax Reforms: The UK government intends to extend MTD to cover more taxes (e.g., Income Tax Self Assessment and Corporation Tax). Using compliant software prepares businesses in advance.

What Types of Users Use Making Tax Digital (MTD) Software?

• Self-Employed Individuals: Freelancers, gig workers, contractors, and sole proprietors who run their own business without a legal distinction between the business and the individual. To record their income and expenses digitally, file quarterly tax updates, and comply with MTD for Income Tax Self Assessment (ITSA) requirements.
• Small Business Owners: Owners of limited companies or partnerships with a small number of employees or operational scale. To manage VAT returns, streamline invoicing and bookkeeping, and fulfill MTD compliance without hiring in-house accountants.
• Landlords: Individuals or companies that earn income through renting out residential or commercial property. To maintain digital records of rental income and property-related expenses and meet MTD for ITSA rules applicable to property income over the threshold.
• Accountants and Bookkeepers: Financial professionals who manage tax and financial records on behalf of clients. To handle multiple clients' VAT or income tax obligations digitally and efficiently while staying compliant with HMRC requirements.
• VAT-Registered Businesses: Any business registered for VAT with turnover above the HMRC threshold (currently £90,000). To fulfill the legal requirement to maintain digital VAT records and file VAT returns using MTD-compatible software.
• Mid-Size and Growing Enterprises: Expanding businesses with increasing transaction volumes, complex finances, and often multiple departments or locations. To automate complex VAT processes, improve audit trails, and prepare for future MTD phases like corporation tax digitization.
• Nonprofit and Charitable Organizations: Registered charities and nonprofits that may need to file VAT if they sell goods or services. To fulfill VAT compliance in a cost-effective and efficient way while maintaining transparency.
• International Traders and Import/Export Businesses: Businesses engaged in buying or selling goods and services across borders, subject to specific VAT rules. To simplify VAT treatment for cross-border transactions, manage imports/exports, and comply with UK VAT obligations.
• Software Developers (Integrators): Tech companies or in-house developers creating or integrating custom financial systems with MTD APIs. To embed MTD compliance into their own platforms or offer bespoke tools to users.

How Much Does Making Tax Digital (MTD) Software Cost?

The cost of Making Tax Digital (MTD) software can vary widely depending on the size of the business, the features required, and the level of integration with existing systems. For small businesses or sole proprietors, entry-level MTD software may come with a modest monthly or annual subscription fee. These basic packages typically cover core features like digital recordkeeping and direct submission of VAT returns to the relevant tax authorities. As businesses grow in complexity, they may need more robust solutions that support features such as multi-user access, detailed reporting, and seamless integration with accounting or ERP systems. These advanced versions often carry higher price tags and may also include additional onboarding or support fees.

In some cases, MTD software providers offer tiered pricing models, where costs increase with the volume of transactions or the number of connected bank accounts and users. Some services may also bundle MTD functionality within broader accounting software platforms, making it difficult to isolate the cost of MTD-specific features. Additionally, while some providers offer free trials or limited-feature versions at no cost, full compliance typically requires access to premium features, which come at a cost. Ultimately, the total expense of MTD software should be evaluated not just by its upfront price, but by its ability to reduce manual tasks, enhance compliance accuracy, and support long-term financial efficiency.

What Software Can Integrate With Making Tax Digital (MTD) Software?

Making Tax Digital (MTD) software can integrate with several types of applications to streamline and automate the process of managing and submitting tax data to HMRC. One of the main categories of software that works with MTD is accounting software. This includes cloud-based platforms like QuickBooks, Xero, Sage Business Cloud Accounting, and FreeAgent, which are designed to handle bookkeeping, generate VAT returns, and submit them directly to HMRC. These platforms often provide real-time financial data and are regularly updated to comply with HMRC’s evolving MTD requirements.

Another type of software that integrates with MTD solutions is bridging software. Bridging software acts as a connection between existing spreadsheet-based record-keeping systems and HMRC's digital submission portal. It’s useful for businesses that prefer using Excel or other spreadsheet tools but still need to comply with MTD regulations by ensuring digital links and submissions. These tools extract VAT data from spreadsheets and format it appropriately for MTD-compliant submission.

Enterprise Resource Planning (ERP) systems, particularly those used by larger businesses, can also be integrated with MTD software. Some ERP providers, such as Oracle NetSuite or SAP, either offer built-in MTD modules or support integration through APIs or third-party MTD tools. This allows complex organizations to maintain end-to-end digital tax workflows within their existing infrastructure.

Additionally, tax-specific platforms used by accountants and tax agents, like TaxCalc, IRIS, and Thomson Reuters Digita, often include MTD compliance features. These platforms can manage multiple clients and automate batch VAT submissions, providing a professional-grade solution for practitioners.

Custom-built or in-house software solutions may integrate with MTD through HMRC’s API if they are properly registered and tested. Businesses with unique needs might opt for this approach to ensure seamless compliance without overhauling their existing systems. However, this route typically requires technical expertise and formal recognition by HMRC as compatible software.

What Are the Trends Relating to Making Tax Digital (MTD) Software?

• Cloud integration and automation: MTD software is increasingly cloud-based, integrating with platforms like Xero and QuickBooks. This allows businesses to automate record-keeping and tax submissions, reducing manual input and errors.
• Real-time data and analytics: Tools now offer dashboards with live financial data, enabling real-time tax tracking, liability forecasting, and visual reporting. Many use AI to flag anomalies and suggest optimizations.
• Mobile-first and user-friendly design: Modern MTD tools emphasize mobile accessibility, intuitive interfaces, and built-in educational resources, making it easier for non-accountants to stay compliant.
• API connectivity with HMRC: All compliant software uses HMRC’s APIs to submit data. These APIs are frequently updated, and vendors are quick to adapt their software to remain aligned with the latest tax requirements.
• Enhanced security features: As more sensitive data moves online, software providers are emphasizing two-factor authentication, data encryption, GDPR compliance, and localized data storage (e.g., UK/EU-based servers).
• Support for varied taxpayer profiles: MTD tools have expanded to serve landlords, sole traders, freelancers, and partnerships, supporting multiple income types including property, self-employment, and dividends.
• Advisor and practice management integration: Many platforms now bundle in practice management tools for accountants, such as client dashboards, document sharing, and task tracking, improving collaboration.
• Preparation for future phases: With MTD for ITSA and Corporation Tax on the horizon, vendors are building modular systems that scale as new rules are implemented, ensuring long-term compliance.
• AI and machine learning enhancements: Software is starting to use AI to auto-categorize expenses, forecast taxes, and offer smart assistants or chatbots for guidance through digital filing processes.
• Ecosystem interoperability: Beyond core tax functions, MTD platforms are integrating with banking systems, ecommerce sites, and payroll tools—making them full-service financial hubs.
• Small business and freelancer focus: Recognizing the needs of micro-businesses, many tools offer simplified interfaces, free or low-cost tiers, receipt scanning, and basic accounting features tailored to smaller operations.

How To Select the Right Making Tax Digital (MTD) Software

Selecting the right Making Tax Digital (MTD) software in the United States involves evaluating a few key aspects to ensure compliance, ease of use, and integration with your existing accounting processes. The first step is to confirm that the software is officially recognized or compatible with the requirements set by tax authorities such as the IRS or, for businesses dealing with the UK, Her Majesty’s Revenue and Customs (HMRC). If you're working with UK-based clients or branches, HMRC provides a list of approved MTD-compatible software solutions, which is essential to check before proceeding.

Next, consider the size and complexity of your business. A sole proprietor or small business with straightforward income and expense tracking needs may do well with a lightweight, user-friendly platform like QuickBooks Online, Xero, or FreeAgent. Larger businesses with multiple revenue streams, VAT obligations, or inventory management needs might require more robust options like Sage or Zoho Books, which can scale with operations and handle more advanced reporting.

Another important factor is automation and real-time syncing. The best MTD software will automatically pull transaction data from your bank accounts, categorize expenses, and prepare tax submissions with minimal manual input. This minimizes human error and saves time. Look for features such as automated VAT calculations, digital record keeping, and the ability to submit returns directly to the tax authority from within the software.

Integration is also key. Choose a solution that connects seamlessly with your existing tools—like payroll systems, CRM platforms, or point-of-sale software—so that all your financial data is centralized and consistent. This reduces duplication and ensures accurate reporting across platforms.

Security and support should not be overlooked. Make sure the software adheres to current data protection standards, especially if handling sensitive financial information. Cloud-based platforms often offer robust security features such as encryption, two-factor authentication, and regular backups. Also, evaluate the level of customer support available—whether through live chat, phone, email, or a knowledge base—and the vendor’s reputation for reliability and response time.

Finally, take advantage of free trials or demos before committing to a subscription. This allows you to test the user interface, explore the features, and ensure that the software meets your needs. Costs vary widely depending on the functionality, number of users, and level of support, so compare pricing plans carefully and factor in any add-ons or transaction limits that may apply.

On this page you will find available tools to compare making tax digital (MTD) software prices, features, integrations and more for you to choose the best software.