What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's initiative to modernise the UK tax system by requiring businesses to keep digital records and submit returns using compatible software. It's not just about going paperless – it's about creating a more efficient, accurate, and streamlined approach to tax compliance that benefits both businesses and HMRC.
Understanding MTD Requirements
The MTD rollout has been phased, starting with VAT-registered businesses with a taxable turnover above £85,000 in April 2019. The requirements have since expanded to include:
- MTD for VAT: Mandatory for VAT-registered businesses above the threshold, with voluntary adoption available for smaller businesses
- MTD for Income Tax: Affecting sole traders and landlords with business or property income above £10,000 annually
- Digital record-keeping: Maintaining records in digital format using functional compatible software
- Digital submissions: Submitting returns directly from your software to HMRC via API
Essential Tax Calculators for MTD Planning
Before choosing your MTD software, it's helpful to understand your tax obligations. Use these calculators to plan your compliance strategy:
- Calculate your VAT liability and determine if you need MTD for VAT compliance
- Income Tax Calculator - Assess your income tax obligations for MTD for Income Tax requirements
- Corporation Tax Calculator - Plan for future MTD requirements for limited companies
- Self-Employment Tax Calculator - Essential for sole traders navigating MTD for Income Tax
Types of MTD Software Solutions
There are three main categories of MTD-compliant software, each serving different business needs and preferences:
1. Full Accounting Software
Comprehensive solutions that handle all aspects of your business finances, from invoicing to reporting. These are ideal for businesses wanting an all-in-one solution.
2. Bridging Software
Perfect for businesses that love their spreadsheets! These tools connect your existing Excel or Google Sheets directly to HMRC, maintaining your familiar workflow while ensuring compliance.
3. Hybrid Solutions
Combining elements of both approaches, these tools offer flexibility for businesses with specific requirements or those transitioning to digital systems.
Top MTD Compliance Tools for UK Businesses
Xero
A comprehensive cloud-based solution perfect for small to medium businesses. Xero excels in automation and integrations, making it a favourite among creative industries and growing businesses.
- MTD for VAT & Income Tax
- Automated bank reconciliation
- Hubdoc receipt capture
- CIS automation
- Real-time dashboards
Best for: Small to medium businesses, accountants, creative industries
QuickBooks
Widely trusted accounting software with excellent user-friendly interface. QuickBooks offers robust MTD compliance with strong Self Assessment preparation features.
- MTD for VAT & Income Tax
- Self Assessment preparation
- CIS tracking and submissions
- VAT error checker
- Multi-currency support
Best for: Sole traders, small businesses, limited companies
Clear Books
Award-winning software with exceptional UK-based support. Clear Books stands out with its free tier for sole traders and landlords, plus premium features for growing businesses.
- Free MTD for sole traders
- One-click quarterly updates
- UK-based phone support
- CIS verifications
- Multi-currency support
Best for: Sole traders, landlords, small businesses wanting UK support
MTDSorted
The budget champion! MTDSorted offers unlimited VAT submissions completely free, making it perfect for cost-conscious businesses that need reliable MTD compliance.
- Free unlimited VAT submissions
- Bridging capability
- VAT deadline reminders
- Direct HMRC connectivity
Best for: Budget-conscious businesses, small businesses, sole traders
123 Sheets
Perfect for spreadsheet lovers! This bridging software connects your beloved Excel or Google Sheets directly to HMRC, maintaining your existing workflow while ensuring compliance.
- Excel & Google Sheets integration
- MTD for VAT & Income Tax
- Various VAT schemes supported
- Maintains digital links
Best for: Spreadsheet users, accountants, small businesses
QuickFile
Exceptional value with a generous free tier for smaller accounts. QuickFile offers professional features without the premium price tag, making it ideal for startups and small businesses.
- Free VAT submissions
- Automatic bank feeds
- Invoicing and expenses
- Bank reconciliation
Best for: Small businesses, self-employed, sole traders
Easy MTD VAT
Ultra-simple bridging tool with pay-per-use pricing. Perfect for businesses that file infrequently or want to test MTD compliance without ongoing commitments.
- Pay-per-submission model
- Spreadsheet connectivity
- Free VAT obligations viewing
- All VAT schemes supported
Best for: Occasional filers, spreadsheet users, small businesses
ANNA Money
Mobile-first approach combining business banking with MTD compliance. Ideal for modern businesses that prefer managing finances on-the-go with smartphone convenience.
- Mobile-first interface
- Automated VAT calculations
- Banking integration
- Spreadsheet imports
Best for: Mobile users, small businesses, sole traders
Sage Accounting
Industry leader with scalable solutions for businesses of all sizes. Sage offers robust MTD compliance with strong integration capabilities for growing businesses.
- MTD for VAT & Income Tax
- Payroll and HR integrations
- Cloud-based with mobile app
- Scalable solutions
Best for: Small to medium businesses, accountants
Choosing the Right MTD Solution
Selecting the perfect MTD software depends on several factors:
For Budget-Conscious Businesses
If cost is your primary concern, consider MTDSorted (free unlimited VAT submissions), QuickFile (generous free tier), or Clear Books (free for sole traders). These options provide excellent value without compromising on compliance.
For Spreadsheet Enthusiasts
Love your Excel sheets? 123 Sheets and Easy MTD VAT are perfect bridging solutions that maintain your familiar workflow while ensuring MTD compliance. You can continue using your existing spreadsheets with minimal disruption.
For Growing Businesses
Xero, QuickBooks, and Sage offer comprehensive solutions that scale with your business. These platforms provide advanced features like automated reconciliation, detailed reporting, and extensive integrations.
For Mobile-First Users
ANNA Money leads the way with its mobile-first approach, perfect for businesses that prefer managing finances on smartphones and tablets.
Ready to Become MTD Compliant?
Don't wait until the last minute! MTD compliance is not just a legal requirement – it's an opportunity to modernise your business processes and gain better financial insights.
Start by calculating your tax obligations using our comprehensive tax calculators, then choose the MTD software that best fits your business needs and budget.
Final Thoughts
Making Tax Digital represents a significant shift in how UK businesses manage their tax obligations, but it doesn't have to be overwhelming. With the right software solution, MTD compliance can actually improve your business efficiency and financial visibility.
Whether you choose a comprehensive accounting package like Xero or QuickBooks, a budget-friendly option like MTDSorted, or a bridging solution like 123 Sheets, the key is to start your MTD journey sooner rather than later. This gives you time to familiarise yourself with the software and ensure smooth compliance when deadlines approach.
Remember, all the software solutions mentioned in this guide are HMRC-recognised and designed to make your tax compliance as straightforward as possible. The digital future of UK taxation is here – and with the right tools, your business will be ready to thrive in it.