From April 2026, qualifying sole traders and landlords must use HMRC-approved software to comply with Making Tax Digital (MTD) for Income Tax. It is therefore important to ensure you have the right software for your needs that is compatible with MTD.
There are two types of software which can be used:
Option 1 - Full-feature accounting systems
Full-feature accounting systems handle end-to-end compliance, from digital record-keeping and categorisation, to quarterly submissions and Final Declaration. These cloud-based systems - best for those who want automation, consolidated records, richer reporting and scalability - have the following features:
Auto-import bank transactions
Scan and log invoices
Send quarterly updates and final declarations
Include other non-business income (interest, dividends etc) on your digital return
Option 2 - Bridging software
Bridging software connects your spreadsheets or legacy system to HMRC via secure APIs. These systems are best suited to users who prefer to use Excel, simple businesses with few transactions, or those who need to retain the use of a legacy system for commercial purposes. Features include:
mapping spreadsheet data to HMRC update formats
quarterly updates and final declaration submissions
How to choose the right software
Compliance – Always ensure the software is on HMRC’s approved list for Making Tax Digital for Income Tax purposes.
Workflow preferences – Moving to MTD is an opportunity to review your current processes, and the software you choose may allow for these to be streamlined, with tasks automated and manual work reduced.
Cost considerations - Basic apps or bridging solutions are low cost. Full-feature systems usually carry monthly fees, but offer broader features, scalability and long-term efficiencies. Other costs to consider include onboarding and training.
Business complexity – Businesses expecting growth, with multiple income streams or rental portfolios, may benefit from a full platform solution or even the use of multiple software programmes, which integrate digital records with reporting. Full platform solutions are more adaptable than bridging solutions. Smaller businesses or landlords with few transactions may find bridging from spreadsheets a more practical solution.
Usability and support – Look for user-friendly interfaces and reliable customer support, and consider features such as bank feeds, auto categorisation and deadline reminders. Full-feature systems often include these features and help users avoid manual errors. Look for smooth onboarding processes and clear tutorials from the software provider, and if you work with an accountant, ensure they endorse and support the software chosen.
Reporting and analytics – Take the opportunity to evaluate what reporting is needed out of the software and factor this into the software decision-making. Bridging solutions will only offer basic summary outputs, whereas full platform solutions will offer many reporting options.
To choose the right MTD solution, start by auditing your current systems – whether you rely on spreadsheets or already use cloud software – then define your requirements, thinking about transaction volume, integrations, reporting needs, budget, and your longer-term business plan.
Most providers offer free demos or trial periods, and you’ll need to have your software in place well before April 2026, when compliance becomes mandatory. If you haven’t already found MTD-compatible software, you will need to ensure you do so as a priority, and that your accountant can access, review, and submit via the system.
If you would like support in choosing your software, setup, and the compliance process, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
