What is the best recommended software for Making Tax Digital?

Now that Making Tax Digital (MTD) has officially launched the next step is getting the right software so that you can keep compliant.

The tricky thing is that there’s lots of different software available and knowing which may be the best one for your needs isn’t easy. Plus, it’s essential that the financial software you choose is legally compliant and compatible with Making Tax Digital requirements, otherwise you may incur fines later down the line.

This guide from Brearley & Co’s taxation experts focuses on what the best recommended software is for completing your self-assessment.

However, we do still recommend getting in touch with us if you need extra advice about Making Tax Digital software, or any other tax related questions you might have.

Do I need accounting software for Making Tax Digital?

Yes, for Making Tax Digital you, or a professional representative on your behalf, will need to have accounting software to complete Making Tax Digital requests. Just using applications like Microsoft Excel alone will not be enough. This is because Microsoft Excel is not legally approved and doesn’t contain a ‘digital link’ between the records and submissions that MTD requires.

However, there are forms of software called ‘bridging software,’ which allows Excel to become compliant with Making Tax Digital’s requirements. Another issue with Microsoft Excel is that as data is often input manually, the risk of inaccuracies can be higher. Using specialist accounting software removes this issue, as well as improving accounting efficiency.

The types of software you need for Making Tax Digital are ones that let you create digital records by:

• Linking a business bank account to import transactions automatically
• Manually enter your income and expenses
• Scanning invoices and receipts

Is all accounting software compliant with Making Tax Digital?

Although a lot of accounting software is compliant with MTD, not all of it is. Like Microsoft Excel, you must make sure that the software you or your accountant is using fits alongside all of Making Tax Digital’s requirements. It’s worth noting that HMRC isn’t developing its own software that’s compliant with Making Tax Digital. This is why it’s incredibly important sole traders, business owners, and accountants find suitable software from third-party sources as HMRC is not creating its own.

What features does software need for Making Tax Digital?

The key features HMRC outlines your software needs to have for Making Tax Digital are that it:

• Allows you to report on all income sources to complete your tax return
• Supports all your income sources for Making Tax Digital for Income Tax
• Let’s you make submissions, quarterly updates, and submit your tax return to HMRC

Is free software suitable to use for Making Tax Digital?

Free software is suitable to use for Making Tax Digital, however, we suggest you or your accountant uses paid software. This is because the free software tends to be less developed and reliable. Paid software tends to have built in time-saving features, and you can be sure that it is fully compliant with MTD regulations.

We also recommend using paid ‘bridging software’ if you decide to continue using Microsoft Excel to manage your bookkeeping, rather than free alternatives.

What software is compliant with Making Tax Digital?

There are several types of software that are compliant with Making Tax Digital. The HRMC Making Tax Digital website does include a tool for finding suitable software, but these are our suggestions on the best software for MTD.

1. QuickBooks

QuickBooks is the piece of software that’s compliant with Making Tax Digital and one we highly recommend. QuickBooks is cloud-based and you can use it either on a desktop or mobile device via its dedicated app. QuickBooks is also revered for its high-quality reporting options and has various plans available for businesses of all sizes. QuickBooks also contains a Customer Hub, which helps to track leads and business relationships, if you are in the B2B sector.

QuickBooks offers you a free trial lasting 30 days to see if you like the software, before selecting a paid plan. Currently and for a limited time in line with the launch of MTD, QuickBooks is offering 90% off its monthly subscriptions, so now is a good time to explore QuickBooks.

2. Xero

Xero is one of the most popular types of accounting software for sole-traders and small businesses. Xero, like QuickBooks, is entirely cloud-based, and you can access it on a desktop or on a smartphone with the dedicated Xero app. Xero features real-time financial reporting, giving users better insights as to their cash flow. Xero can integrate with hundreds of third-party providers, such as Shopify, making it easy to track business finances in one place.

Xero has various reasonable pricing levels based around your business status and gives new users the opportunity to experience a free month’s trial to see how you get on using the platform.

3. Sage

Established over 40 years ago, Sage is one of the most widely used and popular forms of accounting software. Featuring different payment and software plans, Sage gives sole-traders assorted options when it comes to Making Tax Digital. Sage features real-time financial visibility, like Xero, multi-user collaboration, as well as AI and automation tools that help improve accounting efficiency. Security levels are high on Sage, helping keep financial information encrypted from potential security risks.

Sage does have a mobile app; however, the cloud version of Sage is the recommended way for users to engage with the software. If you decide to use Sage, Sage offers you 3 months free before starting your paid monthly plan, giving you time to see if it is the right platform for you.

Other ways we can help you with Making Tax Digital

As you can see there are a lot of software requirements you need to consider related to Making Tax Digital. Although Making Tax Digital is still only mandatory for some, by the 6th of April 2028 MTD will become mandatory for most people with Self Employment and/or income from land & property, which is why it’s better to get ahead sooner rather than later.

By choosing and beginning to use a suitable form of accounting software, you can take away the stress that may come from signing up to Making Tax Digital.

Plus, here at Brearley & Co., our team provide dedicated taxation support, helping you to prepare and understand everything related to Making Tax Digital.

If you have any questions about suitable software or MTD as a whole, get in touch with our friendly, expert team, and arrange a free meeting at one of our four offices in South Yorkshire – we’re happy to help.