If you are VAT-registered, you generally need to keep digital VAT records and file your VAT Returns through compatible software, whatever your turnover, unless HMRC has exempted you. You can still use spreadsheets if they are linked to HMRC through bridging software. MTD for Income Tax began on 6 April 2026 for sole traders and landlords registered for Self Assessment with qualifying income over £50,000, and it widens to £30,000 from April 2027. HMRC has said it does not intend to introduce MTD for Corporation Tax. The right software depends on how you work, so use HMRC’s software finder to confirm that a product supports the service you need, then check the provider’s own site for plan details.
- MTD for VAT applies to VAT-registered businesses of every size, including voluntary registrations below the registration threshold, unless an exemption applies.
- Bridging software is a valid route for spreadsheet-based records, provided data passes digitally to HMRC.
- MTD for Income Tax applies where qualifying income is over £50,000, £30,000, and £20,000 in the relevant earlier tax years.
- Limited companies follow MTD for VAT if registered, while MTD for Income Tax applies to individuals, not companies.
- Check HMRC’s software finder for compatibility before you commit to any product.
Ask ten business owners about MTD for small businesses, and you will probably hear ten different answers. Some still think MTD for VAT is yet to arrive even though it already applies to VAT registered businesses. Some assume it only concerns large companies. A few believe that being under the VAT threshold lets them off the hook. Some of those beliefs are simply incorrect rather than partly correct, which is why so many people choose software in a rush a week before a deadline.
If you are VAT-registered, MTD for VAT is not something to prepare for. It is how you already file. The real question is which software will make your VAT submissions easy, and which will leave you retyping figures and chasing receipts every quarter. In this guide, we walk through what the rules require, when each phase starts, how the main tools compare, and how to choose without overthinking it.
What Is MTD for Small Businesses, and Who Does It Apply To?
Making Tax Digital is HMRC’s long-running plan to move tax records and reporting away from paper and manual entry. For a small business, it shows up in three places, and they work quite differently.
MTD for VAT
This rule applies right now to VAT-registered businesses. That covers sole traders, partnerships, limited companies and landlords whose property business is registered for VAT. If your business isn’t VAT-registered, MTD for VAT doesn’t apply to you. In practice, you keep your VAT records digitally and file each return through software linked to HMRC. A few businesses have an HMRC exemption, for example where using digital tools is not reasonably practicable, but exemptions are the exception. You can read the details in HMRC’s VAT Notice 700/22.
MTD for Income Tax
MTD for Income Tax currently applies to individuals with self employment or property income rather than limited companies. It covers sole traders and landlords registered for Self Assessment whose qualifying income from self-employment and property is over the relevant threshold. During the tax year, you send quarterly updates. After the year ends, you finalise your figures in compatible software, make any required adjustments and submit your Final Declaration by the relevant deadline.
MTD for Corporation Tax
You can safely stop worrying about this one for now. HMRC confirmed in July 2025 that it does not intend to introduce it. Limited companies continue to meet their Corporation Tax filing obligations outside MTD, and HMRC has said it is working on a different approach to corporation tax administration, so keep an eye out for future announcements.
When Are They Bringing In MTD for Small Businesses?
For VAT, they already have. MTD began for VAT-registered businesses above the registration threshold in April 2019 and was extended to all VAT-registered businesses from April 2022, unless exempt.
If you are VAT-registered today, MTD for VAT will normally apply unless HMRC has exempted you or an existing exemption covers you.
Income Tax is where the dates still matter. The first phase began on 6 April 2026 for people with qualifying income over £50,000 in the 2024/25 tax year. The threshold falls to over £30,000 from 6 April 2027, tested against 2025/26 income, and to over £20,000 from 6 April 2028, tested against 2026/27 income. There is currently no confirmed date for anyone with less income than that. HMRC’s page on who needs to use MTD for Income Tax and when has the full details.
Qualifying income generally consists of gross self-employment and property income before expenses, although HMRC excludes certain income sources from the calculation. So someone with £35,000 of self-employment income and £18,000 of rental income could cross the £50,000 line even though neither source gets there alone. HMRC’s guidance on qualifying income sets out exactly what counts, and it is worth reading before you assume you are in or out.
Do I Need Software for MTD VAT?
Yes. Once you are VAT-registered, you keep your VAT records digitally, move data between systems without retyping it, and send your return through software that connects to HMRC.
The most common myth we hear is that turnover below the VAT registration threshold means you are exempt. It does not. The registration threshold, currently £90,000, is one of the tests that decides whether you must register for VAT in the first place. Once you are registered, whether compulsorily or by choice, MTD for VAT normally applies unless an exemption covers you. Thresholds can change, so check the current figure in GOV UK’s VAT registration guidance.
What Is the Best MTD VAT Software for Small Business?
There is no single winner. The best MTD VAT software for a small business is the one that fits your size, budget, and how you already work. Here is how the well-known names are generally described, though features, pricing, and plan limits change, so check each provider’s current details.
Xero
Xero is widely used by small businesses and accountancy firms, largely thanks to strong bank feeds, simple multi-user access, and a large marketplace of connected apps.
QuickBooks
QuickBooks combines invoicing, receipt capture and MTD-compatible VAT submission in one platform. Its mobile app lets you photograph receipts, send invoices and check your figures on the go.
Sage
Sage offers accounting software with MTD-compatible VAT submission, and payroll is available as an add-on within the same product range. Businesses can keep their records, VAT returns and staff pay in one ecosystem.
FreeAgent
FreeAgent offers invoicing, expense tracking and MTD-compatible VAT submission for freelancers, small companies and landlords. Some UK banks include It free with certain business accounts, but this depends on your account type and the bank’s eligibility criteria and terms, so check with your bank before relying on it.
Zoho Books, Clear Books and QuickFile
These are lower-cost options aimed at smaller businesses. Some offer free or lower-cost plans, although restrictions may apply based on turnover, users or functionality.
Xero vs QuickBooks vs Sage for MTD
If you are stuck between the three big names, think about what you value most. Xero tends to suit owners who expect to grow, want plenty of integrations, or work closely with an accountant. QuickBooks tends to suit people who want the simplest everyday experience. Sage tends to serve businesses where payroll and accounting need to sit side by side. Before choosing any of them, check HMRC’s software finder to confirm that the product supports MTD for VAT, and for Income Tax too if you need it. Then compare the plan’s price, features, and user limits on the provider’s own site.
Which Accounting Software Should I Use for a Small Business for MTD?
A quick way to cut through the noise is to answer a few plain questions. First, what are you actually registered for? VAT only, Income Tax only, or both will point you towards different tools. Then consider your structure, since some low-cost plans work for sole traders but not limited companies.
After that, look at what you already use. If your current package is compatible, switching may cost you more time than it saves. If an accountant works inside your file, ask what they prefer, because a shared platform saves a lot of back-and-forth. Finally, think two years ahead. Software that fits today but can’t handle extra users or growing transaction volume will soon become a chore to replace.
What Is the Cheapest or Free MTD-Compatible Software in the UK?
Cheap and free options exist, and for a simple business they can be perfectly adequate. Some providers offer a free plan for very small turnover, some banks bundle accounting software with a business account, and spreadsheet-based solutions can be cheaper than a full accounting suite, provided they are used alongside any compatible bridging software required for MTD compliance. The catch is that free plans usually come with limits. You might hit an invoice cap, find the plan only covers sole traders, or discover it handles VAT but not Income Tax updates. Before you sign up, check the product in HMRC’s software finder, read the plan’s limits on the provider’s site, and ask yourself whether you will still be happy with it in a year.
Can I Keep Using Spreadsheets? MTD Bridging Software Explained
You can. A spreadsheet can be part of your digital records, but it cannot file a return by itself. You use bridging software that reads the figures from your spreadsheet and sends them to HMRC, and the information should flow digitally from the spreadsheet to the submission software rather than being retyped.
Bridging is a fully valid route, and it works well when your records are simple, your spreadsheet is neatly structured, and you want to keep costs down. A full accounting package may suit you better if invoicing, bank feeds, payroll, several users, or accountant access matter to you.
What Does Compatible Software Mean, and What Is API Integration?
HMRC does not endorse particular products. Instead, it publishes a software finder, with separate options for VAT and Income Tax. A product can support one and not the other, so check that it supports the service you need, then confirm the plan’s features, pricing and limits with the provider.
API integration means the software can exchange information directly with HMRC’s digital services. A full accounting package can hold your digital records and submit your VAT Return itself. When you first connect, the software asks you to grant authority to access your data at HMRC. For MTD for VAT, HMRC says that authority lasts 18 months, and you can check or withdraw it at any time. HMRC says this authority is time-limited and must be renewed periodically, and your software should normally prompt you when it is due. If your return suddenly will not submit, an expired connection is one of the first things to look at.
What Do VAT-Registered Businesses Need to Know About MTD for Income Tax?
Plenty of VAT-registered owners are also sole traders or landlords, which means both regimes can apply to you at once. For taxpayers using the standard tax-year quarterly periods, Income Tax updates are due on 7 August, 7 November, 7 February and 7 May. Your software will confirm the periods and deadlines that apply to you. Your Final Declaration is due by 31 January after the tax year ends. Limited companies themselves sit outside MTD for Income Tax, but a director with rental or self-employed income in their own name may not.
HMRC can also grant an exemption where a person genuinely cannot be expected to keep digital records or use compatible software, including some cases of digital exclusion. Someone exempt still reports through Self Assessment. For most people, though, choosing software that handles both VAT and Income Tax from the start is the least stressful option, because running two systems side by side feels manageable in October and painful by the next deadline.
How Can Swiftacc Help with MTD for Small Businesses?
At Swiftacc, we are online accountants supporting small businesses, startups, and individuals across England and Wales, and MTD questions are among the most common we hear. We can help you work out whether MTD for VAT, MTD for Income Tax, or both apply to you, and then pick software that fits your size, structure, and budget.
Once you have chosen your software, we can handle the practical side: building your digital records, linking the software to your HMRC account, and preparing and filing each VAT return before the deadline. We also support sole traders, landlords and limited companies with their wider tax and compliance obligations. For VAT-registered businesses, this includes Making Tax Digital for VAT requirements, together with the related accounting and tax compliance work
Final Thoughts
MTD for small businesses is no longer a future problem. For VAT, it is already the rule, and for Income Tax, the phases arrive in April 2026, April 2027, and April 2028. The good news is that the right software makes it a quiet routine. Start from your own situation, shortlist two or three compatible products, and test them before you commit.
If you would rather not decide alone, get in touch with Swiftacc. We will help you choose, set up, and stay on the right side of HMRC.
Frequently Asked Questions
It depends on the tax. MTD for VAT applies to VAT-registered businesses. MTD for Income Tax applies to individuals whose qualifying income from self-employment and/or property is above the relevant threshold. HMRC can grant exemptions in some cases. A business that is not VAT-registered, and whose owner’s qualifying income is below those thresholds, is not currently required to use it.
The VAT registration threshold is currently £90,000. However, once you are registered, MTD for VAT normally applies regardless of your turnover, including if you registered voluntarily.
It depends on whether you are VAT-registered, not on your business structure. If you are, you must keep digital records and submit your VAT Return through MTD-compatible software, such as a full accounting package or bridging software connected to a spreadsheet. If you are not VAT-registered, MTD for VAT doesn’t apply to you.
A VAT-registered limited company must follow MTD for VAT. HMRC has said it does not intend to introduce MTD for Corporation Tax, and MTD for Income Tax applies to individuals, not companies.
