7 things sole traders need to know about Making Tax Digital (MTD) software

Making Tax Digital (MTD) is no longer optional for most sole traders, and the key to staying compliant is having the right software in place. 

1. MTD means digital record-keeping

If you don’t already have it, you’ll soon need software that records your income and expenses, tracks VAT (if relevant), and submits updates directly to HMRC. It might feel like a big change at first, but having everything in one system can save hours of admin and prevent mistakes that could lead to penalties.

2. Only HMRC-recognised software will do

To meet MTD requirements, your software needs to be HMRC-recognised. This doesn’t mean HMRC recommends one brand over another, rather it ensures submissions are technically compliant. Using the wrong software can lead to late filing penalties and extra headaches.

3. Different software options

There are a few approaches depending on how you work:

• Integrated accounting software keeps all your income, expenses, VAT, invoices, and reports in one place, submitting updates directly to HMRC. Ideal if you want a comprehensive digital solution.

• Bridging software links your existing spreadsheets to HMRC, which is useful if you’re comfortable with Excel or Google Sheets, but don’t (yet) want to switch systems entirely.

• Bank account-integrated tools combine your accounting software with your business bank account, letting you manage payments, records, and submissions together in a single app.

4. Free vs paid software

For sole traders just starting out with MTD, free software can cover the basics: recording income and expenses and submitting quarterly updates. It’s simple and cost-effective, especially for businesses with fewer transactions. 

Paid options will often offer extra features like automated invoicing, bank feeds, multi-user access, and more detailed reporting. If your business is growing, a paid option can make compliance easier and reduce manual work.

5. Features to consider

It’s worth thinking beyond just whether it’s recognised by HMRC. 

The right tool should:

• Integrate directly with HMRC for submissions

• Store all digital records clearly and accurately

• Handle quarterly updates and your final declaration

• Track VAT correctly (if you’re registered)

• Offer support if you run into problems

• Fit your budget and transaction volume

Having these features can help your accounting workflow feel that bit more manageable.

6. The spreadsheet transition

Many sole traders still rely on spreadsheets. If this sounds like you, then there’s some good news: you don’t have to abandon them entirely. Bridging software allows you to continue using a familiar setup while staying compliant. The key is maintaining a clean, consistent structure in your spreadsheet and testing a few sample submissions before sending your first quarterly update to HMRC. 

7. Getting started

Step one is to see if you meet the income threshold for MTD compliance. Then it’s time to pick the software that suits your workflow and budget and sign up for MTD through your Government Gateway account.

The sooner you get into the routine, the easier it’ll become to manage your tax digitally. The right software can reduce errors, keep your records organised, and save you time, letting you focus on running your business (instead of worrying about compliance).