Making Tax Digital for income tax is now live, affecting all sole traders and businesses in the UK generating £50,000 or more in turnover for the tax year 2024/25. The income threshold for MTD compliance will drop to £30,000 in April 2027 and £20,000 in 2028.
Long story short, if you’re self-employed, a sole trader, landlord, or CIS subcontractor, you’ll need to start recording and filing your accounts digitally with HMRC—to do that, you’ll need to find the best MTD software for your specific needs.
UWM Accountants has been helping businesses big and small for the past fifty years with all their tax and accounting needs, and now, with a suite of Making Tax Digital services. Putting my expertise into action, I’ve dug around and discovered what I think are the five best MTD software for sole traders working in the UK right now.
Contents
- What is MTD and will it affect you?
- Making Tax Digital best practices and considerations for sole traders
- The 5 best MTD software for subcontractors and sole traders
- Conclusion
What is MTD and will it affect you?
HMRC has introduced Making Tax Digital (MTD) to make the recording and filing of business accounts more transparent and accurate. It is a fully digital scheme which requires self-employed sole traders and businesses alike to make quarterly reports on their incomings and outgoings via officially approved software.
Most accountants will have been using MTD-approved accounting software for years, if not decades, already, so you can always outsource your accounting needs to a professional if you need to.
Making Tax Digital is likely to affect you if you’re a sole trader or CIS subcontractor. When it is slated to change the way you report and pay tax, however, depends on your income bracket.
If you make more than £50,000 a year, you should already be registered for MTD and using MTD software. If you make less than £50,000 but more than £20,000, you can expect to join the MTD scheme from either April 2027 or 2028.
Making Tax Digital best practices and considerations for sole traders
My top advice for any sole trader, CIS subcontractor or freelancer in the UK right now is: Don’t wait around, get MTD compliant now and save yourself potential penalty points, even fines, further down the line. Plan for the future by choosing software capable of handling where you foresee your business’s accounts and tax obligations to be 2-3 years down the line..
Here’s a checklist for getting MTD ready:
- Start keeping clear and accurate digital records of your incomings and outgoings
- If you’re not sure what the best software for Making Tax Digital is yet (keep reading to find out), then start by keeping a spreadsheet of your accounts
- Be consistent with your expense categories
- For example, make sure to file expenses under clear umbrella categories like “equipment” rather than lots of separate categories like “tools”, “safety gear”, and “work clothes”
- Make a habit of uploading expense receipts and invoices
- Take photos of physical receipts and upload them to your MTD software or to a safe digital storage file straight away. The best MTD software for sole traders offer smartphone apps to make this super easy
- Seek advice if you’re unsure
- New tax initiatives like MTD can be confusing at the best of times, so don’t be afraid to ask an accountant for help if you’re worried you’re doing things wrong
What you need MTD software to do
There are two types of HMRC-approved Making Tax Digital software.
- The first allows you to create and keep digital records of your accounts, file quarterly reports and your annual Self-Assessment return. It will usually do so by either integrating directly with your bank to automatically import your business transactions, allowing you to scan receipts and invoices or manually input your transactions.
- The second instead connects HMRC to your existing digital accounts. This type of software is called MTD ‘bridging software’ because it forms a bridge between your accounts and HMRC. If you already keep a record of your business transactions, income and expenses in a spreadsheet, for example, and don’t want to switch to a new style of accounting, you’ll need to find some MTD bridging software.
What your MTD software budget is
Although mandatory, Making Tax Digital software isn’t necessarily free. Whilst there are free apps and software packages available, they do tend to offer only basic functionality. Depending on your income, the size of your business, your plans for future scaling, and your CIS or VAT registration status, you may need to invest in a paid software plan to make the most of your switch to MTD.
Key features to look for to find the best MTD software
| Feature | What to check |
| Invoices and expenses | Does the software allow you to create, send and track digital invoices to your clients? Can you easily upload and categorise your business expenses? |
| Reconciling with your bank | Does the software automatically collect transactions from your business bank account and match them to your invoices/expenses? |
| VAT | Is the software VAT compatible? If you’re VAT-registered, it will be handy to use software you can use for both MTD and VAT in one place. |
| Smartphone compatibility | Is there an easy-to-use smartphone app for your chosen software, so you can keep your accounts up to date on the go? |
| Deadline reminders | Does the software send you reminders when your quarterly and annual report/tax return deadlines are coming up? |
| Live tax updates | Does the MTD software give you live estimates of your tax bill based on your uploaded income and expense statements? |
The 5 best MTD software for subcontractors and sole traders
Based on my own personal experience as director at UWM for the past 40+ years, here’s a look at the 5 best software apps for Making Tax Digital in the UK, perfect for sole traders.
Best overall – QuickBooks Sole Trader
All of the software on this list is high quality, but if you’re looking for a no nonsense, no frills, solid all-rounder, then you need look no further than QuickBooks’ Sole Trader plan.
QuickBooks Sole Trader has all the functionality you could ever need to look after cash flow, income and expense tracking, CIS, create budgets and reports, keep tabs on your tax bill, mileage and more. One of the best features is its mobile app, which makes digital accounting super easy for people working outside and on the go.
It’s got a decent User Interface (UI), but there is a lot going on, which can be both a strength and weakness. QuickBooks Sole Trader is one of the cheapest plans on this list, which for a ‘Best Overall’ winner is incredible news!
- Ease of use: 4/5
- Functionality: 5/5
- Special features: QuickBooks can scale with you as your business grows, with features on higher tiers designed to help you stay MTD compliant as you add employees, VAT, inventory and multiple projects.
- Drawbacks: The Sole Trader plan isn’t compatible with VAT-registered sole trader accounting
- Price: £
Best for user experience – FreeAgent
It’s easy for folks like myself, who work in tax every day, to forget how complicated accounting can seem to the average sole trader. Which is where FreeAgent really shines. This software is designed around the way self-employed folk think; it doesn’t use any complex accounting jargon and has a UI which is quick and comfortable to navigate.
FreeAgent is also inarguably the best MTD software for CIS subcontractors with limited income streams and little time for full-blown accounting. FreeAgent’s CIS workflow automatically treats income as a net receipt, because it knows that your contractor has already deducted tax on your behalf.
The app also makes digital record-keeping easy and straightforward, keeping you compliant year-round.
- Ease of use: 5/5
- Functionality: 4/5
- Special features: Probably one of the most attractive features of FreeAgent is that it is fully free if you have an eligible business account with one of the following banks: RBS, Ulster Bank, Mettle or NatWest.
- Drawbacks: It’s a little more expensive than other competing plans, and doesn’t necessarily have the sort of functionality you’d want if you planned to seriously scale your business.
- Price: £££
Best for mobile accounting – Coconut
Coconut is the simplest MTD software on this list, which is both appealing and a bit of a drawback. On the one hand, it’s the easiest accounting software to use for Making Tax Digital. On the other, it has the least functionality and so is limited in both scalability and the insights it can give you into your business accounts.
Designed specifically with single-person businesses, individual sole traders and contractors in mind, the real strength of Coconut lies in its mobile app. A super user-friendly app makes Coconut perfect for your everyday, straightforward sole trader needs, especially if you prefer to do most of your admin on your phone.
However, if you think you might need to scale your business beyond just yourself in future, or want software which can help you to improve your accounting practices, Coconut may not be the one.
- Ease of use: 5/5
- Functionality: 3/5
- Special features: The best mobile accounting app on this list.
- Drawbacks: Coconut is small scale and not suitable for businesses likely to scale beyond a single person.
- Price: £
Best for scalability – Xero
Speaking of scalability, if you’re in the market for contractor-friendly MTD software with capacity to grow, then Xero is for you. Alongside QuickBooks and FreeAgent, here at UWM we’re a proud Xero Gold Partner—meaning we’ve been using this software for years and for good reason: it’s some of the best in the business.
With automatic bank reconciliation, straightforward invoice creation and tracking, live reports and tax insights, CIS and MTD compatibility, Xero is a great choice for the sole trader who wants more than just simple accounting. I can highly recommend Xero’s MTD software for anyone who wants to really get to grips with their income and expenses—perhaps learning where they could be spending less and earning more, for example.
Xero’s also the best MTD software on this list for sole traders and small business owners looking to scale their business over the next 5-10 years.
- Ease of use: 4.5/5
- Functionality: 5/5
- Special features: Xero is compatible with a huge range of third-party apps and is the professional accountant’s “go-to” software.
- Drawbacks: There’s lots of detail available through Xero, which can be overwhelming.
- Price: ££
Best free – Sage Sole Trader Free
Sage is one of the biggest names in digital accounting and one of the only names on this list to offer a genuinely free, fully MTD-compatible software package, designed specifically for sole traders.
If keeping costs as low as possible is the aim of the game, then I would definitely suggest you take a look at Sage’s Sole Trader Free plan. For most basic accounting, reporting and Self-Assessment filing, it simply is the best app you’re going to find for free.
Sage Sole Trader Free has a really nice UI, a solid mobile app, and decent functionality. The only major drawback in the context of this list is that the free plan is deliberately limited in scope, meaning that whilst it may be perfect for sole traders just starting out, if your business grows, you may also outgrow Sage’s free package.
The good news is, even though an upgrade to the Sage Sole Trader plan costs, it’s still the cheapest plan on this list (at time of writing).
- Ease of use: 5/5
- Functionality: 4/5
- Special features: The only genuinely free MTD software for sole traders which does everything you need it to.
- Drawbacks: Sage’s free plan only allows up to 5 invoices per month, which can be restrictive depending on the size of your business. Furthermore, CIS subcontractors will need to upgrade the free plan to Sage’s monthly Sole Trader plan to access CIS workflow capabilities.
- Price: Free! (or £)
Conclusion: Get MTD compliant today!
To conclude, there’s a lot to consider when it comes to the best Making Tax Digital software for sole traders and CIS subcontractors, but don’t be daunted.
- If you want simple accounting on your smartphone, try Coconut.
- If you want cheap and cheerful, try Sage
- If you want something that will scale with your business, try Xero
- If you want ease of use without losing functionality, try FreeAgent
- And if you want a solid all-rounder that’s good value for money, try QuickBooks
Whatever you choose, just remember, you can always seek advice or even outsource your MTD accounting and reporting to a professional to shake off the stress and responsibility of doing it yourself.
Here are answers to some of the questions we’re asked most often about Making Tax Digital and the best MTD software to use for sole traders and businesses.
