Making Tax Digital Software: How to Choose MTD-Compatible Tools

Making Tax Digital for Income Tax became mandatory on 6 April 2026, and it requires software HMRC recognises. There is no way around that part — you cannot type figures into HMRC's website, and paper records are not sufficient.

HMRC publishes the definitive list, and you should start there. Its software finder asks a few questions about your income sources and accounting period, then returns a personalised list. Every product on it has been through HMRC's recognition process. No third-party article — including this one — should be your source of truth for whether a given product is recognised.

What the official guidance explains less well is the decision: which of the two types of software you need, when running two products beats running one, and what "free" actually gets you. That is what this guide covers.

What Your Software Must Do

Per HMRC's guidance, your software needs to:

• Create, store, and correct digital records of your self-employment and property income and expenses
• Send quarterly updates — cumulative summaries, not tax returns
• Submit your tax return by 31 January the following year, including income sources outside MTD

Two things worth knowing. You only need digital records for self-employment and property income and expenses — pensions, dividends, savings and the like still get reported on the tax return, but you do not have to keep them as digital records. And there is no End of Period Statement: that step was removed before MTD went live, so it is quarterly updates, then the tax return.

If a guide still tells you to file an EOPS, it predates the change.

The Two Types of MTD Software

HMRC divides recognised products into two categories, and picking the wrong one is the most common expensive mistake.

Software That Creates Digital Records

This builds your records from scratch. HMRC lists three ways such products let you do it:

• linking to your business bank account to import transactions automatically
• scanning receipts and invoices
• entering income and expenses manually

These products usually handle everything — records, quarterly updates, and the tax return. Full accounting platforms (Xero, QuickBooks, FreeAgent, Sage) sit here, as do lighter tools aimed at sole traders and landlords.

Software That Connects to Your Existing Records

Often called bridging software. If you already keep income and expenses in spreadsheets or another tool you have no intention of abandoning, bridging software reads those records and makes the submissions to HMRC.

This is the cheaper path if your existing system genuinely works. It is the wrong path if your "existing system" is a shoebox and a bank app, because bridging software will not fix the underlying record keeping — it only submits what you already have.

You Can Use More Than One Product

This is the part most comparison articles skip, and it is stated plainly in HMRC's guidance: you may use more than one software product.

The examples HMRC gives are a builder who is also a landlord using different products for each business, and — more relevant to most people — using one product for creating records and sending quarterly updates, and another for submitting the tax return.

The one constraint: you can only use one product per submission. A landlord cannot split their property quarterly updates across two tools. Different tools for different businesses is fine; two tools filing the same return is not.

If you use more than one product, you are responsible for making sure they work together and cover every requirement between them — including the digital links rule, which means data moves between them automatically rather than by you re-typing totals.

This matters because the two-layer setup is genuinely common: something good at capturing and organising the underlying records, feeding something recognised for filing. HMRC's own finder asks whether you want software that creates digital records or connects to existing ones — the question only makes sense because both are legitimate.

What "Free MTD Software" Actually Means

"Free MTD software" is one of the most searched phrases around this topic, and the honest answer has a caveat attached — one HMRC states itself.

Free products are available for people with simple tax affairs. But per HMRC's guidance, "there may be limits on how the product can be used, for example they could have a limited number of transactions."

That is the thing to check before committing. A free tier that covers 100 transactions a year is fine for a landlord with one property and a handful of costs. It is not fine for a trades business with weekly supplier invoices, and discovering that in February is an expensive way to learn.

The free landscape falls into three shapes:

HMRC's own tool — free, and aimed at straightforward cases: a single trade with low transaction volume. If your affairs are genuinely simple, start here before paying anyone.

Bank-provided software — several UK banks bundle MTD-compatible software with a business account. FreeAgent has long been free for NatWest, Royal Bank of Scotland, and Ulster Bank business customers, and other banks including Starling and Lloyds now offer MTD tools to their account holders. If you already bank with one of them, check what you are entitled to before subscribing to anything.

Free tiers from software vendors — Clear Books, Sage, and others offer free MTD products aimed at sole traders and landlords. Read the limits: transaction caps, income-source restrictions, and whether the free tier covers the tax return as well as quarterly updates.

Always confirm current status on HMRC's finder rather than on a vendor's marketing page or on this one. Free tiers change.

Paid Options: What You Are Actually Buying

If your affairs are past "simple", the paid platforms — Xero, QuickBooks, FreeAgent, Sage, and the landlord-focused tools — cluster around a similar monthly subscription, with headline prices that are heavily and near-permanently discounted in this market. Comparing advertised prices is close to meaningless; compare what happens after the introductory period ends.

What actually varies between them:

• Bank feeds — automatic transaction import. Standard now, but check which banks are supported
• Receipt capture quality — most include something. Quality varies enormously, and it is the feature you will use daily
• Income source coverage — foreign property, multiple trades, and partnerships are not universally supported
• Accounting period support — standard tax year, calendar update periods, or neither
• Agent access — whether your accountant can work in it, and whether multiple agents are supported
• HMRC Assist — a feature that flags errors in your return using HMRC's own data. Worth having; not in every product

How to Choose

Work through it in this order:

1. Check what you already have. If you are VAT registered you are already using MTD software — check whether it also covers Income Tax before buying anything else. If you bank with NatWest, RBS, Ulster, Starling, or Lloyds, check what is included with your account.
2. Decide which type you need. Do you want software that creates your records, or something that connects to records you already keep well? Be honest about the second one.
3. Check your income sources are supported. Foreign property, multiple trades, and partnerships are where products differ most.
4. Check your accounting period. Standard tax year, calendar update periods, or neither.
5. Use HMRC's finder. It filters on all of the above and only returns recognised products.
6. Ask your accountant before you commit. If they are filing on your behalf, their ability to work in your chosen software matters more than any feature comparison.

HMRC does not recommend any product or provider, and neither will we. The right answer depends on the four things above far more than on any ranking.

Where SparkReceipt Fits

SparkReceipt is not HMRC-recognised filing software. It does not submit quarterly updates and it does not file your tax return. If you need one product that does everything, it is not the tool — use HMRC's finder.

What it is, in HMRC's taxonomy, is a tool for the creating digital records half of the job — specifically the receipt-and-invoice-scanning route HMRC lists, which is where most people's records actually fall apart.

That makes it the first layer in the two-product setup HMRC explicitly permits:

1. Capture — the AI receipt scanner reads paper receipts, and email receipt fetching pulls digital ones out of Gmail, Outlook, or any IMAP inbox automatically
2. Reconcile — the bank statement extractor pulls every transaction from a PDF, CSV, or Excel statement and matches each one to the receipt that proves it, flagging the ones with nothing attached
3. Categorise — expenses sorted with VAT read from the document rather than assumed, line by line
4. Store — 10 years, comfortably beyond the 5-year retention requirement
5. Hand off — sync to Xero or QuickBooks Online, or export as CSV or Excel for any other tool

Your recognised software then files. The link between the two needs to be digital rather than re-typed, which a direct integration or a structured export satisfies.

Whether that is worth running as a second product depends on how much of your spending arrives as receipts rather than clean bank transactions. If you are a landlord with twelve transactions a year, one tool is plenty. If you are a trades business drowning in supplier invoices and card receipts, the capture layer is the part that decides whether your quarterly updates are accurate or approximate.

MTD Software FAQ

Do I have to use HMRC-recognised software?

Yes. Quarterly updates and the tax return must be submitted through software that has been through HMRC's recognition process. There is no manual entry route.

Can I keep using spreadsheets?

Yes, with bridging software that connects to them and submits on your behalf. Your spreadsheet becomes the digital record; the bridging product handles HMRC.

Is there genuinely free MTD software?

Yes, including a free tool from HMRC aimed at simple cases, bank-bundled options, and free tiers from commercial vendors. HMRC notes free products may limit how you use them — commonly a transaction cap. Check the limit against your actual volume.

Can I use two different products?

Yes. HMRC permits using one product to create records and send quarterly updates and another to submit the tax return, or different products for different businesses. You cannot use two products for the same submission, and the data has to move between them digitally.

Do I need to submit receipts to HMRC?

No. Quarterly updates are summary totals. You keep receipts as supporting evidence and produce them only if HMRC asks during a compliance check.

Does my accountant need the same software?

Not necessarily, but they need to be able to work with it. Check before you buy — and check whether the product supports multiple agents if more than one person works on your books.

What if my software is not on HMRC's list?

Ask the provider about their plans. HMRC's guidance notes more products are being added over time. Until it appears, you will need a recognised product for the submissions themselves — which may be a reason to run the two-product setup rather than switch everything.

Software categories, requirements, and the free-software caveat are taken from HMRC's "Choose the right software for Making Tax Digital for Income Tax" guidance (last updated 13 July 2026) and its software finder tool, both checked August 2026. HMRC does not recommend any product or provider. Product availability and pricing change — verify on HMRC's finder before choosing.