From 6 April 2026, HMRC will require sole traders and landlords with qualifying income above £50,000 to use Making Tax Digital (MTD) for Income Tax. That means every item of business or property income and expense must be captured digitally, reported quarterly, and submitted through HMRC-recognised software.

For owner-managed businesses in Sussex and Kent — and across the UK more broadly — picking compatible software is not just a compliance exercise. It is a decision that shapes your bookkeeping workflow, your software stack, and how data moves between the tools you already use.

The deadline is fixed. HMRC has confirmed it will begin auto-signing up non-compliant businesses from September 2026. The question is not whether you need compatible software, but which type best fits your income streams, your existing systems, and your working style.

What makes software "MTD-compatible"?

HMRC does not simply accept any accounting tool. To qualify as MTD-compatible for Income Tax, software must pass HMRC's recognition process, which tests whether the product can deliver three core functions:

• Create, store and correct digital records of self-employment and property income and expenses

• Send quarterly updates to HMRC — summaries of income and expenses, not tax returns

• Submit your end-of-year tax return by 31 January the following year

All software listed on the GOV.UK software finder has completed this process. HMRC does not endorse or recommend any specific product; it only confirms that a given tool meets the technical requirements.

The requirement applies to the submission path, not to how you record transactions day to day. You do not need to digitise every single expense the moment it happens — just the self-employment and property figures that flow into your MTD submissions. Other income sources — pensions, savings, dividends, partnership profits as an individual partner — must be reported on your tax return through the software, but you do not need to create digital records for them inside the MTD system.

Two types of MTD-compatible software

HMRC recognises two approaches, and your choice depends on how you currently record income and expenses.

Software that creates digital records

This type of software lets you build your digital records from scratch, or connect to existing tools such as a business bank account or receipt-scanning app. Products in this category usually handle the full cycle: creating records, sending quarterly updates, and submitting your year-end return.

Examples include Full Accounting products like Xero, QuickBooks Online, Sage, and FreeAgent — all of which HMRC recognises for both MTD for VAT and MTD for Income Tax. Some also link directly to your business bank account to import transactions automatically, or offer receipt scanning via mobile app.

This approach suits businesses that either do not currently use accounting software, or who are comfortable migrating their records into a new platform.

Software that connects to your existing records

Sometimes called "bridging software", this category sits on top of spreadsheets or other record-keeping tools you already use. If you maintain your books in Excel spreadsheets, bridging software can connect to them and deliver the quarterly updates and year-end submission HMRC requires.

Products in this category include VitalTax, 123 Sheets, and Forbes MTD. They do not replace your records; they bridge the gap between those records and HMRC's digital submission requirements.

This approach works well for businesses that already maintain well-organised spreadsheets and do not want to re-enter years of data into a new platform.

Can you use both types together?

Yes, but with a constraint. HMRC allows you to use more than one software product, provided you use only one product for each separate submission you make. For example, if you are both a sole trader and a landlord, you might use one compatible product for your self-employment records and a different compatible product for your property income. You could also use one product to create records and send quarterly updates, and another to submit your year-end return.

The key requirement is that the products you choose can work together without creating duplicate or conflicting submissions.

Which software features should you check?

Before committing to a product, confirm it can handle every aspect of your MTD obligations.

First, verify it supports all your income sources. If you run a business and own rental property, ensure the software handles both UK property and self-employment income in a single submission path.

Second, check that it can send quarterly updates and submit your year-end return. Some products offer quarterly updates but require a separate tool for the final submission — this adds complexity you may wish to avoid.

Third, confirm it can report other income sources — pensions, dividends, savings income, individual partner profits — even if you do not need to create digital records for those categories.

Fourth, check the accounting period options. HMRC allows standard tax year periods or calendar update periods. Your software must accommodate the calendar you use.

If you are also VAT-registered, check whether your existing VAT software is also compatible with MTD for Income Tax. Many businesses already use a product like Xero or QuickBooks for VAT that can handle both regimes, simplifying the overall setup.

Finally, assess pricing against your transaction volume. Free products are available for businesses with simple affairs — but they may limit the number of transactions, income sources, or agents who can access the account. A paid subscription removes those constraints and is often necessary for businesses with multiple income streams or an accountant managing their submissions.

How MTD software fits with Microsoft 365

Most SMEs in the 10-to-25 seat range already run on Microsoft 365. Your MTD software choice should complement, not compete with, that existing investment.

Cloud-based accounting platforms typically integrate with Microsoft 365 through secure API connections, allowing your accountants to collaborate via shared Teams channels, access files stored in SharePoint, and view financial summaries exported from Excel. This integration is worth considering if you currently manage financial data across multiple applications.

If your team already maintains spreadsheets on OneDrive or Excel Online, bridging software that connects to those existing records reduces the learning curve and data migration effort.

The key question is not whether MTD software and Microsoft 365 can coexist — they clearly can — but which integration model keeps your team's daily workflow clean and your records auditable.

What to do next

February is the last full month before the deadline. If you have not yet chosen software, now is the time to:

1. List your income sources (self-employment, UK property, foreign property, other)

2. Decide whether to create new digital records or bridge existing ones

3. Confirm your accounting period preference

4. Test the shortlisted product with a small batch of transactions before committing

Consult your accountant or bookkeeper before making a final choice. They can advise on which platform they are most comfortable working with and ensure your selected software supports multiple agents if you need collaborative access.

Frequently asked questions

Do I need to switch accounting software if I already use one for VAT?

Not necessarily. Many platforms that are MTD-compatible for VAT — such as Xero, QuickBooks Online, and Sage — are also compatible with MTD for Income Tax. Check whether your current VAT software appears on the HMRC software finder list for Income Tax before looking at alternatives.

Can I use spreadsheets and still comply with MTD?

Yes. If you currently record income and expenses in spreadsheets, bridging software can connect to those records and deliver the quarterly updates and year-end submission to HMRC. This avoids re-entering data into a new accounting platform.

Does HMRC recommend any specific software?

No. HMRC's software finder tool generates a personalised list based on your circumstances, but it does not endorse or recommend any particular provider. All listed software has completed HMRC's recognition process, but HMRC explicitly states it does not prefer one product over another.

What happens if I miss the 6 April 2026 deadline?

HMRC has confirmed it will begin auto-signing up non-compliant businesses from September 2026. While you will not face an immediate fine, the auto-sign-up process means HMRC will select the submission dates for you and may charge penalties for late quarterly updates or late year-end returns. It is far smoother to choose and set up compatible software before the deadline.

Can I use different software for my business and my rental property?

Yes, provided each submission uses only one software product. You could use one MTD-compatible product for your self-employment quarterly updates and a different compatible product for your property income submissions. HMRC simply requires that each separate submission pathway uses a single, recognised product.

Conclusion

Choosing MTD-compatible software is a practical decision with real operational consequences. The tools available range from full accounting platforms that build your records from scratch, to bridging software that connects to the spreadsheets you already use. The right choice depends on your income sources, your existing systems, and the way your team works day to day.

If you are unsure whether your current IT setup can support the transition smoothly, book a Security Triage Call to discuss your options with Infinite Cloud IT. We will assess your current environment against the requirements and help you choose a path that keeps your operations stable and your compliance clean.