If you fall within the scope of the new reporting regime (most sole traders will do, eventually), then accounting software is no longer a ‘nice to have’. It will become essential.
What MTD for Income Tax means (in simple terms)
Under MTD for Income Tax, sole traders and landlords need to keep digital records of their business income and expenses and submit updates via compatible software to HMRC.
You will usually submit quarterly updates during the tax year, followed by year-end finalisation.
Read the official government guide here: Use Making Tax Digital for Income Tax.
Check if you are in scope
The requirement to use MTD for income tax depends on your annual turnover. From April 2026, only those with a turnover of £50,000 will have to comply.
Find out if and when you have to use MTD here: Check if you’re eligible for Making Tax Digital for Income Tax.
If you already know you will be required to join, our step-by-step guide to the practical process is here: How to register for MTD for Income Tax.
Why accounting software is essential under MTD
The ‘digital’ aspect of the new system doesn’t just mean submitting your tax records digitally; it also requires capturing and storing your records digitally.
Accounting software is essential because it performs three functions in one.
- It captures and stores your records digitally in a structured way, covering sales, costs, categories and dates.
- It keeps those records consistent so you can produce usable totals for each reporting period.
- It connects to HMRC, allowing you to submit updates and final figures through the MTD system.
HMRC’s software guidance is worth reading because it spells out what compliant software must do: Choose the right software for Making Tax Digital for Income Tax. You can also browse the official list here: Find software that works with Making Tax Digital for Income Tax.
What about spreadsheets?
Spreadsheets have always been an obvious bookkeeping solution for small business owners – they’re easy to use, cheap and widely used. However, under the MTD rules, a simple spreadsheet can’t handle all your reporting needs.
The main problem is submission. You can store your transactions and records on a spreadsheet, but you can’t submit the data directly to HMRC. You’ll end up needing to purchase bridging software to submit your data, adding complexity to your record-keeping rather than simplifying it.
We explain the trade-off in more detail in this article: Should you use accounting software or stick with spreadsheets?
Software is not just for HMRC; it helps you run the business
For many sole traders, MTD is something they could do without – it’s another bit of red tape after all. However, you might be surprised at how many other benefits you can gain from using accounting software.
90% off Xero Accounting Software for 6 months for ByteStart readers!
Fully compatible with Making Tax Digital (MTD) for sole traders from April 2026.
1) Bank feeds reduce data entry and mistakes
Most accounting packages connect directly to your bank and import transactions automatically via Open Banking. You still need to categorise items correctly, but you are no longer typing every payment into a spreadsheet. That matters when quarterly updates become routine.
2) A quarterly rhythm keeps you close to the numbers
Quarterly reporting means you can’t ignore bookkeeping for the entire year until your tax return is due. The software keeps your records updated, so you can view your cashflow and outstanding invoices instantly.
3) Better records reduce risk
If your records are stored digitally, you can demonstrate that you’ve taken reasonable care with your bookkeeping. You can store your receipts, invoices and any notes in the cloud in case you ever need to answer any HMRC enquiries.
4) Easier collaboration with an accountant
If you use an accountant, cloud software usually makes their work faster and more accurate. They can review your data, make adjustments and answer questions without endless file sharing. This is a massive benefit.
Choose the right software for your business
There is no one-size-fits-all software – the best product depends on how your business trades. A low-volume sole trader has different needs from a VAT-registered business with regular expenses and multiple income streams.
For our practical comparison of the leading providers, visit which is the best accounting software for self-employed people.
Get prepared for MTD without the stress
Most sole traders and landlords will eventually need to register for MTD, depending on their annual turnover.
You do not need a perfect bookkeeping system from day one, but here are some simple steps to prepare for MTD.
- Confirm your MTD start date via HMRC’s eligibility checker. If your turnover is £50,000 or more, you need to start reporting from April 2026.
- Choose one accounting software system, and familiarise yourself with it.
- Connect your business bank feed and set up basic categories.
- Spend a short time each week updating your records and explaining any transactions.
- Review your figures before each quarterly update.
Some useful resources
Here’s a recap of some useful ByteStart resources to help you prepare for MTD:
From £37.50/m
From £49/m