MTD Compatible Software: Free, Bridging & Cloud Options

What Makes Software MTD Compatible for Income Tax?

Under Making Tax Digital for Income Tax (MTD ITSA), HMRC will no longer accept manual entries made through the standard Online Self Assessment web portal for affected taxpayers. Instead, quarterly updates and the final declaration must be transmitted directly from software that communicates with HMRC via an Application Programming Interface (API).

To be considered "MTD compatible", a software product must be capable of:

1. Maintaining digital accounting records of income and expenditure in real time.
2. Generating four quarterly summaries of business or property income and sending them to HMRC.
3. Receiving digital confirmation messages and receipts back from HMRC.
4. Submitting the end-of-year Final Declaration by 31 January following the tax year end.

Spreadsheets and MTD: How Bridging Software Works

Many sole traders and landlords who have maintained accounting spreadsheets for years ask whether Excel or Google Sheets can still be used under MTD. The answer is yes, but with an essential condition: you must use bridging software.

Bridging software is a lightweight digital utility that reads summary figures directly from specified cells in your spreadsheet and submits them securely to HMRC's MTD system.

Advantages of Bridging Software:

• Low Cost: Typical bridging tools cost between £15 and £40 annually, compared to £150–£400/year for full accounting suites.
• No Process Change: You maintain your custom bookkeeping workflow in Excel or Google Sheets.
• Simplicity: Ideal for landlords with 1–3 properties or sole traders with uncomplicated income structures.

Free MTD Software Options in the UK

You do not necessarily have to pay monthly fees to comply with MTD ITSA. Several legitimate free software options exist:

• FreeAgent (via Bank Partnership): FreeAgent is a full-featured UK cloud accounting package. It is available completely free of charge (£0 forever) to anyone holding a NatWest, Royal Bank of Scotland, or Mettle business account who uses it as their primary operating account.
• HMRC Free Software List: HMRC maintains an official software register that includes free-tier packages designed specifically for low-income or simple sole-trader returns.
• Free Trial / Entry Tiers: Platforms like TaxCalc, VitalTax, and Absolute Tax offer low-cost or freemium tools for simple filings.

Understanding HMRC 'Digital Links' Rules

One of the strictest components of MTD compliance is the requirement for unbroken digital links across your accounting chain. A digital link exists where data is transferred electronically between software programs, spreadsheets, or modules without manual human intervention.

What is PERMITTED as a digital link:

• Linking spreadsheet cells using standard formulas (e.g., =SUM(A1:A50)).
• Exporting a CSV or XML file from sales software and importing it directly into your MTD accounting tool.
• Automated bank feeds downloading transaction logs into accounting software.

What is PROHIBITED (breaks digital links):

• Manually re-typing numbers from a paper summary or bank statement into your MTD submission software.
• Copying and pasting numbers (Ctrl+C / Ctrl+V) between two unconnected spreadsheets to compile a quarterly return.

Which Option Is Right For You?

Your choice depends on your business volume and complexity:

• Single Property Landlords & Simple Freelancers: A clean Excel spreadsheet paired with £20/yr bridging software is usually the most cost-effective solution.
• Active Tradespeople & E-commerce Sellers: Cloud platforms like Xero, QuickBooks, or FreeAgent with automated bank feeds save tens of hours per year on reconciliation.
• Co-owned Property & Multi-Trade Workers: Dedicated software prevents errors when splitting shared revenues or categorising multiple income streams.