Best Making Tax Digital Software for Accounting Firms (2026 Guide)

Making Tax Digital for Income Tax isn't coming any more. It's here. Since 6 April 2026, sole traders and landlords with qualifying income over £50,000 have had to keep digital records and send HMRC an update every quarter. By 12 August, more than 570,000 had signed up and more than 436,000 had sent their first quarterly update. In April 2027 the threshold drops to £30,000, which HMRC expects to bring in around 970,000 more people.

For accounting firms, that means more clients on a quarterly cycle, and a software stack that has to keep up. This guide covers the rules as they stand in September 2026, the HMRC-listed software UK practices use, and where the real workload sits.

Quick answer: Most practices won't need new filing software for MTD for Income Tax. Xero, QuickBooks, Sage and FreeAgent are all on HMRC's software finder, so clients who keep their books in them can send quarterly updates and the year-end tax return from software they already use. For clients who stay on spreadsheets, bridging software such as TaxCalc, CCH iFirm, IRIS, BrightTax or Capium sends the submissions. The bigger change is workload: every MTD client now needs categorised digital records four times a year, so the pressure moves to capturing receipts, invoices and bank statements on time.

MTD for Income Tax at a glance

• Qualifying income is turnover, not profit. It's total income from self-employment and property before expenses. A share of jointly owned property counts, so a half share of £50,000 in rent counts as £25,000. Partnership profit shares, employment income, pensions and dividends don't count. (HMRC guidance.)
• Partnerships aren't in yet. HMRC says partnerships will need to use MTD for Income Tax in future but hasn't set a date.
• HMRC is signing people up. From September 2026, HMRC is enrolling sole traders and landlords who had qualifying income over £50,000 in 2024 to 2025 but haven't joined, in stages over the coming months.
• Some people are exempt. Exemptions cover the digitally excluded and a few specific groups, such as trustees and personal representatives. HMRC lists them on its exemptions page.
• MTD for VAT is separate and already universal. Every VAT-registered business has had to use it since April 2022. Our MTD for VAT guide covers that side.

Quarterly update deadlines

Each quarterly update is a running total from the start of the tax year, not only the last three months. So a correction flows into the next update instead of needing a resubmission.

The year-end tax return, which HMRC used to call the final declaration, is due by 31 January after the tax year ends. For 2026 to 2027, that's 31 January 2028. Payment dates don't change. If you spot an error after the fourth update, you can resend the fourth update before you file the return. (HMRC guidance.)

What HMRC needs from your clients' records

MTD doesn't ask for scanned receipts. It asks for a digital record of each transaction, made before that quarter's update is sent. (HMRC guidance.)

• Three facts per transaction: the amount, the date, and the category, using the same categories as Self Assessment.
• Five years of retention: keep digital records for at least five years after the 31 January deadline for the tax year. You still keep the original invoices and bank statements, or copies of them, too.
• Digital links between products: when data moves from one product to another, it has to move by digital link. That means linked spreadsheet cells, a CSV or XML import, a file download and upload, or an API. Writing figures out again or copying and pasting them isn't allowed.

That rule is easy to misread. Typing a paper receipt into software creates a digital record, and that's fine. What breaks the rules is moving figures between products by hand, such as keying spreadsheet totals into a bridging tool. A receipt that becomes a coded entry in Xero through an API, or a CSV imported into FreeAgent, keeps the link intact.

Penalties, and the 2026 to 2027 grace year

• No penalties for late quarterly updates in 2026 to 2027. HMRC confirmed that people who joined in April 2026 won't get penalty points for late quarterly updates for the first 12 months. The updates still have to be sent before the tax return.
• Points apply to late quarterly updates from 2027 to 2028. Each missed update earns one point, and so does a late tax return. At four points HMRC charges a £200 penalty, then another £200 for every further miss. Points expire after 24 months if you stay under four.
• Late payment penalties apply to tax paid late. For 2026 to 2027, HMRC charges 3% of the tax owed at day 15, another 3% at day 30, then 10% a year. From 2027 to 2028, the two charges rise to 4% each. In a client's first MTD year, HMRC gives 30 days, rather than 15, to pay or agree a payment plan before the first charge. (HMRC penalties guidance.)

What your practice needs to set up as an agent

1. Use an agent services account. MTD for Income Tax runs through it, not the old Self Assessment agent login.
2. Bring clients across. Copy your existing Self Assessment authorisations into the agent services account, which makes you the main agent, or ask new clients to authorise you.
3. Decide who's main and who's supporting. A client can have one main agent and any number of supporting agents. Both can send quarterly updates, but only the main agent can submit the tax return. (HMRC guidance.)
4. Sign clients up. You'll need each client's name, date of birth, National Insurance number and business details. (HMRC's step-by-step for agents.)
5. Choose software for each type of client, then set a routine so records are ready before each 7th-of-the-month deadline.

The best MTD for Income Tax software for accounting firms

HMRC doesn't recommend any software. Its software finder lists the products that work with MTD for Income Tax and what each one covers. These are the ones we hear about most from UK practices, grouped by the job they do. Every product below is on the finder with agent access.

Prices change often, and several vendors are running launch offers, so check each vendor's site before you commit.

Bookkeeping software that files MTD itself: Xero, QuickBooks, Sage and FreeAgent

If a client already keeps books in one of these, keep them there. Each one records transactions, categorises them for Self Assessment, sends quarterly updates to HMRC and handles the year-end tax return. FreeAgent is a favourite with sole traders because it's free with a NatWest, RBS, Ulster Bank or Mettle business account, and its Practice Dashboard lets you watch every client in one place.

Bridging and tax software for spreadsheet clients: TaxCalc, CCH iFirm, IRIS, BrightTax and Capium

Some clients will never leave their spreadsheet. Bridging software reads it through a digital link and sends the update, so the client keeps their routine and you keep control of the submission. Many practices already pay for one of these as their tax software, so check that your version covers MTD for Income Tax as well as MTD for VAT. If you're on BTCSoftware desktop, note that Bright is moving MTD year-end returns to BrightTax.

Low-cost options for simple clients: Coconut, Pandle and Dext Solo

For a landlord with one property or a sole trader with a few hundred transactions a year, a low-cost app can be enough. Coconut and Pandle both list free versions on HMRC's finder, and both cover quarterly updates and the tax return. Dext Solo, a receipt app for sole traders, is also listed for quarterly updates, but not for the year-end tax return, so you'd still file that from other software.

The part MTD doesn't automate: getting documents in

Every product above can send an update. None of them can send an update for records that don't exist yet.

MTD moves bookkeeping from once a year to four times a year. A practice with 100 MTD clients used to chase 100 shoeboxes each January. Now it prepares 400 quarterly updates a year, each due a month and two days after the quarter closes, and each one needs receipts, invoices and bank statements captured and coded first.

In the UK practices we work with, most of that time sits in capture, not in the submission. It's typing receipts, splitting a PDF of 30 invoices, and keying 200 lines off a bank statement. That's the work tofu takes off your team.

Where tofu fits in an MTD workflow

tofu is AI bookkeeping software for accounting firms. It isn't MTD filing software, and it isn't on HMRC's list. It's the capture layer that feeds the software that is.

1. Documents come in. Clients email, upload or WhatsApp their receipts, invoices and bank statements. tofu splits multi-document PDFs and reads handwriting.
2. tofu codes every line. It learns each client's accounts, VAT codes and supplier patterns from their ledger history, applies them to new documents, and flags anything it isn't sure about.
3. Your team reviews. Green, amber and red markers show where to look, and hovering over a field shows it on the original document.
4. tofu publishes to the ledger. Bills, sales invoices and expenses go straight into Xero, QuickBooks or Sage. Bank statement lines post into Xero or export as CSV for QuickBooks and Sage. For FreeAgent, tofu syncs your accounts and tax rates and exports FreeAgent-ready CSV files.
5. Your MTD software sends the update. Every step moves data by API or file import, so the digital link HMRC asks for stays intact.

It handles the UK documents that slow practices down, from Barclays, Lloyds, HSBC and NatWest statements to CIS invoices.

tofu was a finalist for UK Practice App of the Year at the Xero Global App Awards 2026, and it holds a 4.9 out of 5 rating from 129 reviews on the Xero App Store (September 2026). In the UK, salon and spa group Alchemy & I has posted 1,080 supplier bills to Xero through tofu, coding about 3,500 line items across seven entities.

"tofu is very simple. It's very easy to navigate and use. It's beginner friendly. Even without a finance or accounting background, you can use it."

Renallie Dayrit, Finance Supervisor, Alchemy & I

Pricing is per extraction, with unlimited users and clients on every plan. Pro covers 800 extractions a month for £79 a month, or £72 a month on a yearly plan. Start a free trial with your own client documents, or see pricing. If you're comparing capture tools, see tofu vs Dext and tofu vs AutoEntry.

How to choose MTD software for your practice

• Start from the client, not the product. Clients already in Xero, QuickBooks, Sage or FreeAgent can stay put. Spreadsheet clients need bridging software. Paper clients need a capture routine before either.
• Check the finder entry, not the marketing. On HMRC's software finder, confirm the product covers each client's income types and both the quarterly updates and the tax return.
• Look for a multi-client view. You want to see which clients have sent which update without logging in to each one.
• Watch the pricing basis. Per-client fees add up fast across 100 quarterly clients. Flat or per-document pricing scales better.
• Plan the capture layer. Decide how receipts will reach you each quarter: email, WhatsApp, a shared folder or an app.

Frequently asked questions

What software do accountants use for MTD for Income Tax?

Most practices use the bookkeeping software their clients already have, such as Xero, QuickBooks, Sage or FreeAgent, all of which appear on HMRC's software finder. For spreadsheet clients, practices use bridging software like TaxCalc, CCH iFirm, IRIS, BrightTax or Capium. HMRC doesn't recommend any product.

Is there free MTD for Income Tax software?

Yes, from software companies rather than HMRC, which doesn't provide its own MTD software. Sage, Pandle and Coconut all list free versions on HMRC's software finder, and FreeAgent is free with a NatWest, RBS, Ulster Bank or Mettle business account. Free options suit simple clients, so check which income types each one covers.

When are MTD quarterly updates due?

Quarterly updates are due on 7 August, 7 November, 7 February and 7 May. Each one covers the tax year to date, from 6 April (or 1 April on calendar quarters) to the end of the latest quarter. The tax return is due by 31 January after the tax year ends.

Are there penalties for late MTD quarterly updates in 2026 to 2027?

No. HMRC won't give penalty points for late quarterly updates in the 2026 to 2027 tax year, the first 12 months of MTD for Income Tax. The updates still have to be sent before the tax return. Points apply from 2027 to 2028, with a £200 penalty at four points.

Do receipts need to be stored digitally for MTD?

No. MTD needs a digital record of each transaction, with its amount, date and category. Original receipts, invoices and bank statements can stay on paper, or you can keep copies. Records must be kept for at least five years after the 31 January deadline.

Can clients keep using spreadsheets for MTD?

Yes, with bridging software. The spreadsheet holds the digital records, and bridging software reads it through a digital link and sends the update to HMRC. Figures can't be retyped or copied and pasted between products.

Does MTD for Income Tax apply to partnerships?

Not yet. HMRC says partnerships will need to use MTD for Income Tax in future but hasn't set a date. A partner's share of partnership profit doesn't count toward the qualifying income threshold.

Is tofu MTD-compatible software?

tofu isn't MTD filing software and isn't on HMRC's software finder. It's the capture layer that creates the digital records: it reads receipts, invoices and bank statements, codes them, and publishes them into Xero, QuickBooks or Sage, or exports import files for FreeAgent. Your MTD-compatible software then sends the update to HMRC.

Sources

• HMRC, Find out if and when you need to use MTD for Income Tax
• HMRC, Work out your qualifying income
• HMRC, Send quarterly updates and Create digital records
• HMRC, Penalties for MTD for Income Tax (updated 30 March 2026)
• HMRC, Choose agents for MTD for Income Tax and MTD for Income Tax as an agent: step by step
• HMRC, Check what to do if HMRC has signed you up (updated 11 September 2026)
• HMRC news, 436,000 sole traders and landlords make their tax digital (12 August 2026) and 864,000 sole traders and landlords face new tax rules (5 February 2026)
• HMRC, Find software for MTD for Income Tax
• Vendor pages: Xero UK pricing, QuickBooks UK pricing, Sage Making Tax Digital, FreeAgent pricing, TaxCalc MTD Quarterly Filer, Capium pricing, Coconut pricing

Rules and prices checked against GOV.UK and vendor sites in September 2026.