Choosing the right software for Making Tax Digital for Income Tax
Making Tax Digital for Income Tax is going to change how sole traders and landlords manage their finances. You will have to keep records and update them every quarter. So choosing the software is a big decision. It can affect how easily you meet your obligations and how confident you feel about your numbers.
If you are trying to decide which software to use, do not just look at what the companies say about their products; be clear about what you need. This guide will help you make a choice.
What does Making Tax Digital for Income Tax require?
Before you choose any software, you need to know what it does. Under Making Tax Digital for Income Tax, you will have to:
- Keep records of your income and expenses
- Send updates to HMRC every quarter
- Complete an End of Period Statement
- Send a declaration
The software you choose must be compatible with HMRC systems and able to handle these tasks. HMRC has a list of recognised software, so check whether the provider you are considering is on it.
Think about your needs, not just the features
It is easy to get caught up in lists of features, but start by thinking about your situation.
- Are you a trader, landlord or both?
- What sources of income do you have?
- Do you do your bookkeeping, or do you hire an accountant?
- How comfortable are you with tools?
For example, a landlord with one or two properties may only need simple software to record rental income and expenses and submit quarterly updates. In contrast, someone with multiple properties or additional income streams may need more advanced software with detailed reporting and integration features.to integrate with other systems.
Choose software that matches your level of income complexity. This will save you time and reduce frustration later.
Ease of use is important
Software can only help you if you use it consistently. Look for a platform that’s easy to navigate and has clear instructions/support. If you log in and feel unsure where to start, it is probably not the software for you.
Many providers offer trials. Try them out. See how easy it is to:
- Record income and expenses
- Upload receipts
- Categorise transactions
- Generate reports
If it feels hard to use during the trial, it is likely that it will not get better with time.
Check if the software is compatible with Making Tax Digital
Not all accounting software is fully compatible with Making Tax Digital.
- Make sure the software is recognised by HMRC for Making Tax Digital for Income Tax.
- Check if it supports submissions and final declarations.
- See if it is regularly updated to reflect changes in tax rules.
As MTD continues to evolve, software providers need to keep pace with HMRC requirements. A provider that actively updates its system will help you stay compliant without extra effort.
Consider how well the software integrates with your existing systems
If you already use tools for invoicing, payroll or expense tracking, check if your considered Making Tax Digital software integrates with them. Good integration can reduce data entry and minimise errors. It can also save you time when you submit your updates.
For example, linking your bank account can make it easier to keep records. If you work with an accountant, check if they are familiar with the software. This can make it easier to work together.
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Think about the scalability
Your needs may change over time. If you expect your business or property portfolio to grow, choose software that can grow with you. Switching systems later can be time-consuming and may involve data migration challenges.
- Choose software that can grow with you.
- Look for software that offers plans and additional features as you expand.
- Make sure it can handle different sources of income.
Even if you start simple, it’s a good idea to leave room to scale.
Look at the costs. Not just the costs
The price of the software is important, but it is not the only thing to consider. Some software options may seem cheaper at first but they may charge extra for essential features. Others may offer a package that provides value over time.
Consider:
- The monthly subscription costs
- Any extra fees
- The time you will save by using the software
A higher cost can be worth it if it reduces admin time and helps you avoid mistakes.
Support and guidance are crucial
Even the best software can be confusing, especially when the MTD rules change.
- Check what support is available, such as chat or phone support.
- See if they have email assistance, help centres or video tutorials.
Reliable support can make a difference, especially if you are new to digital record-keeping.
Bridging software vs full accounting software
There are two types of Making Tax Digital solutions:
Bridging software: This connects your existing spreadsheets to HMRC systems. It can be useful if you prefer to keep records in Excel. It may not be efficient in the long run.
Full accounting software: This offers a solution that includes record-keeping, reporting, and submissions.
For users, full accounting software is the better option, especially those looking for simplicity and automation.
Data security and reliability
You are going to store financial information so security is very important. You should not overlook this and check that the software you are considering has an appropriate focus on security. In particular, look for features that include:.
- Secure data encryption
- Regular backups
- Strong user authentication
- Compliance with UK data protection standards
Reliability is also very important; if the software experiences frequent downtime or technical issues, it can disrupt your work and cause you a lot of stress. This is especially true around submission deadlines.
Reviews and recommendations
It is very helpful to see what other users think of the software.
Look for reviews that talk about:
- How easy the software is to use
- Customer support
- How reliable is the software
- Value for money
Be careful of reviews that are overly positive or lack sufficient detail. Focus on reviews that give feedback about real experiences. If you work with an accountant, their opinion can be very valuable as they will have used a number of platforms and will know what works well.
Final Thoughts
Making Tax Digital for Income Tax is a significant shift, but the right software can make the transition much smoother.
Focus on what matters most to you; whether it is ease of use, reliability, compatibility, or support. Avoid being swayed by features you are unlikely to use, and think about how the software will fit into your daily routine.
With a thoughtful approach, you can choose a solution that not only keeps you compliant but also helps you stay organised and in control of your finances.
If you are unsure where to start, speaking with an accountant can help you narrow down your options and choose software that aligns with both your current needs and future plans.
Author
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
