If you’re self-employed or a landlord, you may already be asking: what is MTD-compatible software, and which one should I use? With Making Tax Digital (MTD) for Income Tax rolling out from April 2026, this is an important question to answer now.
What is MTD-compatible software?
Making Tax Digital compatible software is HMRC-recognised accounting or record-keeping software that connects directly with HMRC. It allows you to:
- keep digital records of your business or property income and expenses
- send quarterly updates to HMRC instead of filing a single Self Assessment return
- make adjustments and submit a final declaration each year
Without MTD-compatible software, you won’t be able to meet HMRC’s new requirements.
What software options are available for Making Tax Digital?
HMRC maintains a full list of approved MTD-compatible software providers. These range from full-featured accounting systems to simple apps designed for digital record keeping. The list is regularly updated, and you can view it on GOV.UK here: Find software that works with Making Tax Digital for Income Tax.
This gives you the flexibility to choose software that best suits your business size, budget, and needs.
Is there free MTD-compatible software?
Yes – HMRC has confirmed that some free Making Tax Digital compatible software will be available, mainly aimed at those with the simplest tax affairs. However, free versions may have limited features and might not offer the wider tools that help you run your business efficiently (like invoicing, bank feeds, or expense capture).
For most businesses and landlords, it makes sense to choose a paid, full-featured option that not only keeps you compliant but also saves time and gives you real-time financial insights.
Why Cottons recommends Xero
While HMRC recognises many Making Tax Digital compatible software providers, at Cottons we’ll be using Xero with our clients. Here’s why:
- Efficiency – using one system across our client base helps us process updates faster, with fewer errors.
- Expertise – we have a strong relationship with Xero and understand the software inside-out.
- Training and support – our team are Xero specialists, so we can train you properly and resolve queries quickly.
- Future-proofing – Xero isn’t just about MTD compliance; it gives you real-time financial data, automates admin, and scales as your business grows.
How we’ll support your transition
If you’re not yet using digital tools, we’ll help you migrate from spreadsheets or paper records to Xero. From setup and onboarding to training and quarterly update submissions, our Digital Champions will make sure you’re fully compliant and confident.
When it comes to Making Tax Digital compatible software, there are a variety of HMRC-approved options available – including some free tools for those with the simplest tax needs. However, for most self-employed people and landlords, choosing a comprehensive solution like Xero makes the process much easier.
At Cottons, we recommend Xero because we know it inside-out, we can provide tailored training and support, and it gives you more than just compliance – it helps you save time, stay organised, and understand your finances better throughout the year. By preparing early and working with us, you can approach MTD with confidence rather than stress.
