Making Tax Digital for Income Tax / Lesson 5 of 7
Choosing compatible software
The expensive option is not the one that costs the most.
The short answer
- ✓ Only software on HMRC's recognised list can be used for MTD
- ✓ Match the tool to your transaction volume and income types
- ✓ Check multi-business support if you have both trade and property
- ✓ Trial with real transactions before subscribing
Compatible means one specific thing
Software is only usable for MTD if HMRC recognises it as compatible. Being good accounting software is not sufficient: it has to be able to submit quarterly updates and the final declaration through HMRC's systems.
HMRC publishes the list of recognised products, and it is the only list worth trusting. A product's own marketing claim is not the same as appearing on it.
Three broad options
| Option | Suits | Watch out for |
|---|---|---|
| Full accounting software | Businesses with volume, invoicing, or an accountant | Paying for features you will never open |
| Simple MTD-specific tools | Sole traders and small landlords | Growing out of it if the business expands |
| Spreadsheet plus bridging software | People already comfortable in a spreadsheet | The manual habits that break the digital link |
What actually matters when choosing
- It is on HMRC's recognised list. Non-negotiable, and check it yourself.
- It handles your income types. Some products do self-employment well and property badly, or vice versa.
- It supports multiple businesses if you have both trade and property.
- Bank feeds, which remove most of the manual entry and therefore most of the errors.
- Your accountant can access it, if you use one. This is worth asking before you buy, not after.
The bit HMRC does not spell out
The cost that matters is not the subscription. It is the time you spend fighting a tool that does not fit how you work, multiplied by four submissions a year, for years.
A landlord with two properties and forty transactions a year does not need a full accounting suite, and will resent one. A trader with hundreds of invoices will suffer in a minimal tool. Match the tool to the volume, not to the brand, and be wary of choosing something because a friend in a very different business likes it.
Second point worth knowing: some products are free at low volumes. If your business is small, look at the free tier before assuming a subscription is mandatory.
Before you commit
1. Confirm whether you are actually in scope yet
2. Check HMRC's recognised software list
3. Shortlist two or three that fit your income types
4. Trial them with real transactions, not demo data
5. Only then subscribeThe mistake is doing step 5 first, in a hurry, in the month the mandate arrives.
Common mistakes
- Buying before checking scope. You may have a year or more.
- Trusting marketing over HMRC's list. Only the list is authoritative.
- Choosing on price alone. The real cost is time, four times a year.
- Not checking your accountant can access it. Ask first.
Key takeaways
- ✓ Only software on HMRC's recognised list can be used for MTD
- ✓ Match the tool to your transaction volume and income types
- ✓ Check multi-business support if you have both trade and property
- ✓ Trial with real transactions before subscribing
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. How do you know if a product can be used for MTD?
2. You are a landlord with two properties and about forty transactions a year. What is the sensible choice?
3. What should you do before subscribing to MTD software?
Sources
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