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MTD — what should I actually do? And do I really have to pay for it?

Matt Parrett, Chartered Tax Adviser · eTax AI · July 2026 · 9 min read

We are days away from the first Making Tax Digital deadline on 7 August, and I still speak to people every week who haven't given it a moment's thought.

Mostly small sole traders. Not because they're disorganised — because nobody has explained it to them in plain terms, and the first thing they hear is that they now have to buy software.

So let's deal with the question I actually get asked, which isn't "how does MTD work?" It's: do I really have to pay for this?

The short answer is no. You don't. And I want to show you why, including where I'd spend money and where I wouldn't.

First — are you even in it?

Worth thirty seconds before you buy anything.

MTD for Income Tax applies to sole traders and landlords. The test is your turnover before expenses, not your profit. Add together your self-employment income and your gross rents.

If you're under those figures, none of this applies to you yet and you can stop reading. If you run a limited company, MTD for Income Tax doesn't apply to the company at all — though it may still apply to you personally if you have a trade or property income on the side.

Do I really have to pay?

No. This is the bit that annoys me about how MTD has been communicated.

HMRC has not provided its own free filing service — you do have to file through commercial software. But HMRC does publish a list of every product that works with MTD for Income Tax, and at the time of writing there are 116 of them, of which 30 are free. Not free trials. Free.

You can see the list yourself: search for HMRC's tool, "Find software that works with Making Tax Digital for Income Tax". It lets you filter by free products, by whether you're a sole trader or a landlord, and by whether the software just files quarterly updates or handles the final tax return as well.

That last distinction matters more than people realise. Plenty of the free options only do the four quarterly updates. You then still need something else for the final declaration in January. Fewer than half the free products do the whole job.

What the paid options actually cost

Let me be fair to the paid products first, because for some businesses they're the right answer. All the prices below exclude VAT, and I've quoted the standard price rather than the six-month introductory discount everyone is currently running.

QuickBooks

There's a Sole Trader Plus tier at £10 a month, which does cover MTD for Income Tax. It's their cheapest entry point and it's a fair price.

My honest view, and it's a personal one: QuickBooks hasn't improved in years. If anything I think recent changes have made it worse to use. I've watched clients get steadily less happy with it. Plenty of accountants disagree with me and it remains a perfectly functional product.

Xero

Xero is still a genuinely solid piece of software and I have no criticism of the product itself. MTD for Income Tax is included on every plan at no extra charge, which is the right way to do it.

The problem is the entry price. Xero's cheapest plan is £16 a month — there is no £10 sole-trader tier. For someone with a small property or a bit of self-employment, that's £192 a year to file four short summaries.

Sage

I'll be straight: I'm not a fan of Sage for small businesses. They came to cloud accounting late and it shows.

But I have to correct something I've said before. Sage now has a free sole trader and landlord tier at £0, and a paid one at £7 a month — both MTD-ready. The free one is heavily capped (25 categorised transactions, one bank account, five invoices a month), so it's for genuinely tiny operations. Still, it exists and it's cheap.

For a large business, Sage remains a strong product and often the right choice. It's the small end where I wouldn't go there.

FreeAgent

Worth knowing about because of how it's sold. FreeAgent is free for as long as you hold a NatWest, Royal Bank of Scotland, Ulster Bank or Mettle account, and it handles MTD properly, quarterly updates and final return. Standalone it's £19 a month for a sole trader.

If you already bank with NatWest, this is a serious option and costs you nothing extra.

What about the MTD tool my bank keeps emailing me about?

Most of the banks have launched something. Lloyds, Starling, Monzo, Tide and HSBC all now offer MTD filing, and Barclays has announced a partnership to do the same.

I'd think carefully before using them, for two reasons.

They're not proper accounting systems. They file your quarterly updates from your bank transactions. That's fine until you need to produce a set of accounts, handle stock, raise invoices, chase debtors or do anything a growing business does. Several of them don't do the final tax return at all — just the four quarterly updates.

And there's a reason the banks are doing this. Nearly all of them require you to hold their business account to use the tool. Lloyds says so plainly. Starling's version is for sole traders only and not limited companies. HSBC gives you twelve months free and then charges £5.99 a month. Tide is the exception — it says you can connect an existing account without switching.

I don't like being tied to a bank by my accounting software. Banks change their terms, and moving your books because you want to move your bank account is a miserable job. Keep the two separate.

While we're on banks

Slightly off the point, but worth saying because people ask at the same time.

Starling, Tide and Monzo all offer genuinely free business accounts, and they're all a large improvement on what the high street offered small businesses ten years ago. They categorise your spending, they're quick to open, and they cost nothing to run.

Two things to check. Tide's free tier limits you to five bank transfers a month, which catches people out. And Monzo's free Lite tier is fine for the MTD tool, but connecting other accounts sits on the paid plans.

Use one of them as your bank by all means. Just don't use it as your accounting system.

What I would actually do

I reviewed the options properly, and my answer is Zoho Books.

The free plan is genuinely free. It is not a trial, there is no card required, and it is not crippled on the thing that matters: MTD for Income Tax filing is included on every plan, including the free one. Quarterly updates, adjustments, other income sources, and the final tax return — all of it. It's on HMRC's recognised list, and it's one of the minority of free products that handles the final return as well as the quarterly updates.

If your business grows, you upgrade rather than migrate. Standard is £10 a month and adds the thing the free plan lacks. Professional is £20 a month and is, in my view, as far up the range as most small businesses will ever need to go — vendor bills, CIS returns filed to HMRC, purchase orders, multi-currency, projects, inventory. Compare that with what QuickBooks or Xero charge for the equivalent and you're paying roughly half.

Why I trust them to still be here in ten years

This matters more than people think when you're choosing where to keep your records.

Zoho isn't a startup. The company was founded in 1996 — nearly thirty years ago — and it has never taken outside investment. Not a penny. It's privately owned, profitable, and funded entirely by what customers pay it. That's an unusual thing in software and it's the reason I'm relaxed about the pricing.

Firms that have taken venture money eventually have to deliver returns to investors, and the way software companies do that is by raising prices on customers who are already locked in. We've all watched that happen. A company that has never needed to do that has no particular reason to start.

They're an Indian firm, headquartered in Chennai with major operations in Texas and an office in Milton Keynes. My honest read is that they simply don't spend money on advertising the way their competitors do, and that's why you haven't heard of them. It's not a smaller or worse product. It's a quieter one.

The catches — because there are three

I'm not going to recommend something and skip the drawbacks.

The free plan has no bank feeds. This is the real limitation. Your transactions won't flow in automatically — you'll be importing statements or entering things by hand. If you've got more than a handful of transactions a month, that gets old quickly, and £10 a month for Standard starts to look like good value. For a landlord with one property and twelve rent receipts a year, it's a non-issue.

Partnerships aren't covered for MTD. Zoho Books works perfectly well as bookkeeping software for partnerships, LLPs and limited companies. But its MTD for Income Tax filing currently supports sole traders and landlords with UK property only. If you're in a partnership, this isn't your answer — check HMRC's list for something that is.

It's listed as "Zoho", not "Zoho Books". A small thing, but if you search HMRC's software tool for "Zoho Books" you may conclude it isn't there. It is. Look for Zoho.

Other limits on the free plan: one user plus your accountant, up to 1,000 invoices a year, 50 receipt scans a month. For the businesses I'm aiming this at, none of those will bite.

I should declare an interest

You should know this before you weigh what I've said.

Our practice has used Zoho's CRM for years, and eTax AI — the service this website is for — is built on Zoho Books. So I'm not a neutral observer.

I'd put it this way: we didn't choose Zoho because I wanted to write this blog. I'm writing this blog because we went looking for the best option, chose Zoho, and have now used it long enough to be confident recommending it. You're entitled to discount that. The free plan costs you nothing to test, so don't take my word for it — go and try it.

So: what should you do?

If you're a sole trader or a landlord who's been putting this off, here's the whole answer in four lines.

1. Add up your turnover and gross rents. Over £50,000? You're in, now.
2. Sign up to Zoho Books on the free plan. It costs nothing and it files your MTD.
3. Get your income and expenses for 6 April to 5 July in, categorised.
4. File before 7 August. Then diarise 7 November, 7 February and 7 May.

There are no penalty points for a late quarterly update this first year — HMRC has built in room. But the update doesn't disappear. You can't file your tax return until the quarterly updates are in, so putting it off turns a small job in August into a bigger one in January.

And if, having read all that, you'd genuinely rather not do it yourself — that's what we do. But don't pay anyone, including us, because you were told you had no choice. You had a choice.

eTax AI handles bookkeeping, VAT, Self Assessment and Making Tax Digital for small UK businesses from £17 a month — AI does the processing, chartered accountants sign it off.