Making Tax Digital for Income Tax (MTD ITSA) is coming. If you are a sole trader with qualifying income over £50,000, you must use MTD compatible software from April 2026. This is not optional. HMRC is phasing out the old self assessment return as you know it.
But here is the practical question most sole traders ask us: what MTD software for sole traders actually works? Which packages are compliant? And do you need to switch if you already use something like FreeAgent, Xero, or QuickBooks?
As ICAEW qualified accountants working with sole traders across Manchester, Bristol, and London, we have tested the main options. This article tells you what you need, what works, and what to avoid.
What Is MTD for ITSA and Why Does It Matter for Sole Traders?
MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It requires sole traders and landlords to keep digital records and submit quarterly updates to HMRC using compatible software. The old once-a-year tax return is being replaced by four quarterly submissions plus an end-of-year finalisation.
The rollout is phased. From April 2026, sole traders and landlords with total qualifying income over £50,000 must comply. From April 2027, the threshold drops to £30,000. From April 2028, it falls to £20,000. If your income is below £20,000, you can volunteer but are not required to join yet.
Qualifying income includes self-employment profits and property income combined. If you run a consultancy in the Northern Quarter and let a flat in Salford, both incomes count toward the threshold.
The key change is this: you cannot file your annual return by typing numbers into the HMRC website using the old SA100 form. You must use MTD compatible software that connects directly to HMRC's API.
What Does MTD Software for Sole Traders Actually Need to Do?
Not all accounting software is MTD ITSA compliant. The software must be on HMRC's recognised list and capable of doing three specific things:
- Store your business income and expenses digitally (spreadsheets alone will not work unless they have an MTD bridge)
- Submit quarterly updates to HMRC showing your cumulative income and expenses for that period
- Submit an end-of-year finalisation statement that replaces the traditional self assessment return
The quarterly updates are not tax calculations. They are data submissions. HMRC uses them to build a running picture of your tax position. You still do one final declaration each year where you confirm the figures are correct and claim any reliefs or allowances.
You also need to keep digital records. That means no paper receipts stuffed in a shoebox. You can scan receipts using tools like Dext or AutoEntry, or enter transactions directly into your software. HMRC does not require you to use a specific format, but the records must be digital and retained for at least five years after the 31 January submission deadline.
Bridging Software: A Workaround for Spreadsheet Users
If you currently run your books on Excel or Google Sheets, you do not have to switch to full accounting software. You can use bridging software. This is a tool that sits between your spreadsheet and HMRC's API. It takes the data from your spreadsheet and submits it in the required format.
Bridging software is cheaper than full accounting packages but still requires you to keep structured digital records. You cannot just upload a scanned PDF of your bank statement. Your spreadsheet must be organised with columns for date, description, income amount, and expense amount.
We typically advise sole traders to consider proper accounting software rather than bridging tools. The extra cost is usually modest, and you get bank feeds, automatic categorisation, and real-time profit visibility. Spreadsheets are fine for simple businesses, but they become a bottleneck once you hit £50,000+ income.
Which MTD Software Options Work for Sole Traders in 2025/26?
Here are the main MTD ITSA compliant software packages we see sole traders using. We have worked with clients on each of these.
FreeAgent
FreeAgent is one of the most popular choices for sole traders. It was built specifically for freelancers, contractors, and small businesses. It connects to your bank account, auto-categorises transactions, and handles MTD ITSA quarterly submissions directly. The interface is clean and non-accountant friendly. Many sole traders in creative industries and consulting use it. Pricing is around £10 to £12 per month depending on the plan.
Xero
Xero is a strong option if you want more flexibility. It handles MTD ITSA, bank feeds, invoicing, and expense tracking. The learning curve is slightly steeper than FreeAgent, but Xero is more powerful if your business grows or you add employees later. Many sole traders in trades and services use Xero. Pricing starts at around £14 per month for the basic plan.
QuickBooks
QuickBooks is widely used by sole traders, particularly in the trades sector. It offers MTD ITSA compliance, bank feeds, and a simple mobile app for capturing receipts on site. QuickBooks Self Employed is the specific version for sole traders and costs around £8 to £10 per month. It is straightforward but less feature-rich than Xero or FreeAgent for growing businesses.
Sage Accounting
Sage Accounting is common among sole traders who have used Sage 50 in the past or who work in industries where Sage is standard (manufacturing, construction, wholesale). The online version is MTD ITSA compliant and costs around £12 per month. It is functional but the interface feels older than Xero or FreeAgent.
GoSimpleTax
GoSimpleTax is a budget option specifically designed for sole traders and landlords. It is MTD ITSA compliant and costs around £5 per month. It does not have bank feeds or invoicing. You enter transactions manually or upload a CSV. It works well for very simple businesses where you have fewer than 50 transactions a month. We only recommend it for sole traders who are comfortable with manual data entry and do not need real-time bank connections.
Crunch
Crunch is primarily aimed at limited company directors, but it also supports sole traders. It is MTD ITSA compliant and includes bookkeeping support from their in-house team. Pricing is around £10 per month for the sole trader plan. It is a decent option if you want the software plus some human support built into the monthly fee.
How to Choose the Right MTD Software for Your Sole Trader Business
The right choice depends on your business type, transaction volume, and budget. Here is how we guide our clients through the decision.
For tradespeople (plumbers, electricians, builders): QuickBooks or Xero. The mobile apps let you photograph receipts and create invoices on site. FreeAgent also works but the mobile app is less polished.
For consultants and freelancers (tech, creative, professional services): FreeAgent or Xero. FreeAgent is simpler. Xero gives you more room to grow. Both handle project tracking and time recording.
For landlords with a side business: FreeAgent or GoSimpleTax. FreeAgent handles property income alongside self-employment income. GoSimpleTax is cheaper if you have low transaction volumes.
For sole traders using an accountant: Ask your accountant which software they prefer. Many accountants have a standard recommendation because they handle the MTD submissions on your behalf. We work with Xero and FreeAgent primarily because they give us the reporting tools we need to do your year-end efficiently.
What Happens If You Do Not Use MTD Software by April 2026?
If your qualifying income is over £50,000 and you do not use MTD compliant software from April 2026, you will be unable to submit your tax return through the normal channels. HMRC has said penalties will apply for late or non-compliant submissions, though the penalty regime for MTD ITSA is still being finalised.
The practical reality is this: you will not be able to file your self assessment online using the old SA100 form if you are mandated to use MTD. HMRC is shutting down the legacy digital system for mandated taxpayers. You either use compliant software or you file on paper, which few people want to do.
If your income is between £30,000 and £50,000, you have until April 2027. If it is between £20,000 and £30,000, you have until April 2028. But we recommend setting up MTD software now even if you are not yet mandated. It makes your bookkeeping easier, gives you real-time profit visibility, and removes the scramble every January.
What About the £500 Dividend Allowance and Other Tax Changes?
MTD ITSA runs alongside other tax changes for 2025/26. The dividend allowance has dropped to £500. The basic rate band is £50,270. The personal allowance is £12,570. If you are a sole trader who also takes dividends from a limited company, both income streams count toward your qualifying income for MTD ITSA purposes.
We covered the wider implications of MTD in our MTD and Making Tax Digital blog. The short version is that MTD ITSA is not just a software change. It changes how you interact with HMRC throughout the year rather than once annually.
Practical Steps to Get Ready for MTD ITSA
Here is what we tell our sole trader clients to do between now and April 2026:
- Check your qualifying income for the last 12 months. Include self-employment profits and property income. If you are over £50,000, you are mandated for April 2026.
- Choose your software. Sign up for a free trial of two or three options. Spend 30 minutes entering a month of transactions into each. Pick the one that feels natural.
- Set up bank feeds. Most software connects to your business bank account automatically. This saves hours of manual data entry.
- Start keeping digital records now. If you still use paper receipts, get a receipt scanning app like Dext. The habit of digitising immediately will save you stress when MTD goes live.
- Talk to your accountant. If you do not have one, find an ICAEW qualified firm that knows MTD. We handle the quarterly submissions for our clients so they do not have to think about it.
If your income is below the current threshold but likely to grow, consider voluntarily registering for MTD ITSA early. The software is the same. The quarterly habit is easier to build when you are not under pressure.
Common Questions About MTD Software for Sole Traders
We hear the same concerns from sole traders across every sector. Here are the answers.
Can I use free software? HMRC has a free MTD compatible product called HMRC MTD for ITSA, but it is basic. It works if you want to enter transactions manually with no bank feeds or invoicing. Most sole traders find it too limited within a few months.
Do I need to submit quarterly if my accountant does it? No. Your accountant can handle the submissions on your behalf using their software. You just need to give them your records quarterly rather than annually. Many accountants, including us, prefer this arrangement because it spreads the workload.
What if I use a paper-based system now? You will need to switch to digital. There is no exemption for paper lovers. The digital record keeping requirement is central to MTD.
Can I use the same software for my limited company? Yes, most packages handle both sole trader and limited company accounts. FreeAgent and Xero both support multiple business types within the same account.
Get Professional Support with MTD Compliance
MTD ITSA is the biggest change to self assessment in decades. Getting the software right is the first step, but you also need to understand the quarterly submission process, the end-of-year finalisation, and how it interacts with your wider tax position.
Our ICAEW qualified team helps sole traders across the UK set up MTD compliant systems, manage quarterly submissions, and plan their tax efficiently. If you want to discuss which MTD software for sole traders fits your business, get in touch. We can walk through your numbers and recommend the right setup.