What does "MTD-compatible software" actually mean?
MTD-compatible software is software that meets HMRC’s definition of functional compatible software. To qualify it must do three things: keep your specified digital records, submit returns and information to HMRC via the API platform, and receive information back via the same API.
The critical requirement is the API connection. A standard spreadsheet has no link to HMRC’s systems, which is why it cannot qualify on its own. You need either software that handles the API submission internally, or separate bridging software acting as the connector between your spreadsheet and HMRC.
Making Tax Digital software: the two types HMRC recognises
Full accounting software handles everything in one product: records income and expenses, maintains digital records, and submits to HMRC via API. Many packages link to your bank account and accept scanned receipts. The trade-off is cost and migration time — moving years of records takes effort and most charge a monthly subscription.
Bridging software sits between your existing records and HMRC. You keep recording exactly as you do now, typically in a spreadsheet. The bridging software reads those records, formats them to HMRC requirements and submits via API. HMRC explicitly provides for this route — it is not a workaround or temporary fix.
The practical distinction: full accounting software replaces your spreadsheet. Bridging software extends it.
What are digital links, and why do they matter?
A digital link is the electronic connection that must exist between any two software systems involved in your MTD records. Once data enters your digital records, all subsequent transfers must use a digital connection. No manual copying. No retyping.
What counts: linked cells between spreadsheets, file imports (CSV, XML), automated transfers, and API connections.
What doesn’t: copying a figure and manually typing it elsewhere; cutting and pasting values rather than linking cells; printing a report and re-entering totals.
Before choosing bridging software, confirm exactly how it reads data from your records and whether that method qualifies as a digital link under HMRC’s definition.
Is there free MTD software?
Yes. Both the MTD for VAT and MTD for Income Tax approved lists include free products. HMRC notes that free products generally suit “simple tax affairs” and commonly carry restrictions:
- A cap on transactions per month or year
- Support for only one income source (self-employment OR property, not both)
- Absence of bank feeds, receipt scanning or VAT support
- No agent access (your accountant cannot log in)
Before relying on a free tier, count your transactions for a typical month and check the product’s actual limits. Free bridging software exists too — same caveats apply.
Does the same MTD software work for both VAT and Income Tax?
Not always. HMRC maintains separate lists for MTD for VAT and MTD for Income Tax, and a product on one list is not automatically on the other. Some accounting packages cover both; others support VAT only or Income Tax only.
If you’re VAT-registered and also in scope for MTD for Income Tax (see our MTD thresholds guide to check), you can either choose a single product covering both, or use two separate products. HMRC explicitly permits multiple compatible products simultaneously.
The practical check: search for any product on HMRC’s tool under each scheme it claims to support. Don’t rely on vendor claims without verifying.
How to find HMRC-recognised Making Tax Digital software
HMRC provides a software search tool at tax.service.gov.uk. As of 2026, 459 products are listed. You can filter by software type (record-keeping or bridging), user type, free version availability, accessibility support, and Welsh-language availability.
One clarification: “HMRC-recognised” means the product has passed HMRC’s technical process and has working API access. It does not mean HMRC has reviewed, tested or endorsed quality. Two products on the same list can differ significantly in usability, features and price.
Six questions to ask before you choose
1. Does it support all your income sources? If you have both self-employment and rental income, confirm the software handles both for MTD for Income Tax.
2. Does it handle quarterly updates and the final declaration? For MTD ITSA both are required — not just the quarterly submissions.
3. Does it integrate with your VAT software? If you’re VAT-registered, check whether your candidate also covers VAT or integrates with your existing VAT product.
4. Does the free version cover your actual transaction volume? Count your monthly transactions before assuming the free tier will suffice.
5. Can your accountant or agent access it? Some products include agent access as standard; others require a separate arrangement or fee.
6. Will it scale if your income grows? Choose software that will remain suitable at higher volumes rather than one that only covers today’s situation.
Do you need software in place before signing up for MTD?
Yes. HMRC requires compatible software to be in place before you can complete sign-up. Sign-up authorises your chosen software to connect to HMRC on your behalf. Without software already selected and set up, you cannot proceed.
Practical implication: do not treat software selection as something to sort out after signing up. Choose, set up and confirm it’s working before beginning HMRC sign-up.