Choosing software for Making Tax Digital

GOV.UK says you, or an agent acting for you, need to use commercial software that works with Making Tax Digital for Income Tax to keep digital records, send quarterly updates and submit your tax return. We read the word commercial as meaning a product from a software provider rather than a tool supplied by HMRC; that is our interpretation, not GOV.UK wording.

The records part means storing, for each item, the amount, the date the income was received or the expense incurred, and a category. The submission part means sending HMRC running category totals each quarter and, at the end of the year, the full return with your declaration that it is correct and complete. The Making Tax Digital checklist sets out how these steps fit into the year.

GOV.UK describes two broad types. The first creates your digital records for you, for example by linking to a business bank account, scanning receipts or letting you type figures in, and then submits from the same place. The second, sometimes referred to as bridging software, connects to records you already keep in spreadsheets or other accounting tools and sends the figures on.

If you use more than one product, GOV.UK says the record-keeping software and the software that makes the submissions must be digitally linked. Acceptable links include linked cells in spreadsheets, sending a spreadsheet by email, transferring an XML or CSV file, and automated transfers or APIs. GOV.UK says you must not copy information by writing it out again or move records by cut and paste.

GOV.UK's guidance on choosing software, and the questions its finder tool asks, point to these checks:

• Does it support every income source you have, such as a sole trade, UK property and foreign property, and will it cope if you add a new one?
• Does it work with your accounting period, including a year ending 31 March if that is how your accounts run?
• Do you want to start new digital records or keep using existing ones through a bridge?
• If you use an agent, does it let them in, and does it allow multiple agents if you have more than one?
• What does it cost now, and what would make the price go up?
• Does it offer HMRC Assist, which GOV.UK lists among the things to consider?

It also helps to think about how you work day to day. Someone who does their paperwork on a phone between jobs needs something different from a landlord who updates a spreadsheet once a month.

GOV.UK says free products are available for those with simple tax affairs. It also warns that they may limit use, for example by capping the number of transactions. Before relying on a free option, check what happens if you go over a limit part way through the year, and whether your records can be exported if you later switch to something else. Price is a legitimate reason to choose a product, but HMRC will not accept the cost of software as the only reason for an exemption.

HMRC keeps a software finder on GOV.UK. For sole traders and landlords it asks about income sources, whether you want new or existing digital records, and your accounting period, then gives a personalised list. Agents see the full list with filters. GOV.UK says all the listed software has been through HMRC's recognition process, and it also says HMRC does not recommend any product or software provider.

If you are VAT-registered, check whether the same product also handles VAT returns. Making Tax Digital for VAT has its own search for compatible VAT software, and our guide to VAT accounting schemes explains how schemes can change what the software needs to do.

Many people leave the software decision to their accountant, who may file from their own system and ask you to send records in a set way. Ask which software they use, who pays for any licence, and whether you can see your own records. Our Making Tax Digital service page lists other questions worth asking. This page is general information rather than tax advice. If you would like help, we read every enquiry and, where we can, will put you in touch with a local accountant through our enquiry form.