✅ REALITY: Free Software Options Are Available
The UK government is committed to ensuring the availability of free software products for small businesses with simple tax affairs that are mandated to use Making Tax Digital for Income Tax. This isn’t just a vague promise – it’s a documented policy commitment.
Government’s Official Promise
Free software must be free for the business to use to comply with their Making Tax Digital for Income Tax obligations for a full annual accounting period. This means no hidden costs, no subscription fees, and no unexpected charges for basic MTD compliance.
Your MTD Software Options: From Free to Premium
1. Completely Free Options
- Sage Accounting Individual Free: Available to any sole trader or landlord with a single source of income, Sage Accounting Individual Free is available to start digital record keeping today and MTD for Income Tax functionality will be added
- FreeAgent: Free option available for those with business bank accounts with NatWest, Royal Bank of Scotland, or Ulster Bank NI
- Zoho Books: Free package available for basic business needs
2. Low-Cost Solutions
- FreeAgent: Plans from £5-£19 per month depending on business type (or free with certain bank accounts)
- Clear Books: Simple pricing for sole traders and landlords
- QuickBooks: Sole trader package starts at £1/month for 6 months
3. Bridging Software
- Use your existing spreadsheets with bridging software that connects to HMRC
- Keep familiar tools while meeting digital requirements
- Often the most cost-effective option for simple businesses
What You Actually Need (It’s Less Than You Think)
For most sole traders and landlords, MTD software requirements are surprisingly simple:
Essential Functions Only:
- Record income and expenses digitally
- Submit quarterly updates to HMRC
- Keep basic digital records
- Connect to HMRC for submission
You DON’T Need:
- Complex inventory management
- Advanced reporting features
- Multi-user access
- Payroll integration
- Project management tools
The Hidden Benefits: Why This is Actually Good News
While the fear focuses on costs, MTD software actually delivers significant business advantages:
Greater Business Insights
By keeping digital records throughout the year, sole traders and landlords can save hours previously spent gathering information at tax return time – allowing them to spend more time focusing on their business activities.
Time Savings Through Automation
- Automated bank feeds: Transactions imported directly
- Receipt capture: Photo receipts with your phone
- Automatic categorisation: Software learns your patterns
- One-click submissions: Quarterly updates in seconds
Better Financial Management
With digital records, you can:
- Track profitability in real-time
- Spot cash flow issues early
- Make informed business decisions
- Identify tax-efficient opportunities
More Accurate Tax Calculations
These digital requirements will help businesses save time through more efficient record-keeping, reduce errors in tax calculations, and provide a clearer picture of their tax obligations throughout the year.
Industry Support for Small Businesses
When MTD for VAT was introduced, more than 250 existing subscription VAT software products were updated at no cost to customers to provide MTD for VAT capability. The software industry has also provided a number of free-to-use products, despite there being no requirement for them to offer free VAT products.
This shows the software industry’s commitment to supporting small businesses through the transition.
Government Recognition of the Challenge
Exchequer Secretary to the Treasury, James Murray said: “It is fantastic to see industry leaders working with us to modernise the tax system by delivering free software for tens of thousands of UK businesses. Making Tax Digital reduces errors for businesses, meaning they spend less time managing their tax affairs, and more time creating jobs and helping to drive economic growth.”
How to Choose the Right Software
For Very Simple Businesses:
- Sage Individual Free: Single income source, basic needs
- FreeAgent: Free with certain bank accounts, or low-cost plans
- Bridging software: If you love spreadsheets
For Growing Businesses:
- FreeAgent: £5-£19/month, comprehensive features
- Sage: £18-£59/month, world recognised
- Xero: Popular choice, strong bank integration
Decision Framework:
- Start with free options – test before committing
- Consider your transaction volume – some free plans have limits
- Think about growth – will you need more features later?
- Factor in support – do you need help getting started?
The Positive Transformation
Rather than seeing MTD as a burden, successful businesses are using it as an opportunity to:
Professionalise Operations
- Move from shoebox to digital organisation
- Gain credibility with banks and suppliers
- Improve cash flow management
- Make data-driven decisions
Reduce Stress
- No more year-end panic
- Quarterly financial health checks
- Early warning of problems
- Better prepared for tax payments
Save Money Long-Term
- Fewer penalties and errors
- Better expense tracking
- Tax-efficient decision making
Getting Started: Your Action Plan
- Explore free options first – try Sage Individual Free or FreeAgent (if you have qualifying bank accounts)
- Test with your real data – most offer free trials
- Start simple – you can always upgrade later
- Get support – many providers offer free setup help
- Begin now – don’t wait until April 2026
The Bottom Line
MTD software costs are not the barrier many fear them to be. With free options available and government commitment to supporting small businesses, the financial hurdle is largely removed.
The real opportunity lies in using MTD as a catalyst to modernise your business operations, gain better insights, and save time on administrative tasks.
“Our goal is to help small businesses and sole traders thrive by providing them with the tools and advice to succeed and make it easier for the smallest businesses to join the digital economy. Business owners lose valuable time preparing and managing tax submissions while running and growing their businesses, so we want to make that process simpler,” said Neal Watkins, EVP, Small Business, Sage.
The software industry is on your side. The government is supporting you. The tools are available for free. The only thing left is to embrace the opportunity.
Contact AHBS Limited: 0115-932-9888 or book: https://tidycal.com/simonahbs/mtd
