Accounting software
Making Tax Digital is coming for sole traders and limited companies alike. Here's what software actually works for UK founders, and what to avoid.
Last verified January 2025
If your accountant hasn’t mentioned Making Tax Digital yet, find a new accountant. This is a genuine step-change in how HMRC expects UK businesses to manage their books, and the software you choose now determines how painful the transition is.
What Making Tax Digital actually means
From April 2026, if your business income exceeds £50,000 you must: keep digital records, submit quarterly updates to HMRC through MTD-compatible software, and file an end-of-period statement. From April 2027, the threshold drops to £30,000.
This isn’t optional and it isn’t far away. If you start now with software that supports MTD, you’re set up correctly from the beginning. If you’re using spreadsheets or cash book accounting, you’ll need to migrate later, which is harder and more disruptive.
The three options worth considering
Xero is the gold standard for UK small businesses. Clean interface, comprehensive bank feeds, VAT returns in one click, full MTD compliance. From £15/month for sole traders. The main downside is cost at scale: when you add payroll and extra users, the price increases quickly.
FreeAgent is built specifically for UK sole traders and freelancers. Strong invoicing, automatic tax calculations, MTD-ready. From £19/month, but crucially it’s free if you bank with RBS or NatWest. For a sole trader doing freelance work or consulting, FreeAgent is excellent value.
QuickBooks is more common in the US but does work for UK businesses and is MTD-compatible. Slightly clunkier interface than Xero but competitive pricing.
🇬🇧 VAT threshold is £90,000 turnover
You must register for VAT once your taxable turnover exceeds £90,000 in any rolling 12-month period (2025/26 rate). You can register voluntarily before this threshold, which some businesses do to appear more established. Once VAT registered, you’ll need to submit VAT returns quarterly; Xero and FreeAgent both make this a near-one-click process.
My recommendation by situation
Starting freelance/consulting with annual revenue under £30k: FreeAgent. Simple, UK-focused, affordable (or free with NatWest). Does everything you need.
Growing product business or planning to hire: Xero. More flexible as you scale, better inventory and payroll features, bigger accountant ecosystem.
Limited company with a traditional accountant: Ask your accountant what they use, as many UK accountants work primarily in Xero or Sage, and it’s much easier to work in the same system.
Try FreeAgent free
From £19/month - free for RBS/NatWest customers
Try Xero free for 30 days
From £15/month - Making Tax Digital compatible
The MTDstack deep dive
For a full comparison of Xero vs FreeAgent vs QuickBooks, with Making Tax Digital guidance built into every recommendation, the specialist comparison is at MTDstack.
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