Best software for Making Tax Digital in 2026
In 2019 reporting VAT to HMRC via Making Tax Digital (MTD) became mandatory, after some false starts, pauses and a pandemic the next phase went live at the beginning of April. As of 6th April 2026, MTD for Income Tax and Self-Assessment (MTD for ITSA) is now mandatory for sole traders and landlords with qualifying income of over £50,000, extending to those above £30,000 in April 2027 and over £20,000 in 2028. This means that a large group of people and businesses now need to think about software. With the massive choice out there, where do you start?
At Gravita, we’ve gone through the different software options and have narrowed the list down to three systems that we believe provide you with the best value for money, depending on your business, when it comes to MTD for ITSA. Below is a quick guide to these systems (Xero, FreeAgent and Dext Solo) with pros and cons on each one. All are MTD compliant and allow you to submit your quarterly returns directly through them to HMRC. We’ve also added looked at the draw backs of free systems and bridging software.
Making Tax Digital using Xero
Xero has been around since the beginning of the Cloud revolution and is a major system in the finance software industry and you may even have seen the Adverts on TV or the underground. It was built in the Cloud, for the Cloud and was one of the first systems to introduce features like bank feeds, that we now take for granted. Xero is a full cloud-accounting platform designed for businesses from sole traders to multi-million-pound limited companies. Not only is it an all-in-one system but it also has a suite of third-party systems that can be integrated into it to bring even more efficiencies to the day-to-day finance work of any type of business.
Xero is great for:
- Sole traders or landlords with multiple income streams requiring integrated book-keeping
- Business owners wanting automation, real-time visibility, and a long-term digital solution
- Those already using cloud accounting for VAT
Pros:
- Digital record keeping built in
- Excellent automation, including seamless bank feeds and one-step reconciliation that saves time
- Improves accuracy and reduces risk of human error through automation.
- Supports ongoing business processes such as online invoicing and digital payments
Cons:
- More advanced features than some clients may need
- Requires users to keep full book-keeping records within the platform
- Subscription costs may be higher than basic record-keeping tools
Making Tax Digital using Dext Solo
Dext Solo is a digital record-capture tool designed to help sole-traders and landlords to meet their MTD for ITSA requirements by automating document collection and categorisation.
Dext Solo is great for businesses:
- Whose primary challenge is gathering, recording, and organising data
- That want a mobile-friendly choice and prefer their accountants to manage the heavy lifting
- That fall under the VAT threshold of £90,000 and are not VAT registered
Pros:
- Automates extraction and categorisation of records helping to reduce errors
- The mobile app allows quick receipt capture anytime, anywhere
- Provides accountants with clear visibility of client data as it’s submitted
Cons:
- May require a separate software for year-end declarations
- Cannot submit MTD for VAT returns
- Limited financial reporting
- Only available through your accountant
Making Tax Digital using FreeAgent
FreeAgent sits nicely between both Xero and Dext Solo, it’s a full accounting system with both MTD for VAT and ITSA submission capabilities. For businesses with an active business bank account with the RBS group (RBS, NatWest or Mettle) you are automatically entitled to a free FreeAgent account.
FreeAgent is great for:
- Businesses that are looking for an end-to-end MTD solution
- Solo traders and landlords that are looking for tailored MTD for ITSA workflows
- Clients that are looking for a cloud-based system, but the price point of other systems are cost preventative
Pros:
- Fully supports the complete MTD for IT workflows, including quarterly submissions and the final declaration
- Can deal with multiple self-employment or rental property income streams
- Provides tools for tax adjustments and allowances relevant to MTD
- Has a landlord specific module
Cons:
- Fewer advanced features than more complex accounting systems
- May not be suitable for high-growth or more specialised business structures
- If you have self-employed income and property income, then you will need two accounts (one for each type of income)
Which software is best for your situation?
Which software is best for your situation? The answer depends on how you run your business, how comfortable you are with bookkeeping, and what level of support you need. Some people want a fully integrated system with automation and real time visibility, while others prefer a simple tool that captures records and leaves the rest to their accountant.
There is no one size fits all solution. At Gravita, we help you assess what will genuinely work for you and your business, so you can meet your MTD for ITSA obligations without adding unnecessary complexity. The diagram below sets out the typical profiles we see and highlights which software is best suited to each, helping you quickly identify the right starting point.
Drawbacks of free software and using bridging tools for MTD
While HMRC allows the use of spreadsheets connected to bridging software, this is only allowed under very specific conditions and does not remove the requirement for digital record keeping.
Key issues with free software
- Free tools often lack automation, meaning more time is spent capturing and entering data
- Free systems tend not to be updated regularly and can often stop being supported all together and without notice, which causes risks to your financial data
- As the phrase goes, “there’s no such thing as a free lunch.” You will be paying for the system somehow, whether it’s a financial cost or the cost is your data
Key issues with bridging solutions
- Spreadsheets must be linked to approved software, adding steps and complexity. This can lead to incorrect information being sent to HMRC
- Users must still keep digital records, which can be harder in a spreadsheet-based system
- Manual entry increases the risk of error – which is one of the bases of the introduction of MTD
- Over the annual MTD-cycle, users must complete five submissions each year, making manual methods impractical and prone to errors
- Not sustainable as HMRC has said that ability to use Bridging will be turned off in the future
When to use bridging solutions
Bridging solutions are a feasible short-term solution when a business is already using software but it’s not MTD compliant. Bridging is a great way to send the information to HMRC whilst you research other systems, or your current system develops its MTD capability. It’s important to remember that Bridging is not a long-term solution and HMRC will, at some point, remove this ability.
In practice, free or bridging solutions often creates extra work and can compromise accuracy, compliance and your financial information.
Summary
Not every system is suitable for every business, it comes down to the end user’s working style and the complexity of the business. With all the choices out there, it can be very daunting and overwhelming especially when you consider that choosing an incorrect finance system can be the make or break of a business, even big companies can get it wrong (Just look at the Post Office scandal a few years ago). On top of researching finance systems, you also need to run and grow your business, this is where Gravita can help take some of the pressure of you.
Our Software Advisory team headed up by Phil Humphries has years of experience advising clients in which systems are best suited for their business from sole traders to large national non-profit companies operating across Europe. If you need help with choosing a system or if you want to make sure that you are on the right system for you then book a software review with our Software Advisory Team who will be happy to help.
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