If you're a UK sole trader, the rules around your tax return actually changed this year. Making Tax Digital for Income Tax (MTD ITSA) went live on 6 April 2026 for sole traders and landlords with qualifying income over £50,000 — meaning digital record-keeping and quarterly updates to HMRC, not just one annual return. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028, pulling in hundreds of thousands more sole traders over the next two years.
A quick honesty note on "AI": most HMRC-recognised software in this space doesn't market itself with heavy AI branding the way some US tools do. What it actually offers is solid automation — bank feed categorization, receipt capture, pre-filled quarterly submissions — which is the part that genuinely saves time, regardless of the label.
Are you actually affected by MTD yet?
- Qualifying income over £50,000: you're in now (since April 2026)
- £30,000–£50,000: you join from April 2027
- £20,000–£30,000: you join from April 2028
- Under £20,000: you continue filing the traditional annual Self Assessment return for now
HMRC tests your qualifying income against your most recent Self Assessment return on file — worth checking if you're near a threshold, since the obligation can arrive sooner than expected.
Quick comparison
| Tool | Best For | Starting Price | MTD-Ready |
|---|---|---|---|
| FreeAgent | NatWest/RBS/Mettle customers | Free with those banks; otherwise ~£14.50–£34/mo | Yes |
| Coconut | Mobile-first, simplest setup | £0–£14/mo | Yes |
| Xero | Mixed self-employment + property income | From ~£7/mo + VAT | Yes |
| QuickBooks | Most sole traders wanting an all-rounder | From ~£10–14/mo | Yes |
| GoSimpleTax | Very simple finances, lowest cost | £29.99–£49.99/year | Yes (tax return only, no bank feeds) |
Pricing varies by source and changes often — confirm current rates directly with each provider.
The tools
FreeAgent
FreeAgent is genuinely free if you bank with NatWest, Royal Bank of Scotland, or hold a Mettle account — a real deal, not a gimmick, since it's full MTD-compatible software with Self Assessment filing built in. Outside those banks, it runs roughly £14.50–£34/month depending on tier.
Good for: Sole traders already banking with NatWest/RBS/Mettle — there's little reason to look elsewhere first.
Coconut
Coconut combines a business current account with built-in bookkeeping — every transaction is automatically logged against the right category as it happens, rather than requiring a separate reconciliation step. It's consistently described as the simplest, lowest-admin option for straightforward sole traders.
Good for: Sole traders who want MTD compliance with the least ongoing effort, especially those newly crossing a threshold.
Xero
Xero handles mixed income sources — self-employment plus property — within one MTD workflow, which matters if you're both a sole trader and a landlord. Starter pricing runs from roughly £7/month plus VAT.
Good for: Sole traders with both self-employment and rental income who want it managed in one place.
QuickBooks
QuickBooks offers a strong mobile app and automatic mileage tracking, with sole trader-focused pricing starting around £10–14/month.
Good for: Sole traders who want a well-rounded, mobile-friendly tool without niche features they won't use.
GoSimpleTax
GoSimpleTax takes a different approach entirely — it's not full accounting software, it's tax-return-and-MTD-submission software specifically. No bank feeds, no mobile app, no invoicing — you input figures and it guides you through the filing in plain English.
Good for: Sole traders with very simple, low-volume finances who just want to hit MTD compliance as cheaply as possible, without paying for bookkeeping features they won't use.
Which one should you choose?
- Bank with NatWest, RBS, or Mettle: FreeAgent — free, no reason to look elsewhere.
- Want the lowest-effort setup overall: Coconut.
- Have both self-employment and rental income: Xero.
- Want a well-known, well-rounded all-rounder: QuickBooks.
- Very simple finances, cost is the priority: GoSimpleTax.
FAQ
Do I have to use software now, or can I still file on paper?
If you're mandated into MTD for Income Tax, it's entirely digital — paper Self Assessment returns are no longer an option for that income. If you're under the relevant threshold, you can continue filing the traditional way for now.
What happens if I don't comply once I'm mandated?
HMRC has signaled increased late-payment and non-compliance penalties as part of the MTD rollout — the exact penalty structure for your situation is worth confirming directly with HMRC or a UK accountant.
Can I sign up for MTD early, before I'm mandated?
Yes — HMRC allows voluntary early sign-up if you're already registered for Self Assessment and have filed a return in the last two years, which can help you get comfortable with quarterly submissions before penalties apply.
Is there a free HMRC tool for MTD submissions?
No — HMRC doesn't provide its own MTD for Income Tax filing software. You need HMRC-recognised third-party software, though several of the options above (FreeAgent with qualifying banks, Coconut's free tier) are free depending on your situation.
Last updated: September 2026. This post is for informational purposes only and isn't tax or financial advice. Consult a licensed UK accountant or tax adviser for guidance specific to your situation.
Comments
Post a Comment