Best accounting software for sole traders in the UK (Making Tax Digital)

By the Grow & Guard editorial team · Last updated · 9 min read

Making Tax Digital for Income Tax has started for higher-earning sole traders and landlords, and the threshold falls each year. Here is who needs it, when, and which software options make sense, including free tools from business bank accounts.

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3D illustration of a tablet showing a business app dashboard with charts, toggles and a calendar

Quick answer

  • Best for growing businesses: Xero. Ignite plan £18 a month (excl. VAT) after an introductory offer, with a free trial.
  • Best built for sole traders: FreeAgent. £19 a month (excl. VAT) for sole traders, with 50% off for six months and a 30-day free trial.
  • Cheapest: free MTD tools included with Tide, Starling and Monzo business accounts.

Who needs Making Tax Digital for Income Tax, and when

According to HMRC, you need to use Making Tax Digital for Income Tax if you are a sole trader or landlord registered for Self Assessment and your qualifying income from self-employment and property is over the threshold for the relevant tax year:

Source: HMRC, "Check if you are eligible for Making Tax Digital for Income Tax", checked 1 November 2026.
Qualifying income overBased on tax yearYou need MTD from
£50,0002024 to 20256 April 2026
£30,0002025 to 20266 April 2027
£20,0002026 to 20276 April 2028

Under MTD you keep digital records and send quarterly updates to HMRC using compatible software, then finalise your return after the tax year ends. Partnerships will join later, on a timetable HMRC has not yet set. Qualifying income is your total gross income from self-employment and property before expenses, so check the definition on GOV.UK.

Comparison at a glance

From Xero's and FreeAgent's UK pricing pages and the banks' websites on 1 November 2026.
SoftwarePrice for a sole traderFree trialGood for
XeroIgnite £18 a month excl. VAT (introductory offer: 90% off for 6 months)Yes, one monthSole traders who expect to grow, hire or register for VAT
FreeAgent£19 a month excl. VAT (introductory offer: 50% off for 6 months); £190 a year billed annually30 daysSole traders and freelancers who want tax built around them
Bank-account MTD toolsFree with Tide, Starling and Monzo business accountsn/aSimple businesses that want the minimum

The options in detail

Top pick

1 Xero: best for growing businesses

Xero is one of the most widely used accounting platforms among UK accountants, which makes it easy to share your books with one. Its UK plans are Ignite, Grow, Comprehensive and Ultimate. Ignite covers the essentials for tracking cash flow, while higher plans add automation, dashboards and multi-currency. Payroll and Construction Industry Scheme (CIS) returns are available. Bill and payroll payments cost £0.20 each on some plans and payroll is charged per person.

Price checked 1 November 2026: Ignite £18, Grow £39, Comprehensive £55, Ultimate £70 a month, all excluding VAT. Xero was offering 90% off for the first six months when we checked, or a one-month free trial.

Good points

  • Widely used by UK accountants
  • Room to grow into VAT, payroll and CIS
  • Large app marketplace

Watch out for

  • Costs more than simple tools once offers end
  • Some extras charged per use
Visit Xero Ad Affiliate link

2 FreeAgent: best built for sole traders

FreeAgent is a UK accounting tool designed for freelancers, sole traders and small companies. It has separate pricing for each business type, so sole traders do not pay for limited company features. It is Making Tax Digital-compatible, includes a Smart Capture tool for up to 10 receipts and bills a month and offers optional add-ons such as unlimited receipt capture and an Amazon marketplace connection.

Price checked 1 November 2026: Sole traders: £19 a month or £190 a year, excluding VAT, with 50% off the first six months on monthly billing when we checked. 30-day free trial.

Good points

  • Pricing tailored to sole traders
  • Built around UK tax
  • 30-day free trial

Watch out for

  • Unlimited receipt capture is an add-on
  • No affiliate programme with us, so no special offer here
Visit FreeAgent Official site, not an affiliate link

3 Free MTD tools from business bank accounts: cheapest

Several business bank accounts now include free Making Tax Digital tools. Tide offers free MTD tools on every plan. Starling's sole trader account includes Accounting Essentials with an HMRC-recognised MTD for Income Tax tool. Monzo includes free HMRC-recognised MTD software with all its business accounts. If your business is simple, these may be all you need. Compare the accounts in our business bank account guide.

Good points

  • No extra cost
  • Transactions are already in the app
  • Recognised by HMRC

Watch out for

  • Fewer features than full accounting software
  • Tied to your bank

How to choose

  • Simple income and few expenses: start with your bank's free MTD tool.
  • You want software that understands sole trader tax: FreeAgent.
  • You plan to grow, take on staff or work closely with an accountant: XeroAd.
  • Unsure: ask your accountant which software they support. HMRC also publishes a list of software that works with Making Tax Digital for Income Tax.

General information only, not tax advice. Check your obligations with HMRC or a qualified accountant.

How we compared

We compared prices, trials and features from Xero's and FreeAgent's UK pricing pages, the banks' websites and HMRC guidance on 1 November 2026. See how we review.

Sources we checked

All checked on 1 November 2026. Prices and features change, so confirm on the provider's site before you buy.

Frequently asked questions

When do sole traders have to use Making Tax Digital?
HMRC says sole traders and landlords with qualifying income over £50,000 in 2024 to 2025 needed to start from 6 April 2026. The threshold is £30,000 (based on 2025 to 2026) from 6 April 2027 and £20,000 (based on 2026 to 2027) from 6 April 2028.
Is there free Making Tax Digital software?
Yes. Tide, Starling and Monzo all include free MTD tools with their business accounts, and HMRC lists other compatible software, some of which is free.
Is Xero or FreeAgent better for a sole trader?
FreeAgent is designed around freelancers and sole traders and prices its plans by business type. Xero suits businesses that expect to grow, register for VAT or run payroll.