Glossary definition

What is MTD compatible, MTD approved, or MTD ready software?

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MTD-compatible software is accounting or record-keeping software that can connect directly with HM Revenue and Customs (HMRC) systems and help businesses meet the requirements of Making Tax Digital (MTD).

Key takeaways

• MTD-compatible software keeps your tax records digitally and sends information to HMRC through its systems.
• VAT-registered businesses must use it for VAT unless they’re exempt, and so must sole traders and landlords in Self Assessment whose combined gross self-employment and property income is over the MTD for Income Tax threshold, unless they’re exempt.
• “MTD approved” and “MTD ready” are marketing terms, not an HMRC status. HMRC recognises software, but doesn’t approve or endorse it.
• Bridging software lets you keep using spreadsheets, as long as the data moves through digital links.

If you’re registered for VAT or fall within the scope of MTD for Income Tax, you must use software that supports digital record keeping and submission to HMRC.

The terms “MTD compatible”, “MTD approved”, and “MTD ready” are often used interchangeably to describe software that works with HMRC’s Making Tax Digital system.

However, HMRC does not officially approve or endorse accounting software.

Instead, HMRC operates a software recognition process that checks whether a product can meet the technical requirements needed to work with MTD.

Here’s what this article discusses:

What does MTD-compatible software do?

MTD-compatible software keeps your tax records digitally and sends the information HMRC needs through its systems.

MTD-compatible software helps businesses:

• Keep digital tax records.
• Connect securely with HMRC systems.
• Submit required tax information electronically.
• Meet Making Tax Digital record-keeping and reporting requirements.

For MTD for Income Tax, the software must also let you send quarterly updates and file your tax return by 31 January (GOV.UK). For MTD for VAT, it must let you keep your VAT records and file your VAT Returns (GOV.UK).

The exact features available will vary between software providers.

Who needs to use MTD-compatible software?

MTD-compatible software must be used by VAT-registered businesses, and by sole traders and landlords whose qualifying income is over the MTD for Income Tax threshold, unless they’re exempt.

MTD for VAT: Some businesses are exempt automatically (for example, businesses subject to an insolvency procedure), while others must apply to HMRC (for example, if they’re digitally excluded). After a business deregisters, its final VAT Return is normally submitted through the VAT online account, not through MTD software.

MTD for Income Tax: It applies to individuals registered for Self Assessment whose combined gross income from self-employment and property, before expenses, on the relevant earlier tax return is more than £50,000 (from 6 April 2026, based on the 2024/25 return), £30,000 (from 6 April 2027, based on the 2025/26 return), or £20,000 (from 6 April 2028, based on the 2026/27 return). Some people are exempt automatically, and others can apply for an exemption.

Here’s how the two MTD schemes compare:

	MTD for VAT	MTD for Income Tax
Who it applies to	VAT-registered businesses, including those registered voluntarily, unless exempt. The final VAT Return after deregistration is normally filed through the VAT online account	Individuals in Self Assessment whose combined gross self-employment and property income (before expenses) on the relevant earlier return is more than £50,000 (from 6 April 2026), £30,000 (from 6 April 2027), or £20,000 (from 6 April 2028), unless exempt
What the software must do	Keep VAT records digitally and file VAT Returns	Keep digital records of income and expenses, send quarterly updates, and file the tax return
Where to find software	HMRC’s MTD for VAT software list	HMRC’s MTD for Income Tax software list

Is MTD-approved software the same as MTD-compatible software?

No, not officially. “MTD approved” isn’t an HMRC status, because HMRC doesn’t approve software. HMRC’s own terms are “compatible” and “recognised”, so check HMRC’s software finder for MTD for VAT or MTD for Income Tax rather than relying on marketing labels.

Many software providers use terms such as “MTD approved” or “MTD ready” in their marketing.

HMRC’s official position is that recognised software has been checked to confirm it can work with Making Tax Digital requirements, but HMRC does not recommend or endorse one product over another.

Here’s what each term means:

Term	What it means
MTD compatible	Software that can keep digital records and connect to HMRC’s systems for MTD. HMRC uses this term in its guidance.
HMRC recognised	Software that has been through HMRC’s recognition process and appears on its lists. HMRC doesn’t recommend any product (GOV.UK).
MTD approved	A marketing term, usually meaning compatible or recognised. HMRC doesn’t approve software.
MTD ready	A marketing term, usually meaning the software already supports MTD.

Can you use spreadsheets with MTD-compatible software?

Yes, spreadsheets work with MTD if you use bridging software, which connects your spreadsheet to HMRC’s systems (GOV.UK).

Any data that moves between your spreadsheet and the bridging software must move through digital links, not by copying and pasting.

What software is recognised by HMRC for MTD?

HMRC publishes lists of recognised software for MTD for VAT and MTD for Income Tax on GOV.UK.

Check HMRC’s software finders to confirm which products, and which plans, are recognised for the functions and income sources you need. Sage Accounting is recognised by HMRC for MTD for VAT and MTD for Income Tax.

How do you choose MTD-compatible software?

To choose MTD-compatible software, check that it’s recognised by HMRC for the tax you need, then compare it on the features you’ll use. HMRC suggests thinking about (GOV.UK):

• Your income sources, such as self-employment, property, or both.
• Your accounting period.
• Whether your accountant or agent can use it too.
• Whether it creates your records, or bridges from spreadsheets you already use.
• The price, and what’s included.

See Sage’s MTD software to find out more.

MTD-compatible software: FAQs

Is there free MTD-compatible software?

Some providers offer free software for MTD for Income Tax, usually for straightforward tax affairs (GOV.UK). Check what’s included, and whether you’ll need to upgrade as your business grows.

Can I use the same software for MTD for VAT and MTD for Income Tax?

Yes, you can use the same software for both, as long as it’s recognised for both. Check HMRC’s software finders for the products and plans recognised for each. You can also use more than one product, as long as they work together.

Can I keep using spreadsheets for MTD?

Yes, you can keep using spreadsheets for MTD with bridging software that connects your spreadsheet to HMRC. The data must move through digital links, not by copying and pasting.

How does MTD-compatible software connect to HMRC?

MTD-compatible software connects to HMRC once you authorise it to access your HMRC account. For MTD for VAT, the authority lasts 18 months, and you can check or withdraw it at any time (GOV.UK).

Does HMRC recommend any MTD software?

No. HMRC lists recognised software, but it doesn’t recommend or endorse any product or provider.

Browse more topics from this term

• Making Tax Digital for businesses
• Making Tax Digital for Income Tax
• Making Tax Digital for VAT