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MTD Software Costs 2026: What Sole Traders Actually Pay (Hidden Fees Exposed)
Published: 8 March 2026 · Prices verified March 2026 · For UK sole traders and landlords affected by MTD
Making Tax Digital starts on 6 April 2026 for sole traders and landlords earning over £50,000. You need MTD-compatible software. Every comparison article out there is either sponsored by a software company or shows the introductory price without mentioning what happens after month 3.
This guide shows you what you'll actually pay — the real cost after discounts expire, the hidden fees, the time cost of setup, and the genuinely free alternatives nobody's talking about.
The Quick Answer: What Does MTD Software Actually Cost?
| Option | Advertised Price | Real Annual Cost (Year 1) | Real Annual Cost (Year 2+) |
|---|
| HMRC Free Software | Free | £0 | £0 |
| Spreadsheet + Bridging Software | Varies | £0 - £60 | £0 - £60 |
| Xero Simple | "From £7/mo" | £42 (6 months 50% off) + £42 | £84 |
| FreeAgent | "From £14.50/mo" | £87 (6 months 50% off) + £87 | £174 |
| FreeAgent (NatWest/RBS) | Free | £0 | £0* |
| QuickBooks Simple Start | "From £10/mo" | £60 (6 months 50% off) + £60 | £120 |
| Sage Accounting Start | "From £12/mo" | £72 (6 months 50% off) + £72 | £144 |
* FreeAgent free for NatWest/RBS/Mettle customers — requires maintaining the bank account
⚠️ The introductory pricing trap: Almost every platform offers 50-75% off for the first 3-6 months. The comparison sites show you the discounted price. What they don't show: the full price kicks in just as you've invested hours setting everything up and migrating your data. Switching at that point feels impossible.
Option 1: HMRC Free Software (£0)
Yes, HMRC offers its own free MTD-compatible software. No, it's not terrible.
What it does:
- Record income and expenses digitally
- Submit quarterly updates to HMRC
- Submit End of Period Statement (EOPS)
- Submit Final Declaration
What it doesn't do:
- Bank feed integration (no automatic transaction import)
- Invoice creation or sending
- Receipt scanning
- Profit & loss reports or business analytics
- Multi-user access
Verdict: Good enough for sole traders with simple affairs — one income source, straightforward expenses, comfortable entering data manually. If you're a plumber, personal trainer, tutor, or salon owner with fewer than 50 transactions per month, this does the job.
Best for: Sole traders who want to spend £0 and are happy with basic functionality.
Not for: Anyone who wants invoicing, bank feeds, or business reporting.
True annual cost: £0
Option 2: Spreadsheet + Bridging Software (£0-£60/year)
If you already track your income and expenses in a spreadsheet and it works for you, you don't have to switch to accounting software. You just need bridging software to submit the quarterly data to HMRC.
How it works:
- Keep recording income and expenses in your spreadsheet (Excel, Google Sheets, etc.)
- At the end of each quarter, enter the summary totals into the bridging software
- The bridging software submits the data to HMRC via their API
- That's it. Your spreadsheet + the bridging tool together count as "functional compatible software"
Bridging software options:
- HMRC-approved bridging tools — several are free or under £30/year
- 123 Sheets — Excel add-in, free for basic MTD submissions
- Andica — desktop software, from £49.99/year
Verdict: The hidden gem. If you're organised and comfortable with spreadsheets, this is the cheapest way to comply with MTD. You keep your existing system, you're in control of your data, and you pay minimal software fees.
Best for: Organised sole traders who already have a working spreadsheet system.
Not for: People who hate spreadsheets or whose current records are a mess.
True annual cost: £0-£60
Option 3: Xero (From £7/month — Really £84/year)
Xero is the most widely used cloud accounting platform among UK accountants. It's competent, well-designed, and their pricing is the least sneaky of the major players.
Xero Simple (£7/month)
This is the entry-level plan specifically designed for sole traders and MTD compliance.
- ✅ Bank feeds (automatic transaction import)
- ✅ MTD quarterly submissions
- ✅ Invoice creation (limited to 20/month)
- ✅ Receipt capture via mobile app
- ❌ No multi-currency
- ❌ No project tracking
- ❌ No bulk reconciliation
The real cost:
| Period | Monthly | Running Total |
|---|
| Months 1-6 (intro offer) | £3.50/mo | £21 |
| Months 7-12 | £7/mo | £63 |
| Year 1 total | | £84 |
| Year 2+ total | £7/mo | £84/year |
Hidden costs to know about:
- Payroll add-on: Extra £5/month if you need to run payroll (even for just yourself as a director)
- Xero Go vs Xero: "Xero Go" is a different, more limited mobile-only app — make sure you're on actual Xero
- Migration time: Budget 2-4 hours to set up, connect bank feed, and learn the interface
Verdict: Best value from a major provider. £7/month is genuinely reasonable for what you get. The bank feed alone saves hours of manual data entry. If your accountant uses Xero (many do), it makes collaboration seamless.
Best for: Sole traders who want a proper accounting platform without breaking the bank.
Not for: Anyone who finds accounting software intimidating — the interface has a learning curve.
True annual cost: £84
Option 4: FreeAgent (From £14.50/month — or Free with NatWest)
FreeAgent is built specifically for UK freelancers and sole traders. It's the most user-friendly platform for non-accountants. And it has a genuine free option that most comparison sites bury.
The free route:
🆓 FreeAgent is completely free if you have a business current account with NatWest, RBS, or Mettle. No catch, no time limit. Full functionality. If you don't already bank with them, opening a Mettle account takes minutes and is free.
FreeAgent paid (£14.50/month)
- ✅ Built specifically for UK sole traders and freelancers
- ✅ MTD quarterly submissions
- ✅ Self Assessment tax estimate (updates in real-time)
- ✅ Unlimited invoicing with automatic reminders
- ✅ Bank feeds
- ✅ Receipt capture
- ✅ Mileage tracking
- ✅ Project profitability tracking
The real cost (paid route):
| Period | Monthly | Running Total |
|---|
| Months 1-6 (intro offer) | £7.25/mo | £43.50 |
| Months 7-12 | £14.50/mo | £130.50 |
| Year 1 total | | £174 |
| Year 2+ total | £14.50/mo | £174/year |
Hidden costs to know about:
- Price increases: FreeAgent has historically raised prices by 10-15% every 12-18 months. The £14.50 price is March 2026 — check if it's changed since
- The NatWest "free" version: Same features, but you need to maintain the bank account. If you close it, you lose FreeAgent access
- Migration time: Budget 1-2 hours — FreeAgent's interface is genuinely intuitive for non-accountants
Verdict: Best software for UK freelancers and sole traders, hands down. The Self Assessment tax estimate feature alone is worth it — seeing your estimated tax bill update in real-time as you log income is genuinely useful. If you can get it free through NatWest/Mettle, it's a no-brainer.
Best for: UK freelancers who want software that speaks their language (literally — it uses UK tax terminology).
Not for: Anyone who resents paying £174/year and doesn't want to switch banks.
True annual cost: £0 (NatWest) or £174 (paid)
Option 5: QuickBooks (From £10/month — Really £120/year)
QuickBooks is the global giant. Solid platform, widely supported, but their pricing structure is the most aggressive about introductory discounts.
QuickBooks Simple Start (£10/month)
- ✅ MTD quarterly submissions
- ✅ Bank feeds
- ✅ Invoice creation
- ✅ Receipt capture
- ❌ Less UK-focused than FreeAgent
- ❌ Interface can feel overwhelming for non-accountants
The real cost:
| Period | Monthly | Running Total |
|---|
| Months 1-6 (intro offer) | £5/mo | £30 |
| Months 7-12 | £10/mo | £90 |
| Year 1 total | | £120 |
| Year 2+ total | £10/mo | £120/year |
Hidden costs:
- Payroll: Extra £4/month for payroll module
- QuickBooks Self-Employed vs QuickBooks: Different products. "Self-Employed" is a stripped-down version — make sure you get the right one for MTD
- Upselling: QuickBooks is aggressive about upselling to higher tiers once you're onboard
Verdict: Competent but not the best value for UK sole traders. More expensive than Xero, less UK-friendly than FreeAgent. Main advantage: if your accountant insists on QuickBooks, it keeps everyone on the same platform.
Best for: Sole traders whose accountant prefers QuickBooks.
Not for: Price-conscious freelancers — you can get more for less elsewhere.
True annual cost: £120
Option 6: Sage Accounting (From £12/month — Really £144/year)
Sage is the legacy player in UK accounting. Their cloud product is competent but feels like it's playing catch-up with Xero and FreeAgent.
Key details:
- ✅ MTD compatible
- ✅ Bank feeds
- ✅ Invoicing
- ✅ Cash flow forecasting
- ❌ Interface less intuitive than competitors
- ❌ Customer support widely criticised
Verdict: Functional but not the best option for sole traders starting fresh. If you're already a Sage user, staying makes sense. If you're choosing for the first time, Xero or FreeAgent offer more value.
True annual cost: £144
The Honest Recommendation
Choose based on your situation:
- Want to spend £0: HMRC free software (basic) or FreeAgent via NatWest/Mettle (full-featured)
- Already have a spreadsheet that works: Keep it + add bridging software (£0-60/year)
- Want the best value paid software: Xero Simple (£84/year)
- Want the best software for UK freelancers: FreeAgent (£174/year paid, or free via NatWest)
- Accountant requires a specific platform: Use whatever they recommend — the accountant integration is worth more than any price difference
The Real Hidden Cost: Your Time
Every comparison focuses on subscription prices. Nobody mentions the time cost:
| Task | Estimated Time |
|---|
| Researching and choosing software | 2-4 hours |
| Setting up account and connecting bank | 1-2 hours |
| Learning the interface | 3-5 hours |
| Entering historical data (if switching mid-year) | 4-8 hours |
| Ongoing quarterly submissions | 1-2 hours per quarter |
If you value your time at £25/hour (conservative for most freelancers), the setup cost is £250-475 in time — more than a year's software subscription.
Action point: If you're going to use accounting software, set it up NOW — before 6 April. Starting on 6 April with an empty account and no idea how the software works is how people fall behind on their first quarterly submission.
What About Accountant Costs?
MTD doesn't mean you need an accountant. But if you use one, their fees may change:
- Simple Self Assessment: £150-350/year (sole trader, one income source)
- MTD quarterly support: Some accountants are adding £100-300/year for MTD-related work
- Full bookkeeping + MTD + Self Assessment: £500-1,500/year depending on complexity
Ask your accountant specifically: "How will MTD affect your fees?" Some are absorbing the extra work, others are passing it on.
Get Ready for MTD Without Overspending
Not sure where you stand on MTD readiness? Try our free MTD Readiness Checker — takes 2 minutes and tells you exactly what you need to do.
For the complete preparation guide (not just software, but the full process), see our Complete MTD Guide.
📋 MTD Readiness Toolkit — Everything You Need (£14)
Software comparison is just one piece of the puzzle. Our MTD Readiness Toolkit (£14) includes:
- MTD-compatible record-keeping spreadsheet templates
- Quarterly submission checklist and timeline
- Expense categorisation guide (HMRC-compliant)
- Software setup walkthrough guides
- Sample quarterly update data (so you know what "good" looks like)
Or start with our free tools: MTD Readiness Checker · MTD Cost Calculator · MTD Penalty Calculator
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