How much does Making Tax Digital cost?

The cost of MTD depends on your approach. Free MTD software exists (including HMRC's own), basic paid software starts from £10-15/month (£120-180/year), and if you want an accountant to handle everything, expect to pay £300-800/year on top of what you already pay. Most simple sole traders can comply for under £200/year using affordable software.

Is there free MTD software?

Yes. HMRC will provide its own basic MTD-compatible software for free. Some commercial providers also offer free tiers for simple sole traders. However, free options tend to have limited features — they handle the compliance requirement but may not include invoicing, expense tracking, or other useful business tools.

Can I claim MTD software costs as a business expense?

Yes. Accounting software subscriptions are a legitimate business expense that reduces your taxable profit. If you pay £180/year for MTD software and you're a higher-rate taxpayer, the actual cost after tax relief is around £108. For basic-rate taxpayers, the cost after relief is around £144.

Will MTD cost the self-employed £2 billion?

The £2 billion figure (reported by This is Money) represents the estimated collective cost across all affected sole traders and landlords, factoring in software, accountant fees, and time. Your individual cost will be much lower — typically £0-£500/year depending on your approach and whether you use an accountant.

February 2026

The Real Cost of Making Tax Digital: What Sole Traders Will Actually Pay

This is Money reported this week that MTD will cost the self-employed a collective £2 billion. That headline is designed to terrify you. Let's look at what it actually means for your wallet — because the individual costs are far more manageable than the aggregate number suggests.

Cost Overview: The Real Numbers

Here's the honest breakdown of what MTD will cost a typical sole trader each year:

Cost Category	DIY (Cheapest)	DIY (Comfortable)	With Accountant
MTD software	£0	£120-180/year	Often included in accountant fee
Accountant/bookkeeper	£0	£0	£300-800/year extra
Your time (opportunity cost)	~8 hours/year	~4 hours/year	~1 hour/year
One-off setup	2-4 hours	1-2 hours	Handled by accountant
Total annual cost	£0	£120-180	£300-800 extra
After tax relief (40%)	£0	£72-108	£180-480 extra

For most sole traders doing their own books, the real cost is somewhere between £0 and £15/month for software, plus a few hours of your time per year. That's it.

Software Costs: Free to £35/Month

MTD-compatible software is the main new expense. Here's what the market looks like:

Free Options

Software	Cost	What You Get	Limitations
HMRC MTD software	Free	Basic digital record keeping + quarterly submissions	Very basic features, no invoicing, no bank feeds
Some bridging software	Free or pay-per-submission	Submit from existing spreadsheets	Typically £5-15 per submission (£20-60/year)

Budget Options (£10-15/month)

Software	Monthly Cost	Annual Cost	What You Get
QuickBooks Simple Start	£12	£144	Invoicing, expense tracking, bank feeds, MTD submissions, basic reports
Xero Starter	£15	£180	Similar to QuickBooks, clean interface, good mobile app
FreeAgent (via NatWest/Mettle)	£0-14.50	£0-174	Full accounting, invoicing, tax estimates. Free with some business bank accounts.

Full-Featured Options (£20-35/month)

Software	Monthly Cost	Annual Cost	Best For
FreeAgent (standalone)	£14.50-36	£174-432	Freelancers wanting the best UK-focused experience
Xero Growing	£30	£360	Growing businesses needing multi-currency, projects
QuickBooks Essentials	£22	£264	Businesses needing bills, purchase orders

💡 Pro tip: Free FreeAgent via NatWest/Mettle

If you have a NatWest, RBS, or Ulster Bank business account, you can get FreeAgent completely free. Mettle (NatWest's free digital business account) also includes free FreeAgent. This is the best deal currently available — full-featured MTD-compatible software at no cost.

For the detailed comparison with features, pros, cons, and our recommendations: MTD Software: Free vs Paid (2026).

Accountant Costs: What Changes

If you already use an accountant, MTD will likely increase your fees. Here's what we're hearing from the profession:

If You Already Have an Accountant

What Changes	Estimated Extra Cost
Quarterly submissions (if accountant does them)	£100-300/year (4 × £25-75 per submission)
End of Period Statement review	£50-150
MTD setup and software training	£100-200 (one-off)
Software licence (if included in their service)	Often bundled
Total extra annual cost	£150-450/year

Some accountants are absorbing the extra MTD work into existing fees; others are pricing it separately. Ask yours what their plan is before April.

If You Don't Currently Have an Accountant

You don't need one for MTD. If you currently handle your own Self Assessment, you can handle MTD yourself. The quarterly submissions are simpler than a full tax return.

However, if MTD feels overwhelming and you'd rather hand it off, expect to pay:

Basic bookkeeping + MTD submissions: £400-800/year for a simple sole trader
Full service (bookkeeping + MTD + Self Assessment): £600-1,200/year

The Time Cost Nobody Mentions

The monetary cost is only half the story. Here's the time investment:

One-Off Setup (First Time Only)

Task	Estimated Time
Choosing and signing up for software	1-2 hours
Setting up your business in the software	30-60 minutes
Connecting your bank account	15 minutes
Entering opening balances	15-30 minutes
Signing up for MTD via Government Gateway	15-30 minutes
Total one-off setup	2-4 hours

Ongoing Quarterly (Per Quarter)

Task	If Using Software Regularly	If Catching Up at Quarter-End
Reviewing transactions	10-15 minutes	1-2 hours
Categorising any uncategorised expenses	5 minutes	30-60 minutes
Submitting the quarterly update	5 minutes	5 minutes
Total per quarter	20-25 minutes	1.5-3 hours

The lesson: keep your records up to date during the quarter and the submission takes 20 minutes. Leave it all to the last minute and it takes 3 hours. This is true with or without MTD — but MTD forces the discipline of quarterly reconciliation, which most accountants would say is a good habit anyway.

One-Off Setup Costs

Beyond software, there may be some initial costs:

Item	Cost	Do You Need It?
MTD software subscription	£0-35/month	Yes (mandatory)
Accountant setup fee	£100-200	Only if using an accountant
Training/learning	£0 (free YouTube tutorials)	Helpful but not essential
New computer/tablet	£0 (use existing device)	No — any modern device works
Receipt scanner app	£0 (free apps available)	Useful but not required

Total one-off cost for most people: £0. The software subscription is the only real cost, and that's ongoing, not one-off.

4 Ways to Comply for Under £200/Year

Option 1: HMRC's Free MTD Software — £0/year

HMRC is providing basic MTD-compatible software for free. It handles digital record-keeping and quarterly submissions. Limitations: very basic, no invoicing, no bank feeds, no expense categorisation.

Best for: Very simple businesses with few transactions who just want to tick the compliance box.

Option 2: Free FreeAgent via NatWest/Mettle — £0/year

Open a free Mettle business account (NatWest's digital offering) and get FreeAgent — a full-featured accounting platform — completely free. This is the best value option currently available.

Best for: Anyone willing to switch or add a business bank account for the free software benefit.

Option 3: Budget Software — £120-180/year

QuickBooks Simple Start (£144/year) or Xero Starter (£180/year) give you everything you need: bank feeds, expense tracking, invoicing, and MTD submissions.

Best for: Sole traders who want good software without the bank account requirement.

Option 4: Bridging Software — £20-60/year

If you love your spreadsheet and refuse to give it up, bridging software connects your spreadsheet data to HMRC for quarterly submissions. You still need to keep digital records, but the software acts as the bridge.

Best for: People who are very comfortable with spreadsheets and have simple affairs.

For a full guide on bridging software: MTD Bridging Software Guide.

Good News: It's All Tax-Deductible

Every penny you spend on MTD compliance is a legitimate business expense:

Software subscriptions ✅
Accountant fees ✅
Training courses ✅
Any hardware purchased specifically for business use ✅

This means the actual cost is reduced by your marginal tax rate:

You Pay	Tax Rate	Real Cost After Relief
£180/year (software)	20% (basic rate)	£144/year
£180/year (software)	40% (higher rate)	£108/year
£500/year (software + accountant)	20% (basic rate)	£400/year
£500/year (software + accountant)	40% (higher rate)	£300/year

If you're earning over £50,000 (which you must be to be in the first MTD wave), you're likely a higher-rate taxpayer. That means 40% of your software cost is effectively covered by tax relief.

The Hidden Savings of MTD

It's not all cost. Digital record-keeping and quarterly discipline can actually save you money:

1. Catching Missed Expenses

When you reconcile quarterly instead of annually, you're more likely to catch business expenses you'd otherwise forget. Bank feeds in software automatically flag transactions you might have missed. Most people find they claim £500-2,000 more in legitimate expenses per year once they use proper software.

2. No January Panic

The annual January scramble to dig out 12 months of receipts and invoices costs time, stress, and often money (rush accountant fees, penalties for late filing). Quarterly bookkeeping eliminates this.

3. Better Tax Forecasting

Most accounting software shows your estimated tax liability in real time. No more January surprises. You can plan your cash flow around tax payments instead of being caught off guard.

4. Faster Invoice Payments

Software that handles invoicing also tracks payments and sends automatic reminders. Better invoicing = faster payment = better cash flow. For more on this, see our guide to getting paid faster.

5. Reduced Accountant Bills

If you use an accountant, providing them with clean digital records instead of a bag of receipts significantly reduces their time (and your bill). The quarterly discipline means year-end accounts take a fraction of the time.

Cost Comparison: 4 Different Approaches

Here's what a typical sole trader earning £60,000 would pay under each approach:

Approach	Software	Accountant	Time/Year	Total Cost	After Tax Relief
Free DIY	£0	£0	8-12 hours	£0	£0
Budget DIY	£144-180	£0	4-8 hours	£144-180	£86-108
Full DIY	£174-360	£0	4-6 hours	£174-360	£104-216
Accountant-managed	£0 (included)	£300-800	1-2 hours	£300-800	£180-480

For context, that £60,000 earner pays roughly £12,500 in income tax and £5,000 in National Insurance. The MTD compliance cost is 0-4% of their tax bill. It's an annoyance, not a financial catastrophe.

What to Choose Based on Your Situation

📋 Simple sole trader, few transactions per month

Use HMRC's free software or get FreeAgent free via Mettle. Total cost: £0.

📊 Active sole trader, 20+ transactions per month

Use QuickBooks Simple Start (£12/month) or Xero Starter (£15/month). The bank feeds and categorisation will save you time. Total cost: £144-180/year (£86-108 after tax relief).

🏠 Landlord with rental properties

Consider Hammock (free-£10/month, specifically for landlords) or FreeAgent. For more, see our MTD for Landlords guide.

📈 Growing business, multiple income streams

Invest in FreeAgent (£14.50-36/month) or Xero Growing (£30/month). The features justify the cost at your income level.

🤷 "I don't want to think about it"

Get an accountant to handle everything. Expect £300-800/year extra. Worth it if your time is better spent earning.

Get Ready for MTD Without the Guesswork

Our MTD Readiness Toolkit includes a full software comparison table, 30-day setup checklist, quarterly deadline calendar, and step-by-step setup guides for the top 5 MTD software options. Everything you need to get compliant — for less than one month of most software subscriptions.

Get the MTD Readiness Toolkit — £14

The Bottom Line

The headline number of £2 billion is real, but misleading at the individual level. For most sole traders, MTD will cost somewhere between £0 and £15 per month in software, plus a few hours of your time per year. If you're already using accounting software, the marginal cost is essentially zero.

The biggest cost isn't financial — it's the initial learning curve and setup time. But that's a one-off investment that pays for itself through better record-keeping, fewer missed expenses, and no more January panic.

Start with the cheapest option that meets your needs, and upgrade if you find you need more features. You can always switch software later.