Making Tax Digital Software – Where are we now?

What MTD software needs to do – a reminder

Taxpayers within MTD will need to use compatible third-party software to keep digital records, send quarterly updates and submit their end of year tax return. There are different ways of doing this. Some products are designed to provide a complete bookkeeping and filing solution, whereas others (bridging software) allow records to be kept on a spreadsheet and then link across to HMRC’s systems. We explore the various options further in our guidance.

The various types of software and differing levels of functionality mean there is no single solution that will be right for every taxpayer who must use MTD. The software needed will depend on an individual’s own circumstances. HMRC will not recommend any particular product to a taxpayer, but they have developed a software finder tool to help taxpayers navigate the growing number of products available. Our earlier blog identified some limitations with the tool. Eight months on, has it improved? 

HMRC’s software finder tool – what does it tell you?

When we first tested the tool earlier this year, it was still being developed. Improvements have since been made, meaning the tool now has additional features and more options for filtering the results. Taxpayers now have the option of seeing a complete list of available MTD software or being able to find software based on answers to questions about their circumstances. For those who were already using software before MTD mandation, it is now also possible to check if their existing accounting software is compatible with MTD.

These are useful developments. However, ultimately the tool can only tell taxpayers which products may meet their needs based on information provided. It can’t identify which products are easy to use, represent good value for money or come with customer support. 

For an unrepresented taxpayer, this distinction is important. An agent, such as an accountant or tax adviser, is likely to have experience of particular software providers and may be able to help their clients choose between them. Taxpayers who cannot afford professional advice are left having to navigate this choice on their own, which may feel daunting given the huge number of options available. 

At the time of writing, the tool lists more than 140 software results and filtering doesn’t always help narrow this down very much. For example, we said during testing (on 30^th September 2026) that we were a sole trader (self-employed) with no other sources of income and had a 5 April year end. The tool returned 131 results. Is a taxpayer really expected to research all 131 options to understand which might best suit their needs? 

What does “HMRC compatible” actually mean? 

Faced with a long list of software options, it may be reasonable for a taxpayer to assume that any product appearing on HMRC’s software finder tool has been quality checked and endorsed by HMRC. However, that is not what “HMRC compatible”, “HMRC recognised” or “HMRC ready” means. These terms are often used interchangeably by software developers in their marketing. Instead, HMRC’s recognition process is concerned with whether software has the functionality needed for MTD and can connect to HMRC’s systems. It does not mean that HMRC has assessed whether the software is easy to use, is value for money or offers adequate customer support. 

We are concerned that some of the terminology used could give unrepresented taxpayers the impression that HMRC has quality checked and endorsed the products that have passed their recognition process. Our understanding is that this isn’t the case and that HMRC’s role is to verify compatibility with its systems, rather than to judge the overall quality of the software. 

Making the right choice

It is down to the individual taxpayer to judge the suitability of a software provider. As MTD is rolled out, we would hope that real taxpayer reviews become more readily available, so that taxpayers can base their choice on something more than just a vast list of products displayed in HMRC’s software finder tool. There are lots of factors that we would recommend unrepresented taxpayers focus on when choosing a product, and our software checklist sets these out in full. 

Price is an obvious starting point for some people. Our last blog raised some concerns about free software and that the cheapest option may not always be the most suitable. Taxpayers need to think about which software works for their particular circumstances and is a product that they can use and understand. Free options are understandably attractive but can come with conditions and may only be suitable for someone with very simple tax affairs. 

When things go wrong – what role should HMRC play?

Despite the choice of software being down to the taxpayer, we still feel that HMRC must have a role in protecting and supporting taxpayers when things go wrong. We understand that new ‘start-up’ software companies have entered the market to cater for MTD. As such, we would urge HMRC to consider: 

• What level of support for the taxpayer is available if something goes wrong? 
• What happens if a software provider stops trading? 
• Is there a risk that a taxpayer could lose access to their data while still having the same filing obligations?

Taxpayers can reduce risk by keeping a backup of their data (assuming the software allows them to do so), but not all taxpayers may have the digital skills or resources to be able to do this easily.  

What have we learned from going live?

The first mandatory quarterly update deadline has passed, so we now have some real-world experience of how MTD is working in practice. HMRC reported shortly after the deadline that 436,000 taxpayers had submitted their first quarterly update and over 570,000 taxpayers had signed up to MTD. 

The number of taxpayers who have submitted an update is arguably more meaningful here, as sign-up figures don’t actually tell us that a taxpayer has successfully been able to choose software – there is no requirement to do this before a taxpayer signs up. The quarterly update figures give us a better indication of how many taxpayers have been able to successfully navigate that step. 

From speaking to unrepresented taxpayers, we have learned that choosing software can feel overwhelming, given there is so much choice available. Although choice can be a good thing, as it means more taxpayers’ needs are catered to, including those with accessibility needs, it also means that the risk of a taxpayer choosing a product which isn’t right for them increases. 

HMRC has recently introduced a ‘firebreak,’ meaning that it is no longer accepting new applications to connect new MTD software products to HMRC’s systems. For the time being, this means that the list of available software is not continuing to grow. This seems like a sensible step and gives taxpayers a chance to research software that is already available, while allowing providers time to further improve their products. 

Looking ahead

As MTD expands to taxpayers with lower levels of gross income from self-employment and/or property, the number of unrepresented taxpayers who will need to use software for the first time will increase.  

The software finder tool is a useful starting point, but there is scope to develop it further. For example, taxpayers could be given more information about the type of customer support offered by each provider, such as whether support is available by phone, email or webchat. The tool could also give clearer information about costs and pricing structures. For instance, where software is only free to customers of a particular bank. Taxpayers need to be confident that ‘free’ really means free! It would also be useful for the tool to incorporate whether a data backup can be taken and whether this comes at a cost to the taxpayer. 

More fundamentally, we think HMRC should consider whether its software recognition process could do more to reflect the customer journey and overall usability. While technical compatibility is clearly important, so is ease of use and the facility to get help when needed. This should be tested with real taxpayers in mind – including those who are not being supported by an agent. 

We will continue to monitor the experience of unrepresented taxpayers as MTD is rolled our further. We would be interested to hear from any taxpayers who would be happy to share their experiences, positive or negative, with choosing and using MTD software. 

Guidance for taxpayers on the whole MTD process is available through our dedicated MTD information hub.