Finance & Tax
Making Tax Digital 2026: The Best AI Accounting Software for UK Businesses
MTD for Income Tax started in April 2026. Here's the timeline, who's affected and the best HMRC-recognised AI accounting software for sole traders, landlords and small businesses.
Quick answer
Making Tax Digital for Income Tax Self Assessment became mandatory on 6 April 2026 for sole traders and landlords with qualifying income over £50,000, falling to £30,000 from April 2027 and £20,000 from April 2028. You need HMRC-recognised software to keep digital records and send quarterly updates. Our top picks are Xero, FreeAgent and QuickBooks, all of which use AI to automate bookkeeping.
Key takeaways
- MTD for VAT applies to all VAT-registered businesses already.
- MTD for Income Tax started 6 April 2026 for qualifying income above £50,000.
- Thresholds drop to £30,000 (April 2027) and £20,000 (April 2028).
- FreeAgent is free with eligible NatWest, RBS, Ulster Bank and Mettle accounts.
The Making Tax Digital timeline
| From | Who must use MTD for Income Tax |
|---|---|
| 6 April 2026 | Sole traders and landlords with qualifying income over £50,000 |
| 6 April 2027 | Qualifying income over £30,000 |
| 6 April 2028 | Qualifying income over £20,000 |
Qualifying income is your total gross income from self-employment and property before expenses. Always confirm your position using HMRC's official MTD guidance on GOV.UK, as rules and exemptions can change.
What changes under MTD for Income Tax?
- Keep digital records of income and expenses in HMRC-recognised software.
- Send quarterly updates of income and expenses to HMRC.
- Submit a final declaration by 31 January after the tax year ends.
How AI makes MTD easier
Quarterly reporting sounds like more admin, but modern accounting software uses AI to do most of the work: bank transactions are categorised automatically, receipts are read from photos, and anomalies are flagged before you submit. If your records are kept up to date weekly, quarterly updates become a few clicks.
Best MTD accounting software with AI
| Software | Best for | MTD VAT | MTD Income Tax | Price (approx.) |
|---|---|---|---|---|
| FreeAgent | Freelancers & sole traders | Yes | Yes | Free with eligible bank accounts |
| Xero | Small businesses with an accountant | Yes | Yes | From ~£16/month |
| QuickBooks | Mobile-first sole traders & SMEs | Yes | Yes | From ~£16/month |
| Dext | Receipt capture add-on | Feeds your ledger | Feeds your ledger | Often via accountant |
Frequently asked questions
When does Making Tax Digital for Income Tax start?
What is the best MTD software for sole traders?
Can I use spreadsheets for MTD?
SmarterBiz Editorial Team
Our editors test AI and business software against the realities of running a UK small business: sterling pricing and VAT, UK GDPR, HMRC's Making Tax Digital rules and British English output.