The Real Cost of Making Tax Digital: Software, Accountant Fees and Time
Last updated: February 2026
Making Tax Digital for Income Tax starts in April 2026 for sole traders and landlords with qualifying income above £50,000. The mechanics of quarterly reporting get plenty of coverage, but one question matters more than any other: how much will this actually cost? This article breaks down every cost you will face, from software subscriptions and accountant fees to the time you will spend if you handle it yourself. No sales pitch. Just numbers.
The three cost categories
MTD compliance costs fall into three buckets: software, professional fees and your own time. Some people will pay for all three, others just one or two. Your total cost depends on whether you go fully DIY, fully outsource to an accountant, or land somewhere in between.
Before we get into the numbers, remember who is affected. MTD for Income Tax applies in phases based on qualifying income, which is your combined gross self-employment and UK property income (turnover, not profit):
- 6 April 2026: qualifying income above £50,000
- 6 April 2027: qualifying income above £30,000
- 6 April 2028: qualifying income of £20,000 or more
If you fall into any of these phases, the costs below apply to you.
Software costs: free to £15 per month
MTD requires you to keep digital records and submit quarterly updates through MTD-compatible software. You cannot use HMRC’s existing Self Assessment portal. That means you need software, and software costs money — though not always.
Free options
HMRC’s own free MTD software is expected to cover basic sole traders with straightforward income. If you have a single self-employment source and no property income, the free tool should handle your quarterly updates and Final Declaration. The trade-off is limited functionality: no bank feed integration, no automatic categorisation, no multi-source income support.
Some commercial providers also offer free tiers. These typically cover a single business with a limited number of transactions per month. If your business is small and your bookkeeping is simple, a free tier may be all you need.
Paid options: £5 to £15 per month
For most sole traders and landlords, a paid subscription in the £5 to £15 per month range provides the features that make MTD manageable. At this price point, you typically get:
- Automatic bank feed connections (transactions imported daily)
- Income and expense categorisation
- Quarterly update submission direct to HMRC
- Final Declaration filing
- Invoice creation and tracking
- Basic reporting (profit and loss, tax estimates)
Popular providers like Xero, FreeAgent, QuickBooks and Sage all offer MTD-compatible plans within this range. The exact price depends on the provider and the plan tier. A sole trader with one income source will sit at the lower end. A landlord with multiple properties or a trader who also invoices clients may need a mid-tier plan closer to £12 to £15 per month.
Annual software cost
| Software tier | Monthly cost | Annual cost |
|---|---|---|
| Free (HMRC or free tier) | £0 | £0 |
| Basic paid plan | £5 – £8 | £60 – £96 |
| Mid-tier paid plan | £10 – £15 | £120 – £180 |
If you already use cloud accounting software for your business, you may not face any additional software cost at all. Most major providers are updating their existing plans to include MTD ITSA filing at no extra charge. The cost hits hardest for people who currently track everything in spreadsheets or on paper and have never paid for accounting software.
Accountant fees for MTD quarterly service
If you already use an accountant for your annual Self Assessment, MTD changes what they do for you. Instead of gathering your records once a year and filing a single return, they now need to review and submit four quarterly updates plus a Final Declaration. That is more work, and most accountants will charge accordingly.
Typical fee ranges
Based on current pricing from UK accountancy practices offering MTD quarterly services, the typical range is £75 to £125 per quarter for the quarterly update element alone. This usually covers:
- Reviewing your software records for the quarter
- Correcting miscategorised transactions
- Submitting the quarterly update to HMRC on your behalf
- A brief summary of your position for the quarter
The Final Declaration typically costs extra, in the region of £150 to £300, because it involves claiming reliefs, checking non-business income and finalising the full-year tax calculation. Some accountants bundle the Final Declaration into an annual MTD package rather than charging separately.
Annual accountant cost for MTD
| Service | Cost range | Frequency | Annual total |
|---|---|---|---|
| Quarterly updates | £75 – £125 each | 4 per year | £300 – £500 |
| Final Declaration | £150 – £300 | 1 per year | £150 – £300 |
| Total accountant fees | £450 – £800 |
These figures are for a straightforward sole trader or landlord. If you have multiple income sources, property portfolios, or complex capital allowance claims, expect fees towards the higher end or above these ranges.
Comparison with current Self Assessment accountant fees
Most sole traders currently pay their accountant £200 to £400 per year for annual Self Assessment preparation and filing. MTD increases this by £250 to £400 per year, reflecting the additional quarterly work. The increase is real, but it is not as dramatic as some headlines suggest. You are paying for four extra touchpoints per year, not a completely new service.
Setup costs
There is a one-off cost in your first year that disappears from year two onwards. Getting set up for MTD involves:
- Software setup: choosing a provider, creating your account, connecting bank feeds and configuring your chart of accounts. If your accountant does this, expect a one-off charge of £50 to £150.
- HMRC registration: signing up for MTD ITSA through HMRC’s service. This is free but takes time.
- Historical data entry: if you switch to new software, you may need to enter opening balances or import prior-year figures. This can take an hour or two of your time, or your accountant can handle it for a fee.
- Training: learning how to use your new software, categorise transactions and submit quarterly updates. Most providers offer free tutorials and onboarding guides.
Realistically, total setup costs range from £0 (if you do everything yourself with free software) to £150 to £250 (if your accountant handles the setup). After the first year, this cost drops to zero.
Time investment for DIY
If you handle MTD yourself without an accountant, the financial cost is lower but the time cost is real. Here is a realistic breakdown of the time involved:
| Task | Time per occurrence | Frequency | Annual total |
|---|---|---|---|
| Categorising transactions | 30 – 60 minutes | Monthly or quarterly | 6 – 12 hours |
| Reviewing and submitting quarterly update | 30 – 45 minutes | 4 per year | 2 – 3 hours |
| Preparing Final Declaration | 2 – 4 hours | 1 per year | 2 – 4 hours |
| Dealing with queries and corrections | Variable | As needed | 1 – 3 hours |
| Total annual time | 11 – 22 hours |
Compare this with current Self Assessment, where a typical sole trader might spend 5 to 10 hours per year gathering records and completing their return. MTD roughly doubles the time commitment because you are doing the work quarterly instead of annually, plus learning new software.
The time burden drops significantly in year two once you are familiar with the software and have established a routine. First-year time investment is always the highest.
Total cost comparison: four scenarios
Here is what MTD will cost in four common situations. All figures are annual and assume year two onwards (after setup costs have been absorbed).
| Scenario | Software | Accountant | Time | Total annual cost |
|---|---|---|---|---|
| A: Full DIY, free software | £0 | £0 | 15 – 22 hours | £0 (plus your time) |
| B: DIY with paid software | £96 – £180 | £0 | 11 – 18 hours | £96 – £180 |
| C: Accountant handles quarterly, you do bookkeeping | £96 – £180 | £450 – £800 | 4 – 8 hours | £546 – £980 |
| D: Fully outsourced (accountant does everything) | £96 – £180 | £600 – £1,200 | 1 – 2 hours | £696 – £1,380 |
Scenario A is cheapest in cash terms but demands the most of your time. Scenario D costs the most but frees you to focus on running your business. Most sole traders and landlords land on Scenario B or C.
Worked example: a plumber earning £62,000
David is a self-employed plumber in Leeds. His gross self-employment income is £62,000, putting him firmly in Phase 1 from April 2026. He currently pays his accountant £350 per year for annual Self Assessment.
Current annual costs (Self Assessment only):
- Accountant fee: £350
- Software: £0 (uses spreadsheets)
- Time: approximately 8 hours per year
- Total: £350 plus 8 hours
Year 1 MTD costs (setup year):
- Software (Xero basic plan): £10/month = £120
- Accountant setup fee: £100
- Accountant quarterly service: £90 × 4 = £360
- Final Declaration: £200
- Time (learning software, categorising, reviewing): 15 hours
- Total year 1: £780 plus 15 hours
Year 2 onwards (steady state):
- Software: £120
- Accountant quarterly service: £90 × 4 = £360
- Final Declaration: £200
- Time (categorising transactions, reviewing quarterly summaries): 6 hours
- Total ongoing: £680 plus 6 hours
David’s annual cost increases by roughly £330 compared to his current Self Assessment arrangement. In exchange, he gets quarterly visibility of his tax position, automatic bank feed reconciliation and fewer year-end surprises. Whether that trade-off is worth it is a personal judgment, but the additional cost is not prohibitive for someone earning £62,000.
Ways to reduce your MTD costs
Several practical steps can bring your costs down:
- Connect bank feeds from day one. Automatic transaction imports eliminate hours of manual data entry. Most paid software includes this as standard.
- Categorise transactions weekly. Spending five minutes a week is far less painful than three hours at the end of a quarter. It also reduces the time your accountant spends correcting miscategorised entries.
- Negotiate an annual MTD package. Many accountants offer a bundled annual fee for all four quarterly updates plus the Final Declaration. A package deal is typically cheaper than paying per quarter.
- Start before April 2026. Set up your software now, connect your bank feeds and run a trial quarter. Ironing out problems before MTD goes live saves money and stress in year one.
- Use free training resources. Software providers offer webinars, video tutorials and help articles at no cost. HMRC also publishes step-by-step guidance on GOV.UK.
What MTD does not cost
It is worth noting what you do not pay for under MTD:
- HMRC registration: signing up for MTD ITSA is free
- Submitting updates: there is no HMRC fee for quarterly submissions or the Final Declaration
- Bridging software: if you already use spreadsheets, some providers offer low-cost bridging software that connects your spreadsheet to HMRC. However, HMRC expects most ITSA taxpayers to use full MTD software rather than bridging
The costs are all on the software and professional services side, not on the HMRC side.
Is it worth paying an accountant?
This depends on your confidence with numbers and how much your time is worth. If you earn £60,000 and spend 20 hours a year on DIY MTD compliance, you are effectively valuing your time at zero. An accountant costing £500 to £800 per year frees up 15 of those hours and reduces the risk of errors that could trigger HMRC enquiries or missed reliefs. For many sole traders, the accountant pays for themselves through reliefs they claim that you might miss.
If your affairs are genuinely simple — one income source, no property, few expenses — DIY with good software is perfectly viable. The FAQ section of this site covers more on when professional help is advisable.
Frequently asked questions
- Can I use free software for MTD Income Tax?
- Yes. HMRC plans to offer free MTD software for taxpayers with simple affairs. Some commercial providers also offer free tiers with limited features. Free software works best for sole traders with a single income source and straightforward expenses.
- Will my current accountant fees increase because of MTD?
- Most likely, yes. MTD adds four quarterly submissions and ongoing software support to your accountant’s workload. The typical increase is £250 to £400 per year on top of your existing Self Assessment fee. Ask your accountant for a clear MTD pricing schedule before April 2026.
- Is MTD software an allowable business expense?
- Yes. The cost of accounting software used for your business is a deductible expense for tax purposes. If you pay £120 per year for MTD software, you can claim this against your self-employment income, reducing your taxable profit by that amount.
- What if I have both self-employment and property income?
- You will need software that supports multiple income sources within a single MTD submission. Most mid-tier plans (£10 to £15 per month) handle this. Your accountant fees may also be slightly higher because there is more data to review each quarter.
- Are there any penalties for late MTD submissions that add to the cost?
- Yes. Under the points-based penalty system, each late quarterly update adds a penalty point. Four points trigger a £200 fine. However, during the 2026/27 soft-landing period, no points are issued for late quarterly updates. Late payment penalties are separate and based on a percentage of tax owed.
Need help budgeting for MTD?
Jack Ross Chartered Accountants offers fixed-fee MTD packages covering software setup, quarterly submissions and the Final Declaration. We have supported sole traders and landlords through every stage of Making Tax Digital since it launched for VAT. As a Xero-certified practice, we configure your software, connect your bank feeds and manage your quarterly compliance so you know exactly what MTD costs before you commit. Talk to us about MTD
