If you think MTD software has to cost money — or that you need a business bank account, or that you’ll be penalised the moment you miss a quarterly update — then I’ve got news for you: those myths are costing you money, and they’re all wrong.
A Reddit user recently asked the question that thousands of sole traders are wrestling with:
“Is there a very simple way to do Making Tax Digital that doesn’t involve spending money or lots of effort?”
The good news: yes, there is. You can do MTD for free, and the simplest options require less effort than the spreadsheet-and-panic method you’re probably using now. The bad news: the information is scattered across HMRC’s website, individual software providers, and bank comparison pages, with no single source that lays out all the free and cheap options side by side.
In this guide, I’m going to debunk 6 of the most common MTD myths — each backed by HMRC’s own guidance and real-world data — and show you the free and low-cost options that actually work. Here’s that source. Every free and low-cost MTD-compatible option for sole traders, what each one is best for, and how to choose based on your situation.
The Two Types of MTD Software
Before comparing options, you need to understand that MTD software comes in two flavours. According to HMRC’s guidance on choosing software:
1. Record-keeping software
This replaces your spreadsheet (or shoebox). You enter income and expenses into the software, it keeps digital records, and it submits quarterly updates and your final declaration to HMRC. Examples: FreeAgent, Xero, QuickBooks, Sage.
Myth 6: You Have to Abandon Spreadsheets for Accounting Software (Bridging Software)
This connects your existing spreadsheet to HMRC’s API. You keep recording income and expenses in Excel or Google Sheets exactly as you do now, and the bridging software reads the data and submits it to HMRC. Examples: 123 Sheets, VitalTax, Acxite, BTCSoftware.
If you’re happy with your spreadsheet and don’t want to learn a new system, bridging software is the path of least resistance. If you want automatic bank feeds and receipt scanning, record-keeping software is better.
Myth 1: MTD Software Has to Cost Money (The Free Options)
1. FreeAgent (free via a business bank account)
This is the option most Reddit users recommended, and it’s the best free option for most sole traders. FreeAgent is fully MTD-compatible for both VAT and Income Tax, and it’s free if you have a business current account with:
- NatWest — free as long as you retain your account
- Royal Bank of Scotland — free as long as you retain your account
- Ulster Bank — free as long as you retain your account
- Mettle (a mobile-only business bank account by NatWest) — free if you make at least one transaction per month from your Mettle account
FreeAgent is owned by the NatWest Group, which is why they can give it away. The free version has the same full functionality as the paid version (£19/month for sole traders). You get:
- Automatic bank feeds from your business account
- Income and expense tracking
- Invoicing
- Receipt capture via mobile app
- Quarterly MTD updates and final declaration
- Self Assessment filing
- A running total of how much tax you owe
The catch: you need a business bank account with one of those banks. If you’re currently using a personal account for your self-employment income (as the Reddit poster’s partner was), this is your sign to switch. Not only do you get free software, but separating business and personal transactions makes your bookkeeping — and your tax return — dramatically easier.
2. Acxite (free for single users)
Acxite is a bridging software that’s free for single users. It connects your existing spreadsheet to HMRC’s MTD API. You keep using Excel or Google Sheets, map your columns to HMRC’s tax boxes, and Acxite submits your quarterly updates and final declaration.
Best for: sole traders who already have a spreadsheet system that works and don’t want to switch to full accounting software. Also good if you don’t want to open a business bank account just to get free software.
The catch: it’s a newer product with fewer features than established accounting software. No bank feeds, no receipt scanning, no invoicing. It’s a bridge, not a replacement for your record-keeping system. According to TapTax’s MTD software directory, it supports self-employment, UK property, and foreign property income, with more return items in development.
3. Sage Sole Trader & Landlord (free tier)
Sage offers a free tier specifically for sole traders and landlords with simple needs. According to MTD.digital’s software list, it’s designed for those starting out with straightforward income from trading or UK property.
Best for: sole traders who want the familiarity of an established brand (Sage) and have very simple tax affairs.
The catch: free tiers typically have limits — on number of transactions, features, or income sources. If your circumstances get more complex (multiple income sources, foreign property, etc.), you may need to upgrade to a paid tier.
The Low-Cost Options (Under £30/year)
If the free options don’t fit, here are the cheapest paid options:
Bridging software (for spreadsheet users)
| Software | Price | Works with |
|---|---|---|
| 123 Sheets | From ~£20/year + VAT | Excel, Google Sheets |
| VitalTax | £30/year + VAT | Excel, CSV files |
| BTCSoftware | £60/year | Excel |
These are the cheapest way to become MTD-compliant if you want to keep using spreadsheets. You pay a small annual fee, connect your spreadsheet, and the software handles submissions to HMRC. No bank feeds, no accounting features — just the bridge.
Record-keeping software (cheapest paid tiers)
| Software | Price from | Best for |
|---|---|---|
| Xero | £7/month (Xero Simple) | Sole traders wanting full accounting with bank feeds |
| QuickBooks Sole Trader | £10/month | Sole traders with straightforward income |
| FreeAgent (standalone) | £19/month sole traders, £10/month landlords | Freelancers and contractors (or free via NatWest/RBS/Mettle) |
| Sage Accounting | £18/month | Small businesses already using Sage |
| Untied | Check provider for current pricing | Sole traders wanting a simple mobile-first app |
| AbraTax | Check provider for current pricing | Sole traders wanting straightforward filing |
Note: FreeAgent standalone at £19/month is the same software you get for free with a NatWest/RBS/Mettle account. If you’re going to use FreeAgent, there’s no reason to pay unless you bank elsewhere and don’t want to switch.
Myth 2: MTD Requires a Business Bank Account
This is one of the most common misconceptions about MTD. A Reddit user who uses their Starling personal account exclusively for rental income asked: “I’ve always had a personal account but noticed that MTD requires a business account. How easy is it to switch?”
MTD does not require a business bank account. This is a conflation of two separate things:
- MTD requires compatible software — that’s the actual rule. You need software that connects to HMRC’s API, keeps digital records, and submits quarterly updates. What bank account your money sits in is irrelevant to HMRC’s MTD rules.
- Banks’ terms and conditions require a business account for business income — this is a contractual matter between you and your bank, not a tax or MTD requirement. Most personal accounts prohibit business use in their T&Cs. Rental income counts as business income for this purpose.
So the “requirement” comes from your bank, not from HMRC. But the practical effect is the same: if you’re using a personal account for self-employment or rental income, you’re probably breaching your bank’s T&Cs, and you should switch.
Myth 3: “Just Open Another Personal Account Instead”
One Reddit commenter suggested: “As a landlord you don’t need a business account. I suggest opening another personal account, to make it easier to manage with MTD software.”
This is bad advice. A second personal account doesn’t solve the T&Cs problem — it just gives you two accounts both in breach of the same terms. Banks aren’t stupid: if they see regular rental income or business transactions going through a personal account, they can flag it, restrict it, or close it. As another commenter bluntly put it: “Banks aren’t stupid.”
The correct path is to open a business account. For sole traders and landlords, these are free from several providers (see below).
Can I switch my Starling personal account to a business account?
If you’re with Starling and want to switch from a personal to a business account, you generally can’t “convert” the existing account — you need to open a new business account and transfer your activity across. Contact Starling directly for their current process, as it can change.
For other banks, the process varies. Some allow you to switch in-app; others require a new application. It’s usually faster to open a new business account than to try converting an existing personal one.
Why you should get a business account anyway (even though MTD doesn’t require it)
Even though MTD doesn’t mandate a business account, there are four strong reasons to get one:
- Banks’ terms and conditions — most personal accounts prohibit business use. The bank won’t usually close your account immediately, but they’re within their rights to if they change their risk tolerance — and some have done exactly this to customers they flagged for business use on personal accounts.
- Bookkeeping becomes 10x easier — if your business or rental transactions are mixed with hundreds of personal transactions (food, clothes, subscriptions), you have to trawl through every statement to separate them at tax return time. A separate account means every transaction in it is business-related.
- Free software — as noted above, NatWest/RBS/Mettle business accounts include FreeAgent for free. That’s £228/year in software costs saved. Starling’s business account includes its own built-in accounting tool (though it’s still developing — see our Starling Accounting MTD troubleshooting guide if you hit issues).
- MTD is easier — record-keeping software connects to your business bank account via a bank feed, automatically importing transactions. This doesn’t work cleanly with a personal account that has mixed transactions.
As one Reddit commenter put it: “How is a separate account for your business overkill? I’d have thought that was totally standard.” Another: “So much easier to keep everything separate.”
Free business accounts for sole traders and landlords
You don’t have to pay for a business account. Several providers offer free accounts with no monthly fee:
| Provider | Monthly fee | Free MTD software included | Notes |
|---|---|---|---|
| Mettle (NatWest) | Free | FreeAgent (with 1+ transaction/month) | Mobile-only, takes minutes to open |
| Starling | Free | Starling Accounting (built-in) | Full app, accounting features still developing |
| NatWest | Free (with conditions) | FreeAgent | Traditional bank with branches |
| RBS | Free (with conditions) | FreeAgent | Traditional bank with branches |
| Tide | Free | Integrates with Xero, QuickBooks | Mobile-first, in-app invoicing |
| Revolut Business | Free tier available | Integrates with accounting software | Good if you also need international payments |
If you’re worried it’s complicated to switch, Mettle is the lowest-friction option — a mobile-only business account that takes minutes to open and has no monthly fee. You just need to make one transaction per month to keep the free FreeAgent licence.
What if you’re a landlord with a letting agent?
If your letting agent collects rent and deducts their fees before paying you, you might think you don’t need a business account because the transactions look like personal income. But the underlying activity is still a rental business — and HMRC classifies rental income as property income (a qualifying income source for MTD). The bank’s T&Cs still apply. See our MTD for landlords guide for how letting agent statements work under MTD.
Myth 4: You’ll Be Penalised Immediately for Late Quarterly Updates (The Grace Period)
One thing the Reddit thread correctly identified: there are no penalties for late quarterly updates in the 2026/27 tax year.
According to HMRC’s MTD penalties guidance:
“There are no penalties for missing a quarterly update deadline for the 2026 to 2027 tax year.”
The penalty points system starts from 6 April 2027 onwards. The first quarterly update you could be penalised for is the one due by 7 August 2027. The system works like this:
- 1 penalty point per missed quarterly update deadline
- 4 points triggers a £200 penalty
- £200 more for each additional missed deadline after that
- Points expire after a period of compliance
So if you’re choosing software in 2026 and feeling rushed: don’t. You have until the 2027/28 tax year before penalties kick in for quarterly updates. Use the grace period to pick the right tool, set it up properly, and get comfortable with it.
Important caveat: penalties for late tax returns and late payments still apply as normal. The grace period only covers quarterly update deadlines.
How to Choose: Decision Guide
If you want free and simple
Get a Mettle business account (mobile-only, free, takes minutes to open) → FreeAgent is included for free → connect your bank feed → transactions flow in automatically → quarterly updates take 5 minutes to review and submit.
This is the closest thing to “doesn’t involve spending money or lots of effort” that exists. Total cost: £0. Effort: one transaction per month from your Mettle account, plus 5 minutes per quarter to review updates.
If you want to keep your spreadsheet
Use Acxite (free for single users) → keep recording income and expenses in your spreadsheet → map your columns to HMRC’s boxes in Acxite → submit quarterly updates through Acxite.
Total cost: £0. Effort: slightly more than record-keeping software because you enter data manually, but no new system to learn.
If you want the cheapest possible bridging
Use 123 Sheets (~£20/year) → connect your Excel or Google Sheets → submit through 123 Sheets.
Total cost: ~£20/year. Good if Acxite doesn’t support your needs but you still want to keep your spreadsheet.
If you want full accounting software and don’t bank with NatWest/RBS
Xero Simple at £7/month is the cheapest full-featured option. QuickBooks Sole Trader at £10/month is also worth considering. Both have bank feeds, receipt scanning, and mobile apps.
Total cost: £84-120/year. Worth it if you want automatic bank feeds from a non-NatWest bank and more features than free options provide.
If you have complex tax affairs
If you have multiple income sources (self-employment + property + foreign income), use an accountant, or have turnover above £50,000, the free options may not cover everything. In that case:
- Check HMRC’s software finder tool — answer a few questions about your income sources and it gives you a personalised list of compatible software
- Consider getting an accountant who includes MTD filing in their service — see our Find an Accountant page
- Read our guide on MTD software costs as an allowable expense — you can deduct the cost from your business income, which effectively reduces it by 20-40%
Myth 5: You Can Claim Exemption Just Because MTD Is Difficult or Expensive
One Reddit commenter mentioned: “I’ve claimed exemption for a year (after speaking to HMRC they advised me to do this).”
HMRC does allow certain taxpayers to claim exemption from MTD if they have a genuine reason — for example, if you’re unable to use digital tools due to age, disability, or other circumstances, or if you object to using computers on religious grounds.
This is worth knowing about but it’s not a long-term solution. Exemptions are reviewed, and most sole traders will eventually need to comply. If you think you might qualify, call the MTD helpline and ask. But for most people, the free software options above are a better path than fighting for an exemption.
The Bottom Line
There you have it: 6 MTD myths debunked with HMRC’s own guidance and real-world data. The most surprising ones:
- MTD software doesn’t have to cost money. FreeAgent via a Mettle/NatWest/RBS business account, or Acxite for spreadsheet bridging, both cost £0.
- MTD doesn’t require a business bank account — but your bank’s T&Cs probably do, and a business account unlocks free software. Mettle is free, mobile-only, and takes minutes to open.
- You can keep your spreadsheet. Bridging software (Acxite free, 123 Sheets ~£20/year, VitalTax £30/year) connects your existing spreadsheet to HMRC — no need to learn new accounting software.
- No penalties for late quarterly updates in 2026/27. You have time to choose the right tool and set it up properly. Penalties start from 6 April 2027.
- Use HMRC’s software finder tool if you have complex income sources — it gives you a personalised list of compatible options.
- Software costs are an allowable expense — if you do pay, you can deduct it from your business income. See our MTD software costs guide for the details.
The biggest myth of all is that MTD has to be expensive or complicated. It doesn’t — but only if you know which myths to ignore.
For the complete MTD roadmap, see our Making Tax Digital guide. For a plain-English explanation of what MTD is and how it works, see our MTD for Income Tax explained guide. For help with quarterly update deadlines and process, see our MTD quarterly updates guide. For the full guide to choosing MTD software — digital links, spreadsheets vs cloud, free vs paid — see our MTD software guide.