Do I need accounting software?

For limited companies and VAT-registered businesses, digital record keeping is increasingly required (Making Tax Digital). Even without the legal requirement, accounting software saves time, reduces errors, automates invoicing and bank reconciliation, and makes tax returns simpler. For sole traders earning over £50,000, MTD-compatible software will be required from April 2026.

What is the best accounting software for sole traders?

For most sole traders, FreeAgent (especially if you bank with NatWest/RBS, who offer it free) or QuickBooks Self-Employed (£6/month) are excellent choices. Both handle income/expense tracking, Self Assessment, mileage, and invoicing. For the simplest needs, a spreadsheet or free software like Wave may suffice.

What is Making Tax Digital compatible software?

Making Tax Digital (MTD) requires you to keep digital records and submit VAT returns (and eventually income tax) through compatible software. MTD-compatible options include FreeAgent, Xero, QuickBooks, Sage, and others. HMRC maintains a list of compatible software on gov.uk.

Accounting Software Guide UK — Best Options for Small Businesses | PocketWise

Accounting software transforms how you manage your business finances — from manual spreadsheets to automated bank feeds, invoicing, and tax calculations. With Making Tax Digital expanding, digital record keeping is becoming essential.

Top UK Accounting Software Compared

Software	Best For	Monthly Cost	MTD Compatible
FreeAgent	Freelancers, sole traders, small Ltd	£9.50–£24/month	Yes
Xero	Growing businesses, Ltd companies	£15–£47/month	Yes
QuickBooks	Sole traders, small businesses	£6–£35/month	Yes
Sage	Traditional businesses, payroll	£12–£40/month	Yes
Wave	Budget-conscious start-ups	Free	Limited
Crunch	Contractors (includes accountant)	Free–£30/month	Yes

Detailed Comparison

FreeAgent

Feature	Detail
Price	£9.50/month (micro); £24/month (full)
Free with	NatWest, RBS, Mettle bank accounts
Best for	Freelancers, contractors, small Ltd companies
Key features	Self Assessment filing, bank feeds, invoicing, expense tracking, project tracking
MTD	VAT and Income Tax compatible
Payroll	Basic payroll included
Mobile app	Yes

Xero

Feature	Detail
Price	Starter £15/month; Standard £30/month; Premium £47/month
Best for	Growing businesses, multiple users, app integrations
Key features	Bank feeds, invoicing, bills, payroll (add-on), multi-currency, 1,000+ app integrations
MTD	VAT and Income Tax compatible
Payroll	Add-on (Xero Payroll)
Mobile app	Yes

QuickBooks

Feature	Detail
Price	Self-Employed £6/month; Simple Start £12/month; Essentials £22/month; Plus £35/month
Best for	Sole traders (Self-Employed); growing businesses (Simple Start+)
Key features	Bank feeds, invoicing, receipt capture, mileage tracking, Self Assessment
MTD	VAT and Income Tax compatible
Payroll	Add-on
Mobile app	Yes

Sage

Feature	Detail
Price	Accounting Start £12/month; Accounting £26/month; Accounting Plus £40/month
Best for	Businesses needing robust payroll, traditional businesses
Key features	Bank feeds, invoicing, payroll (built-in), purchase orders, VAT
MTD	VAT and Income Tax compatible
Payroll	Included in higher tiers
Mobile app	Yes

Feature-by-Feature Comparison

Feature	FreeAgent	Xero	QuickBooks	Sage
Bank feeds	✓	✓	✓	✓
Invoicing	✓	✓	✓	✓
Receipt scanning	✓	✓ (Hubdoc)	✓	✓
Self Assessment	✓	Via accountant	✓	Via accountant
Corp Tax filing	✓	Via accountant	No	Via accountant
Multi-currency	Limited	✓	✓ (Plus)	✓
Payroll	Basic included	Add-on	Add-on	Included
Stock/inventory	No	✓	✓ (Plus)	✓
Project tracking	✓	✓	No	No
Number of users	Unlimited	Depends on plan	1–25	1–unlimited
MTD VAT	✓	✓	✓	✓
MTD Income Tax	✓	✓	✓	✓

Choosing the Right Software

By Business Type

Business Type	Recommended Software
Sole trader (simple)	FreeAgent or QuickBooks Self-Employed
Freelancer	FreeAgent
Contractor (Ltd)	FreeAgent or Crunch
Small limited company	FreeAgent or Xero
Growing business (5+ employees)	Xero or Sage
E-commerce	Xero (with app integrations)
International business	Xero (best multi-currency)

By Priority

Priority	Best Choice
Cheapest	Wave (free) or QuickBooks Self-Employed (£6/month)
Easiest to use	FreeAgent
Most integrations	Xero (1,000+ apps)
Best payroll	Sage
Contractor-specific	Crunch or FreeAgent
Free with bank account	FreeAgent (NatWest/RBS/Mettle)

Making Tax Digital (MTD)

Requirement	From When
VAT-registered businesses	Already in effect
Self-employed income over £50,000	April 2026
Self-employed income over £30,000	April 2027
Below £30,000	Under review

MTD requires:

Digital record keeping (no paper ledgers)
Quarterly updates to HMRC
End-of-period statement
Final declaration

All software listed above is MTD-compatible for VAT. Most are preparing for MTD Income Tax.

What Your Accountant Prefers

Software	Accountant Support
Xero	Most widely used by UK accountants
FreeAgent	Popular with smaller practices
QuickBooks	Solid accountant support
Sage	Long-established; familiar to many

Tip: Ask your accountant which software they prefer before choosing — collaboration is easier when you use the same platform.

Tips for Getting Started

Start early — set up software when you start your business
Connect your bank account — auto mated bank feeds save hours
Use receipt scanning — photograph receipts immediately
Reconcile regularly — weekly is ideal
Set up recurring invoices — for regular clients
Use the free trials — test before committing

For related guidance, see our invoicing guide and self-assessment guide.