When a UK small business asks us which accounting software they should use, the most useful first question we can ask back is whether they are VAT-registered, or close to it. The answer changes the calculus materially, because Making Tax Digital for VAT imposes specific technical requirements that not every platform satisfies, and the cost-benefit of paid versus free software shifts as soon as VAT compliance is in play. At PushDigits we make this distinction the first node in our software decision tree, and here is how we think about it.
The MTD VAT requirement
Any business with taxable turnover above the VAT registration threshold (currently £90,000 in a rolling 12 months) must register for VAT, and any VAT-registered business must keep digital records and submit returns through MTD-compatible software. That second part is the catch. HMRC publishes a list of recognised software, and not every accounting platform appears on it. A product that looks fine on paper for invoicing and expense tracking may not allow you to submit a return through the MTD channel, in which case you will need a bridging tool or a platform change.
For VAT-registered businesses: choose for the long haul
Once you are VAT-registered, the cost of poor software choices compounds quarterly. The platforms we typically recommend at this stage are the mature, well-supported, MTD-recognised options:
- Xero: Strong native VAT workflow, clean MTD filing, adjustment journal handling.
- QuickBooks Online: Similarly capable, with the bonus of strong Self-Employed module integration.
- Sage: The historical default for many UK businesses, particularly those with desktop heritage, and well supported for MTD.
- Free MTD-recognised options: Bokio, QuickFile and Pandle are credible for very small VAT-registered businesses where budget is genuinely a constraint, though the trade-offs we have covered in dedicated pieces apply.
The deciding factors at this stage are typically transaction volume, integration needs, multi-currency requirements and how the business plans to grow over the next three to five years.
For non-VAT businesses: the calculus is different
Below the VAT threshold, the MTD VAT constraint goes away, and the decision opens up. The remaining considerations are:
- MTD ITSA exposure: If you are a sole trader or landlord with gross income above £50,000, you are in scope for MTD ITSA from April 2026 (£30,000 from April 2027). That brings back a software constraint, just with a different recognition list.
- Self Assessment workflow: Even without MTD obligations, software that maps cleanly to UK Self Assessment categories saves substantial annual reconciliation time.
- Future VAT registration: If you are growing toward the threshold, choosing a platform now that will not need replacing once you cross it saves a migration in 12 to 24 months.
- Cost discipline: Below VAT, the case for free or near-free platforms is stronger. Wave, QuickFile, Pandle and Bokio all live in this space and serve genuine micro businesses well.
The platforms that bridge both sides
The strength of the mainstream paid platforms (Xero, QuickBooks, Sage, FreeAgent and FreshBooks) is that they scale across the threshold without forcing a migration. A business that starts non-VAT on Xero will not need to switch platforms when it crosses the registration line. That continuity is genuinely valuable and often justifies the higher monthly cost compared to a free option.
Decision framework
- Are you VAT-registered, or likely to be within 12 months? If yes, choose from MTD-recognised platforms with mature VAT workflows.
- Are you in scope for MTD ITSA from 2026 or 2027? If yes, ensure your platform supports the quarterly submission flow that will become mandatory.
- What is your transaction volume? High volume points toward paid platforms with bank feeds and rules engines. Low volume gives free options a credible role.
- Do you have employees? Payroll integration changes the answer. Some platforms include it; others require a separate tool.
- Will an accountant work in the platform with you? Match the choice to a tool the practice is set up to support.
How PushDigits supports your software choice
As ICAEW Chartered Accountants, Xero Platinum Partners and QuickBooks Elite Partners, we make the software recommendation that fits your VAT position, growth trajectory and operating profile, not the one that pays us the most commission. Explore our VAT, bookkeeping and Self Assessment services, or book a consultation to discuss your software decision.