What's the best Making Tax Digital software for a small business?
Seven HMRC-recognised options for a limited company or VAT-registered sole trader that files VAT and runs payroll.
Short answer: for the cheapest route to MTD VAT filing, pick Zoho Books (free, then £10 a month billed yearly) or Pandle (£5 a month), and run payroll in Basic PAYE Tools, HMRC's free payroll software for employers with fewer than 10 staff. If you want payroll inside the same tool, FreeAgent includes it for £330 a year (free with some business bank accounts), Xero includes it from Grow, and Clear Books charges £2.70 per employee.
A small business with staff has two digital filing jobs that overlap. VAT first: every VAT-registered business files through MTD-compatible software. Payroll second: every pay run, including a limited company director's own salary, goes to HMRC in real time under RTI. Most MTD roundups cover the first and skip the second. This one prices both, plus the seats your team needs. All prices exclude VAT.
Some links may be affiliate links. The ranking is editorial: a sponsored placement is always labelled on its entry, and no affiliate link changes a score.
The best MTD software for your kind of small business
Free plan files MTD VAT, 3 users from £10/month
Whole team for £5Pro at £5/month with unlimited users
Pay-per-employee payroll£2.70 per employee, VAT from Medium
Teams of 5 to 10Payroll for 5 people on Comprehensive
Director-run limited companyPayroll included, free with NatWest, RBS, Ulster or Mettle
Cheapest bundled payrollPayroll for up to 5 from £162 a year; Starter capped at 10 invoices and 25 bank transactions
7 MTD software options for small businesses compared
For an employer, the column that splits these tools is payroll: bundled, charged per head, or missing. Missing isn't a dealbreaker, because HMRC gives away payroll software for businesses under 10 employees. Prices are ex VAT, in pounds, as each vendor lists them.
| Best for | MTD VAT and payroll | Free plan | Team size | Visit | ||||
|---|---|---|---|---|---|---|---|---|
| 1 | Zoho Books | Lowest cost | VAT on the free plan; no payroll | 4.0/5 | £0; Standard £10/mo billed yearly | ✓ | 1 to 3 users | Visit → |
| 2 | Pandle | Whole team for £5 | VAT on the free plan; no payroll | 4.0/5 | £0; Pro £5/mo | ✓ | Unlimited users on Pro | Visit → |
| 3 | Clear Books | Per-employee payroll | VAT from Medium; payroll £2.70/employee | 3.9/5 | Medium £34/mo (£30.60 yearly) | — | 2 to 10 employees | Visit → |
| 4 | Xero | Teams of 5 to 10 | VAT; payroll for 1, 5 or 10 people by plan | 3.8/5 | Grow £39/mo; Comprehensive £55 | — | Growing company | Visit → |
| 5 | FreeAgent | Partner bank | VAT; monthly payroll included | 3.8/5 | Limited company £33/mo or £330/yr | — | Director-run limited company | Visit → |
| 6 | KashFlow | Bundled payroll, low price | VAT; payroll up to 5 employees; Starter: 10 invoices, 25 bank transactions | 3.6/5 | Starter £13.50/mo; £162/yr (10 invoices, 25 bank transactions) | — | 1 to 5 employees | Visit → |
| 7 | QuickFile | Very low volume | VAT; no payroll | 3.5/5 | Free up to 1,000 entries (XS to M tiers); £60/yr above | ✓ | Micro business, unlimited users | Visit → |
Prices ex VAT, in pounds, read on each vendor's official pricing page in 2026. QuickBooks and Sage aren't ranked here: see the "What about QuickBooks and Sage?" section.
Is your tool missing from this page? Email us: hello@hackceleration.com
How we compared and scored
We started from one concrete case: a small VAT-registered UK limited company with a salaried director and two employees, wanting to file everything from one tool, or close to it. For each package we read the official pricing page and noted four things. Does it file MTD VAT, and on which plan? Does it run payroll, and at what cost per head? How many people can log in? What does a full year cost once the welcome discount ends?
Then we read recent UK user reviews, starting with the worst ones: support, bank feeds, price rises, payroll migrations. Scores use the same five criteria and weights as our other MTD rankings, so a tool keeps the same score across Hack'celeration Labs. What changes here is the lens: payroll and seats weigh in every entry.
- MTD coverage (VAT, quarterly, final return)What the tool actually files with HMRC, and on which plan.30%
- CostPublic price in pounds over a year, payroll and seats included.25%
- Accounting featuresPayroll, invoicing, bank feeds, VAT schemes, accountant access.20%
- Ease of useHow fast a non-accountant director gets going.15%
- SupportChannels and response times, read in user reviews.10%
The ranking is editorial: a sponsored placement is always labelled on its entry, and no affiliate link changes a score.
Zoho Books
Zoho Books takes first place because it ticks the box that matters most for the least money. Its free plan files MTD VAT returns, and covers MTD for Income Tax too if the owner is a sole trader. The catch: one user plus your accountant, and 1,000 invoices a year.
Once a second person touches the books, move to Standard at £10 a month billed yearly. That gets you three users for £10 a month and 5,000 invoices. Each extra user is £2 a month on annual billing. Invoice in euros or dollars? Multi-currency starts on Professional at £20 a month.
The real gap for an employer: the UK pricing page doesn't mention payroll at all. The setup that works is Zoho Books for VAT and HMRC's free Basic PAYE Tools for wages. They don't talk to each other, so you post the monthly payroll journal by hand. Zoho's suite as a whole draws complaints about slow support and a busy interface.
- MTD VAT on the free plan
- 3 users for £10/month billed yearly
- Accountant access on the free plan
- Multi-currency from Professional
- ✓Cheapest way to give several people access
- ✓MTD for Income Tax too, for a sole trader owner
- ✓Clear public price list
- ✗No UK payroll on the pricing page
- ✗Busy interface for non-accountants
- ✗Support rated slow in reviews
The pick for a small business watching every pound: MTD VAT for £0 to £10 a month, with payroll handed to HMRC's free tool.
Pandle
Pandle is the cheapest way in this ranking to get a team working in one ledger. Pro costs £5 a month and comes with unlimited users, automatic bank feeds, and MTD submissions for both VAT and Income Tax. There's no annual plan: you pay monthly and can stop anytime.
The free plan already files VAT. It handles the standard scheme and the Flat Rate Scheme, on invoice or cash accounting, with no bridging software needed. What the free plan lacks is bank feeds, so you import statements as files. Pro fixes that for £60 a year.
Like Zoho Books, Pandle has no payroll, so pair it with Basic PAYE Tools. UK reviews are warm about human support, with several customers reporting chat replies within about 15 minutes in office hours. They're harsher on bank feeds (missing transactions, balances that don't reconcile) and on an interface some call clunky.
- Unlimited users on Pro
- MTD VAT on the free plan
- Flat Rate Scheme and cash accounting
- No annual commitment
- ✓£5 a month covers the whole team
- ✓Well-rated human support
- ✓No bridging tool needed for VAT
- ✗No payroll
- ✗Bank feeds sometimes incomplete in reviews
- ✗Interface called clunky by some
If three or four people raise invoices, Pandle Pro at £60 a year is hard to beat. Check your bank reconciliation every month.
Clear Books
Clear Books charges payroll per employee on all its plans, with no bundle: £2.70 per employee per month, minimum two. Three employees comes to £8.10 a month. Payroll sends RTI on every pay run and handles workplace pension auto-enrolment, with no setup fee.
Watch the bottom rung. Small, at £16, doesn't file MTD VAT returns, so you need Medium at £34 a month, or £30.60 on annual billing. Paying two years upfront drops Medium to £27.20. New subscribers also get 50% off the first three months, then full price. Our yearly figure for three employees: £464.40 ex VAT, payroll included.
UK reviewers describe a simple tool and fast support, often same-day. Clear Books also replies to most negative reviews. The recurring gripe: correcting or deleting an entry takes too many clicks. If your team makes a lot of keying errors, trial it before you commit.
- Payroll at £2.70 per employee
- RTI and auto-enrolment included
- 10% off yearly, 20% off over two years
- Free plans for sole traders
- ✓Easy-to-forecast payroll cost
- ✓Responsive support in reviews
- ✓Clear commitment discounts
- ✗No MTD VAT on Small
- ✗Editing entries is tedious
- ✗Payroll billed for at least 2 employees
Right for you if you want payroll in the ledger without paying for empty seats. Go straight to Medium once you're VAT-registered, never Small.
Xero
Xero is the most complete of the seven for a growing business, and the most expensive. Every plan files MTD VAT. Payroll is the clearest way to read the range: an option at £1.50 per person on Ignite, one person included on Grow, five on Comprehensive, ten on Ultimate. Beyond that, each extra person costs £1.50 a month (£1 on Ultimate).
Skip Ignite for an active company: it caps you at 20 invoices and 10 bills a month. Grow, at £39, removes those caps. For a five-person team, Comprehensive (£55) includes five payslips, expense claims for five users and multi-currency. In construction, Xero automates CIS for your subcontractors, and contractor CIS returns are a £5 monthly add-on.
New customers pay 10% of the price for six months, add-ons excluded. Write down the full price, because that's what hits in month seven. Accountants like it, but a UK small business forum calls it not obvious to a layperson, and UK reviewers point out there's no phone line to ring: support starts online.
- Payroll for 5 people on Comprehensive
- MTD VAT on every plan
- Automated subcontractor CIS
- Multi-currency from Comprehensive
- ✓Payroll that scales with headcount
- ✓Richest feature set here
- ✓Widely used by UK accountants
- ✗Most expensive over a year
- ✗Ignite capped at 20 invoices a month
- ✗No phone support
For a team of five to ten, Comprehensive can work out cheaper than a budget ledger plus separate payroll. Below that, you're paying for features you won't use.
FreeAgent
FreeAgent bundles payroll into its Limited company plan with no add-on to buy. It works out PAYE and National Insurance and files them with HMRC, and it builds your MTD VAT returns automatically. For a director-run company, it's the simplest all-in-one in this ranking.
Full price is £330 a year, with half off the first year on annual billing. Better still, it's free for as long as you keep a NatWest, Royal Bank of Scotland or Ulster Bank business account, or a Mettle account with at least one transaction a month. Add-ons still cost extra, such as unlimited receipt capture at £5 a month (otherwise ten a month).
The limit for a team: payroll is monthly. If you pay anyone weekly, look elsewhere. The pricing page also doesn't say how many users can log in. UK reviews are among the best in the category, with human support you can actually reach.
- Monthly payroll included, no add-on
- Free with NatWest, RBS, Ulster Bank or Mettle
- Automatic MTD VAT returns
- 30-day free trial
- ✓Simplest all-in-one
- ✓Well-rated human support
- ✓Free with a partner bank
- ✗Monthly payroll only
- ✗User count not stated
- ✗Receipt capture capped at ten a month without the add-on
If your company banks with NatWest, RBS, Ulster Bank or Mettle, start here: books, VAT and monthly payroll for £0.
KashFlow
KashFlow, from IRIS, includes payroll for up to five employees on both plans. That makes it the cheapest bundled payroll here: £162 a year on Starter, £291.50 on Business. It sits on HMRC's list of MTD-compatible software for VAT, and both plans submit VAT online.
The plans differ on seats. Starter is single-user and stops at 10 invoices and 25 reconciled bank transactions; Business is multi-user with unlimited invoices and bank transactions. A company that invoices every week will outgrow Starter. New customers get 90% off for six months on monthly billing, or on annual billing £97 for the first year of Starter (instead of £162) and £178 for Business (instead of £291.50). For a sole trader owner's Income Tax, IRIS says KashFlow keeps the records you need. Check direct MTD submission on HMRC's software finder before you rely on it.
The weak spot is service. UK reviews are very poor: tickets closed without answers, price rises above inflation, and a rocky payroll move to Staffology. Our support score reflects that. The price is right, but have an accountant who can step in.
- Payroll for up to 5 employees included
- MTD VAT on both plans
- Multi-user Business at £291.50 a year
- 14-day trial
- ✓Cheapest bundled payroll
- ✓Speaks in business terms, says one forum user
- ✓Only two plans to compare
- ✗Very negative support reviews
- ✗Payroll capped at 5 employees
- ✗Starter is single-user, 10 invoices, 25 bank transactions
Good maths on paper for a team under five. Only choose it if your accountant knows it and can cover when support doesn't answer.
QuickFile
QuickFile is free up to 1,000 ledger entries (the XS to M tiers), and it never charges for users: your partner, your admin and your accountant all log in at no cost. It files MTD VAT returns. Past 1,000 entries, budget £60 a year, plus £15 for automated bank feeds.
An entry isn't an invoice. One sale with VAT creates several lines in the nominal ledger, so a business raising a hundred invoices a month will outgrow the free tier fast. The VAT bridging tool is a Power User feature, on a separate subscription the pricing page doesn't price.
No payroll here either, so pair it with Basic PAYE Tools. On a UK small business forum, a non-accountant owner says it covers their invoicing fine. The interface is the least modern of the seven.
- Unlimited users free
- MTD VAT on the free tier
- £60 a year above 1,000 entries
- ✓Cheapest for a small operation
- ✓No per-seat charges
- ✓Simple public pricing
- ✗No payroll
- ✗Free tier fills up quickly
- ✗Dated interface
Great for a small business that invoices rarely and wants everyone in the books. Once volume grows, Zoho Books or Pandle cost about the same and feel nicer.
What each package costs over a year, with 3 on payroll
Our model: a VAT-registered company with a salaried director and two employees, paid monthly. We took the cheapest plan that files VAT, added payroll and counted twelve months at full price, with no welcome discounts. Where a tool has no payroll, payroll runs in Basic PAYE Tools, free under 10 employees.
Ex VAT, in pounds, annual billing where offered
Pandle Pro
Unlimited users
£5 a month, payroll in Basic PAYE Tools
- MTD VAT and bank feeds
- Payroll: £0 with HMRC's tool
- Payroll journals posted by hand
Zoho Books Standard
3 users
£10 a month billed yearly
- MTD VAT, 5,000 invoices a year
- Payroll: £0 with HMRC's tool
- Extra user: £24 a year
KashFlow Business
Payroll included, multi-user
Starter (1 user, 10 invoices, 25 bank transactions): £162
- MTD VAT
- Payroll up to 5 employees
- Poorly rated support
FreeAgent Limited company
Monthly payroll included
£0 with NatWest, RBS, Ulster Bank or Mettle
- MTD VAT
- PAYE and NI filed with HMRC
- Monthly payroll only
Clear Books Medium
Per-head payroll
£367.20 + £97.20 payroll
- MTD VAT
- Payroll at £2.70 per employee a month
- Pension auto-enrolment
Xero Grow
1 payslip included
£468 + 2 employees at £1.50 a month
- MTD VAT, unlimited invoices
- Comprehensive (5 payslips): £660
- Multi-currency from Comprehensive
QuickFile isn't in this table: its cost depends on ledger entries (£0 up to 1,000, £60 above, plus £15 for bank feeds) and it has no payroll. Welcome offers bring the first year down: 90% off for six months at Xero, and at KashFlow on monthly plans only (on annual billing, KashFlow Starter is £97 instead of £162 in year one); 50% off at FreeAgent for six months monthly or the first year annually; 50% off at Clear Books for the first three months.
What about QuickBooks and Sage? Why they aren't ranked
Our main MTD ranking puts QuickBooks first (4.2) and Sage Accounting sixth (3.6). Neither is ranked here: this page compares a year's cost with payroll, and we couldn't read their prices on their official UK pages. A tool with no readable price can't be ranked on cost.
QuickBooks
Intuit's UK pricing page names its plans (Sole Trader Plus, Simple Start, Essentials, Plus, Advanced, and Payroll Core, Premium, Elite) but loads the amounts on display: when we read it, it showed no price and no discount length. QuickBooks is still a serious option for an employer, since Intuit sells payroll separately. If you look at it, write down the full price after the discount and add the payroll plan. Leaving it? Read our guide to switching from QuickBooks.
Sage Accounting
Sage's UK site blocked our reading of its pricing page. Its free plan is for sole traders who aren't VAT-registered, so it doesn't fit this page's case. Before you pick Sage, ask for the price of the plan that files VAT and of payroll. Moving away? See switching from Sage.
FreshBooks
FreshBooks is on HMRC's software finder as record-keeping and bridging software for VAT. It sits outside this ranking, which only covers tools whose plan and payroll prices we read on the vendor's UK page.
What to do
If your accountant already works in QuickBooks or Sage, ask what price they can get you, then hold it against the cost table above, payroll included. Otherwise, all seven ranked tools show their prices. And if Xero is getting too expensive, our guide to switching from Xero lists the alternatives.
What your small business actually has to file digitally
Before you compare plans, list what HMRC expects from you. A small employer usually has three jobs, and an MTD package doesn't always cover more than one. If you're still working out which MTD applies to you, our general Making Tax Digital software ranking starts from that question.
MTD for VAT
Every VAT-registered business files through recognised software, whatever its turnover. HMRC doesn't hand out an MTD VAT app of its own: it lists third-party products in its software finder, and VAT Notice 700/22 says it expects most businesses to use commercial software. Keeping your records in a spreadsheet? Then you need bridging software, a small tool that takes the figures from your spreadsheet and sends the return to HMRC. Registration is compulsory once taxable turnover goes over £90,000 in a rolling 12 months, and voluntary below that. HMRC signs up any business that hasn't done it.
Real Time Information payroll
Once you pay a salary, including to yourself as a limited company director, every pay run goes to HMRC through software that reports online. It isn't MTD, but it's the same digital logic. Under 10 employees, HMRC's free Basic PAYE Tools covers most cases.
MTD for Income Tax
It covers sole traders and landlords, not limited companies, which pay Corporation Tax. Gross qualifying income thresholds: over £50,000 for 2024-25 (in scope from the 2026-27 tax year), then over £30,000, then over £20,000. Partnerships will follow, with no date set. If you also let property, see our MTD software ranking for landlords.
Small business VAT schemes
The Flat Rate Scheme is open up to £150,000 turnover ex VAT, cash accounting up to £1.35 million, and you can't combine them. Check your software supports yours: Pandle lists both, on invoice or cash basis.
- The plan you pick files MTD VAT (not only Income Tax)
- Payroll is bundled, charged per head, or handled in Basic PAYE Tools
- The user count covers your team and your accountant
- Your VAT scheme (standard, flat rate, cash) is supported
- The full price after the welcome offer fits your budget
- Your accountant knows the tool or is happy to work in it
Six costly mistakes small businesses make under MTD
Small businesses rarely get MTD wrong on the VAT submission itself. They get it wrong on forgotten payroll, a plan that's one rung too low, or a price that jumps tenfold in month seven. Here are six to avoid, with the fix.
Picking the entry plan that doesn't file VAT
Most commonSeveral ranges have a bottom rung without MTD VAT. At Clear Books, Small doesn't file VAT, so you need Medium. At Xero, Ignite files VAT but caps you at 20 invoices a month, which an active company outgrows fast.
The fix: on the pricing page, look for the exact "MTD VAT" line on the plan you're buying, not just somewhere in the range.
- Clear Books Small
- no MTD VAT
- Xero Ignite
- 20 invoices a month
Forgetting your own director's salary is payroll
In a limited company, a director who takes a salary is an employee as far as HMRC is concerned. You register as an employer and report each pay run in real time, even if nobody else works there. Plenty of directors find this out after choosing software with no payroll.
The fix: if your software has no payroll, install Basic PAYE Tools before the first salary. It's free under 10 employees.
- Basic PAYE Tools
- £0, under 10 employees
Choosing on the welcome price
Xero and KashFlow (monthly) charge 10% of the price for six months. FreeAgent takes half off for six months monthly, or the first year annually; Clear Books takes half off the first three months only. Xero Grow goes from £3.90 to £39 a month in month seven. UK reviews of KashFlow also mention yearly rises above inflation.
The fix: always compare twelve months at full price with payroll included, as in our cost table.
- Xero Grow
- £3.90 then £39/month
Rekeying figures from a spreadsheet
For VAT, HMRC requires digital links between your tools, and copying and pasting from one package to another isn't one. If part of your sales or purchases lives in a spreadsheet, the figures must reach your VAT software by file import, a linked cell or bridging software.
The fix: keep sales and purchases in one package; where a spreadsheet is unavoidable, link it with an import or a bridge.
Paying for seats without noticing
User count changes the whole sum for a team. Zoho Books' free plan allows one user (plus the accountant), Standard three, then £2 a month each. KashFlow Starter is single-user. Pandle Pro and QuickFile, on the other hand, don't charge per seat at all.
The fix: count who really posts entries (you, whoever handles invoices, your accountant) and pick the plan that covers them all.
- Pandle Pro, QuickFile
- unlimited users
Switching software mid VAT quarter
Switching mid-quarter means rebuilding the period in the new tool, or filing from the old one. A VAT return can't be edited in the software once it's sent: mistakes are corrected afterwards through HMRC's error correction process.
The fix: switch on the first day of a VAT quarter, after filing the previous return from your old software.
Making Tax Digital for small businesses: FAQ
Does a small business under the VAT threshold need Making Tax Digital?
Only if it's VAT-registered. MTD for VAT covers every registered business, including those that registered voluntarily below the £90,000 threshold. An unregistered business has no MTD VAT duty, though a sole trader owner may still fall under MTD for Income Tax.
Do limited companies need MTD for Income Tax?
No. The company pays Corporation Tax, which isn't part of MTD. The director may be in scope personally if they also have self-employed or rental income above the threshold. Salary and dividends don't count towards it.
Which MTD software also does payroll?
In this ranking: FreeAgent (monthly payroll included on the Limited company plan), Xero (1, 5 or 10 people depending on plan), KashFlow (up to 5 employees included) and Clear Books (£2.70 per employee per month). Zoho Books, Pandle and QuickFile don't.
Can I run payroll for free in the UK?
Yes, under 10 employees, with Basic PAYE Tools, HMRC's free payroll software. It works out tax and National Insurance and reports pay runs in real time. It isn't built for bureaux running payroll for several clients, and it doesn't connect to your accounting software.
Does my MTD software need to handle the Flat Rate Scheme?
Yes, if you're on it (open up to £150,000 turnover ex VAT). The return is calculated differently, and software that only knows the standard scheme would have you file the wrong figures. Pandle supports standard and flat rate on invoice or cash basis. For the others, search their help centre for "Flat Rate" before you subscribe.
How many people can use MTD software without paying more?
It depends on the tool. Pandle Pro and QuickFile don't charge for users at all. Zoho Books gives you one user free, three on Standard and five on Professional. KashFlow Starter is for one person; Business lets several log in. Count your accountant too: some plans give them their own access.
What happens if my VAT return is late?
Each late return earns a penalty point. For a quarterly filer, the fourth point triggers a £200 penalty. Good software reminds you of deadlines, but filing on time stays your responsibility.
How is this different from your general MTD software ranking?
Our general ranking starts from "which MTD applies to me" and covers sole traders, companies and overseas businesses with a UK VAT number. This page starts from a small business that employs people: payroll, seats and yearly cost with three on the payroll. For payroll on its own, see our small business payroll software ranking.