For sole traders in the UK, MTD for Income Tax is rolling out from April 2026. While most know that HMRC-approved MTD software is required for compliance, few are aware of the hidden features that can save hours of work, reduce mistakes and even improve financial planning.
In this article, we explore five little-known ways that HMRC-approved MTD software can transform how sole traders manage their tax affairs.
Automatic Transaction Categorisation
One of the biggest time-sinks for sole traders is manually categorising income and expenses. Most people don’t realise that HMRC-approved MTD software can do this automatically. By linking your business bank accounts, the software identifies income streams and sorts expenses into HMRC-approved categories.
This not only speeds up bookkeeping but also ensures that every transaction is ready for quarterly updates. For sole traders who previously relied on spreadsheets or paper records, this feature can cut hours of repetitive work each month. With accurate, categorised transactions, final declarations become far less stressful and errors are significantly reduced.
Real-Time Tax Calculations
Many sole traders are surprised to learn that HMRC-approved MTD software often calculates tax liabilities in real time. This is particularly useful for MTD for Income Tax, where quarterly updates are now mandatory.
Instead of waiting until the end of the tax year to discover how much is owed, the software provides live insights. Sole traders can see estimated Income Tax and National Insurance contributions as transactions are recorded. This transparency helps with cash flow planning, allowing business owners to set aside funds for tax obligations before the deadline.
Seamless Quarterly Submissions
A cornerstone of Making Tax Digital is the requirement for quarterly submissions. HMRC-approved MTD software makes this process straightforward. Many packages offer step-by-step wizards that guide users through each submission, ensuring no transactions are missed.
What’s less well-known is that some software can also reconcile previous submissions, alerting users to discrepancies before the data reaches HMRC. For sole traders juggling multiple clients, projects, or income streams, this functionality prevents errors that could lead to penalties, making the transition to quarterly reporting far smoother.
Integration With Invoicing and Payment Systems
Another feature often overlooked in HMRC-approved MTD software is integration with invoicing and payment platforms. This means that invoices issued through your chosen software are automatically recorded as income, and payments received are tracked without manual entry.
For sole traders who frequently invoice clients or use multiple payment methods, this integration ensures all transactions are accounted for and ready for quarterly updates. It also reduces the risk of missed income, which can trigger compliance issues. By consolidating financial data in one platform, HMRC-approved MTD software streamlines bookkeeping and simplifies year-end declarations.
Customisable Reports and Alerts
Finally, advanced reporting features are a hidden gem of HMRC-approved MTD software. Beyond basic profit and loss statements, many tools allow sole traders to create custom reports that highlight cash flow trends, overdue invoices or unusual transactions.
Alerts are another underutilised feature. You can set reminders for quarterly submission deadlines or notifications when expenses exceed certain thresholds. These tools not only help with compliance but also empower sole traders to make smarter financial decisions throughout the year. By leveraging reporting and alert functions, businesses can proactively manage finances rather than reactively fixing mistakes at the year-end.
