What Making Tax Digital will actually cost you
HMRC has published its own answer: an average of about £320 to get set up, then about £110 a year after that. Those are averages across every sole trader and landlord in scope, so your number will differ. But they're the honest baseline, and they're smaller than the horror stories. Here's where the money actually goes, and the part most pages skip: some of it is itself deductible as a business expense.
HMRC's own numbers
The government's policy paper on MTD for Income Tax (updated 2 September 2025) puts the total transitional cost to businesses at around £561 million, which "equates to an estimated average transitional cost of £320" per business. After setup, it estimates an "average annual additional cost of £110".
There's a detail worth seeing in the breakdown: smaller businesses are expected to pay slightly more to get started, not less. The £30,000 to £50,000 income band averages £350 in setup costs against £285 for those above £50,000.
| Qualifying income | Average one-off cost | Average yearly cost |
|---|---|---|
| £30,000 to £50,000 | £350 | £110 |
| Over £50,000 | £285 | £115 |
| All in scope | £320 | £110 |
What the one-off cost is made of
HMRC's list, in plain English: time spent learning what MTD asks of you, any training, new or upgraded hardware if your current setup can't run the software, and any extra accountancy help while you switch. For most sole traders with a working phone, the hardware line is zero and the real one-off cost is a few evenings of figuring things out. The first quarterly update guide compresses most of that.
What the yearly cost is made of
Three things, per HMRC: the software subscription, the time quarterly updates take, and bridging software if you keep records in a spreadsheet and need a separate tool to submit. The spreadsheet route trades subscription cost for time cost; software that captures records as you go trades the other way.
What the software really costs
The government "has committed to there being free software products for the smallest businesses with straightforward affairs". Free products exist, and free usually means the basic tier: check what's actually included before you rely on one.
Paid subscriptions vary by product. As a live example, FreeAgent's sole trader plan is £19 a month before VAT as its regular price, with an introductory 50% off for the first six months (checked 8 July 2026). SoleTax is £9.99 a month or £79.99 a year, with receipt capture, automatic mileage and the running tax estimate included rather than sold as add-ons. Whatever you pick, the honest comparison is monthly price against the hours it saves you.
The accountant question
Nothing in MTD requires one. The quarterly duties are software tasks, and plenty of sole traders will run MTD themselves. If you already have an accountant, the practical move is to ask what quarterly updates add to your bill before the first deadline: four updates plus the tax return is more touchpoints than the once-a-year rhythm your current fee was built on.
The part that's deductible
Software subscriptions for your business and accountancy fees are both business expenses in HMRC's own categories. They reduce the profit you're taxed on. That's not pound for pound off your bill, and it saves nothing in a year you pay no tax, but for most sole traders it means the real cost of a subscription lands below the sticker price. The expenses guide covers how deductions actually work.
Quick answers
How much does HMRC say MTD will cost?
An average one-off cost of £320 per business, then an average of £110 a year, per the policy paper updated 2 September 2025. The £30,000 to £50,000 band averages £350 to set up; over £50,000 averages £285.
Is there free MTD software?
The government has committed to free products "for the smallest businesses with straightforward affairs". They exist and they're typically basic: check what the free tier includes before relying on it.
Do I have to pay an accountant?
No. MTD's duties are software tasks and no rule requires an accountant. If you use one anyway, ask what quarterly updates add to the bill up front.
Is MTD software tax-deductible?
Yes. Business software subscriptions and accountancy fees are business expenses, so they reduce the profit you're taxed on. Not pound for pound off the bill, but in a year you pay tax, the real cost lands below the sticker price.
One price, nothing sold twice
SoleTax is £9.99 a month: receipts read and categorised, miles tracked automatically, invoices, and the tax to set aside, all in. 14 days free, no card needed.
Join the betaSources: gov.uk policy paper, Making Tax Digital for Income Tax Self Assessment for sole traders and landlords (updated 2 September 2025); FreeAgent published pricing (checked 8 July 2026). Checked on 8 July 2026.