Why MTD makes you pay for software, and what Parliament said about it

If you’ve just learned you have to file quarterly updates under Making Tax Digital (MTD), the next discovery is usually this one: HMRC doesn’t give you the software to do it. You keep digital records and file through commercial software that HMRC recognises but doesn’t make. This guide explains where that cost came from, what Parliament’s spending watchdog said about it, and how to keep your own share of it at £0.

Why doesn’t HMRC provide the software?

It’s a policy choice, not an oversight. HMRC’s design for MTD is that software companies build the tools and HMRC provides the connection they file through. HMRC keeps an official software finder (opens in a new tab) listing every recognised product, including genuinely free ones, but there is no HMRC-built filing tool for MTD for Income Tax, and HMRC has said there won’t be.

What Parliament’s spending watchdog found

The Public Accounts Committee is the cross-party group of MPs that checks whether government programmes give taxpayers value for money. It examined MTD and published its report in November 2023 under a headline that made its view plain: “Making Tax Difficult” (opens in a new tab). The committee found that a programme meant to make tax easier was increasing the burden on taxpayers, who are, in its words, asked to pay for third-party software and file tax returns quarterly. It put numbers on that burden: business taxpayers could pay more than £1.9 billion to comply over the first five years, and more than £2 billion of taxpayer transition costs were left out of the business cases used to approve the programme.

The report summary (opens in a new tab), the government’s formal response and the full paper trail are public. None of it changes what you have to do: the rules are in force. But if quarterly filing feels like work that arrived on your desk from nowhere, Parliament’s own committee said much the same thing.

The £1.9 billion isn’t evenly spread: your share can be £0

Those figures are totals across millions of taxpayers, and totals hide the thing that matters: your own cost depends almost entirely on the route you pick. Genuinely free, HMRC-recognised software exists (every free option and its limits), and the full price ladder from £0 up to an accountant is walked through in the cheapest way to do MTD. Paying more than the bottom rung should be a choice you make for your own reasons (time, support, features), never something you think the rules require.

What this means for your first year

The software cost is the part you control: pick the lowest rung that covers your situation. And HMRC isn’t issuing penalty points for late quarterly updates in 2026-27 (MTD penalties, plainly). Build one habit now: put the four deadlines in your diary and switch on free reminders.