MTD for ITSA: why do I need a software licence?
One of the questions some clients ask as Making Tax Digital for Income Tax Self Assessment becomes more common is:
Why do I need to pay for software if my accountant is handling the work?
It is a fair question.
For many Self Assessment clients, the old process did not feel like it involved software at all. Records may have been sent once a year as bank statements, spreadsheets, receipts or paper documents. The accountant reviewed the information, prepared the tax return and submitted it to HMRC.
Making Tax Digital for ITSA changes that process.
Under MTD, software is not just something the accountant uses behind the scenes. It is part of the client’s digital record keeping and reporting system.
MTD requires digital records and compatible software
Making Tax Digital for ITSA requires qualifying sole traders and landlords to keep digital records and submit quarterly updates to HMRC using compatible software.
HMRC’s current timetable introduces MTD for ITSA in phases. It applies from 6 April 2026 for individuals with qualifying income over £50,000, from 6 April 2027 for qualifying income over £30,000, and from 6 April 2028 for qualifying income over £20,000. Qualifying income broadly means gross income from self-employment and property before expenses.
You can check the current timetable on the GOV.UK Making Tax Digital for Income Tax page.
The important point is that some form of compatible digital process is required.
That may involve cloud bookkeeping software, a structured spreadsheet supported by bridging software, or another MTD-compatible software setup.
What does not work well is an annual pile of paper statements, PDFs, screenshots and ad hoc explanations.
The software holds or connects the client’s digital tax records
The software licence is connected to the client’s business or property records.
Depending on the setup, the software may hold or connect to:
- bank transactions
- income records
- expense records
- bookkeeping categories
- connected bank feeds
- receipt images or supporting documents
- structured spreadsheet records
- quarterly reporting information
- year-end information used for the final declaration
Even if CooperFaure manages most of the bookkeeping, the underlying data is the client’s data.
The accountant is not using the software only for their own convenience. The software is part of the process by which the client’s digital records are maintained and reported.
The client owns the records
The data in the software or spreadsheet belongs to the client.
The accountant may set up the system, maintain the bookkeeping, reconcile transactions, review the records and prepare submissions. But the records relate to the client’s income, expenses and tax position.
That is why the client should usually have access to the software or digital record, even if they do not log into it regularly.
The software is not simply an accountant’s internal system. It is part of the client’s digital ledger.
This can also apply to limited companies
Although this article focuses on MTD for ITSA, the same misunderstanding can sometimes arise with limited company clients.
A limited company may use bookkeeping software such as Xero or another cloud accounting system to maintain its accounting records, bank feeds, VAT records, payroll information, invoices, bills and year-end accounts data.
Even where CooperFaure manages most of the bookkeeping, the software file is still the company’s accounting record. The data belongs to the company, and the company should have access to it.
The software is not simply an accountant’s private working tool. It is the system used to maintain the company’s financial records and support VAT returns, management information, annual accounts and Corporation Tax work.
For many limited companies, this is less confusing because cloud bookkeeping software is already part of normal business administration. However, the principle is the same: the software licence supports the client’s own records, and the accountant helps maintain, review and report from those records.
What about spreadsheets and bridging software?
In some cases, MTD for ITSA records may be maintained using a structured spreadsheet rather than full cloud bookkeeping software.
For example, CooperFaure may provide a spreadsheet template that is designed to collect the required income and expense information in a consistent digital format.
However, a spreadsheet on its own does not submit quarterly updates to HMRC. There still needs to be compatible software involved in the process.
Where a spreadsheet-based approach is suitable, we may use bridging software to connect the digital records to HMRC’s MTD reporting system. This usually requires a software licence for each client.
This means there may still be a software cost even where the client is not using a full bookkeeping package such as Xero or similar software.
The important distinction is:
- the spreadsheet may hold the structured digital records
- the bridging software allows the required MTD submissions to be made
- the client’s records still need to be complete, accurate and kept up to date
- the accountant still needs time to review, reconcile and submit the information
A spreadsheet-based process can be suitable for simpler cases, but it still needs discipline.
If the spreadsheet is incomplete, inconsistent, or updated only after the quarter has ended, the same problems arise: more manual checking, more queries, more risk of error and potentially higher costs.
For this reason, even where we use a spreadsheet template, we still need clients to follow the agreed process and keep their records current.
“But I do not use the software”
Some clients may feel that they do not use the software because they do not log in, raise invoices, upload receipts or review reports themselves.
In practice, the software is still being used for them.
For example, the software may be:
- importing bank transactions
- holding or connecting digital bookkeeping records
- keeping income and expenses organised
- allowing the accountant to reconcile transactions
- supporting quarterly updates
- maintaining a digital audit trail
- helping prepare the year-end position
This is similar to other compliance tools. You may not use every system directly, but the system may still be required to maintain proper records and meet reporting obligations.
Software cost is separate from professional time
The software licence and the accountant’s professional time are different things.
The software provides, holds or connects the digital record keeping system.
The accountant provides the professional work, such as:
- reviewing the records
- reconciling transactions
- correcting errors
- asking questions
- checking tax treatment
- preparing quarterly updates
- reviewing year-end adjustments
- supporting the final declaration
Paying for software does not replace the professional work.
Equally, paying for professional support does not remove the need for compatible software.
Both are part of the MTD process.
Bank feeds are part of the system
One of the main benefits of bookkeeping software is the ability to connect bank feeds.
A bank feed allows transactions to be brought into the software directly from the bank or credit card provider. This helps reduce manual data entry and makes it easier to keep records up to date.
However, bank feeds are not a one-time setup task.
They may need to be authorised, reauthorised or repaired. Accounts may be added or closed. Credit card feeds may disconnect. The client may need to approve access or respond to banking prompts.
If bank feeds are not maintained, the process becomes more manual.
That can mean:
- requesting statements
- importing spreadsheet data
- checking missing periods
- reconciling gaps
- manually classifying transactions
- spending more time correcting records
That additional work can increase costs and make the records less reliable.
Why paper statements and PDFs are not enough
Under the old annual Self Assessment process, some clients may have sent paper statements, PDF bank statements or spreadsheets once a year.
That approach may have worked, although it often created more work than clients realised.
Under MTD, it is much less suitable.
Quarterly reporting depends on records being kept up to date during the year. If the accountant has to wait for paper statements or manually import data every quarter, the process becomes slower, more expensive and more prone to error.
Digital access to bank records is not just a convenience. It is part of making quarterly reporting workable.
Good software does not remove the need for cooperation
Software can make the process more efficient, but it does not do everything.
The client still needs to cooperate.
That may include:
- authorising bank feeds
- keeping bank feeds connected
- telling the accountant about new bank accounts
- separating business and personal spending
- providing receipts or explanations when needed
- keeping a spreadsheet template up to date, where that approach is used
- answering bookkeeping queries
- reviewing quarterly information
- confirming that records are complete
The accountant can maintain the records, but cannot make incomplete information complete without client input.
The software licence supports continuity
A properly maintained software file, spreadsheet process or bridging setup supports continuity.
It means there is a structured place where the business or property records are held. If the accountant needs to review a previous quarter, check an adjustment, reconcile a balance or prepare the final declaration, the information is available in a consistent digital format.
This is much better than having records scattered across emails, PDFs, spreadsheets, paper statements and personal bank accounts.
A good digital record is easier to maintain, easier to review and easier to hand over if circumstances change.
What if I only have a simple tax return?
Some clients may have very simple affairs and may not need a complex bookkeeping system.
However, MTD applies based on qualifying income thresholds and the type of income, not simply on whether the client feels their records are simple.
A landlord or sole trader with straightforward records may still need to keep digital records and submit quarterly updates if they fall within the MTD rules.
The right software setup should be proportionate. Not every client needs the most complex system. For some, a structured spreadsheet and bridging software may be enough. For others, cloud bookkeeping software with bank feeds may be more appropriate.
The requirement is not that every client uses the same tool. The requirement is that the digital record keeping and submission process works.
What good software use looks like
For most MTD clients, a workable setup should include:
- compatible software or bridging software
- a clear digital record keeping process
- access for the client and accountant
- connected bank feeds where appropriate
- a structured spreadsheet template where that is the agreed route
- a clear category structure
- a process for receipts and supporting documents
- regular review of transactions
- quarterly checks before submission
- year-end review before the final declaration
The aim is not to make the client do more administration than necessary.
The aim is to keep records in a reliable digital format so that quarterly reporting can be managed properly.
Why this matters for fees
Software can reduce manual work, but only if it is used properly.
If a client does not maintain bank access, mixes business and personal transactions, provides records late, avoids using the agreed digital process, or keeps an incomplete spreadsheet, more manual work may be needed.
That additional work may include importing statements, correcting gaps, checking missing transactions, requesting explanations and rebuilding records.
Where that happens, the cost of support can increase.
In other words, software is not an extra cost added for no reason. It is part of the system that helps keep professional time under control.
A practical way to think about it
The software licence is not just for the accountant.
It is part of the client’s digital bookkeeping and tax record.
CooperFaure may help manage that record, but the record itself belongs to the client and supports the client’s tax obligations.
A simple way to think about it is:
- the software or spreadsheet holds the records
- the client owns the records
- bridging software may be needed to submit the data
- the accountant maintains and reviews the records
- HMRC receives quarterly updates from the digital records
- the final declaration is prepared from the completed year-end position
That is why the software matters, even where the accountant is doing most of the day-to-day work.
How CooperFaure can help
CooperFaure can help sole traders and landlords choose and maintain a suitable MTD software setup.
We can support with:
- reviewing whether MTD may apply
- deciding whether bookkeeping software or a spreadsheet-based process is suitable
- setting up compatible software or bridging software
- connecting bank feeds where appropriate
- maintaining digital bookkeeping records
- providing structured spreadsheet templates where suitable
- reviewing record keeping habits
- preparing quarterly updates
- supporting final declaration work
- explaining what the client needs to do each quarter
Our aim is to make the process clear, practical and manageable.
If you are unsure why software is needed, or what role it plays in your MTD obligations, we can help explain the setup and agree a process that works.