Making Tax Digital: Banks, Software and Where AI Fits In

HMRC’s new Making Tax Digital for Income Tax regime has come into force and the first filing deadline passed last week. Putting aside a few teething problems which should work themselves out in time, this should be a positive change for most business owners even though it might mean a lot of work up front to move to quarterly, fully digital, submissions, so I decided to write a rundown on what options are available for small business owners and landlords who are affected. So if you are in the midst of making the transition or starting to think about what to do to prepare for it next year when the threshold drops to £30,000 turnover per annum then read on.

I researched the leading UK banks, the main accounting software platforms and the HMRC-approved submission tools, along with some of the better-known challenger banks and independent packages. What follows is a run-down of the options available to you, and where AI can take some of the load off.

A quick refresher on Making Tax Digital

If you’re a sole trader or landlord earning over £50,000 a year, Friday 7th August was the deadline for your first Making Tax Digital for Income Tax (MTD ITSA) quarterly update. It applied to over 864,000 people whose combined self-employment and property income crosses that £50,000 line, and it covered 6 April to 5 July 2026.

MTD ITSA doesn’t change what tax you owe. It changes how and how often you have to report it. Instead of one Self Assessment return a year, you now need to keep digital records of your business income and expenses and submit a quarterly summary to HMRC using software that HMRC has approved for the job. A spreadsheet on its own doesn’t count: you need either dedicated accounting software or a “bridging” tool that connects a spreadsheet to HMRC’s systems.

The theory is sound. Break the tax year into four manageable chunks, avoid the January scramble, and get a clearer view of your tax position along the way but it’s easier said than done - especially if you have been in business for a while and you are now faced with digitising a manual or partially digital process.

So, what are your options?

Your existing bank or accounts software may have MTD submissions built in, and there are also bridging products that plug into your own spreadsheets. There are pros and cons to each but they can work together or in isolation depending on your particular situation and you can use AI tools to plug any gaps.

Banks

A growing number of UK banks now offer Making Tax Digital support directly inside your business banking app, or bundle discounted/free accounting software with your account. If your bank already does this, it can save you from buying anything separately at all.

Banks with direct MTD submission

Some banks submit straight from your business account, so you can categorise transactions by tax status as they happen and add offline items, like mileage, independently.

Banks that bundle accounting software

Others don’t build their own tool but bundle a real accounting package (like Xero, FreeAgent or Clear Books) free or discounted as part of a business banking package.

A word of caution on the “free” ones: free-with-a-bank-account usually means free for as long as you hold a specific account type, and account fees can kick in later even where the accounting software stays free. Read the terms before you switch banks purely for this.

Accounting software

MTD support is built into all the major accounting software products and some interesting niche products too. If you already use accounting software, the chances are your submissions are already going smoothly but if you are not, or you are thinking of making a change then now might be a good time to look at the options.

Watch out for bank feeds being a paid add-on or locked to a higher tier, which catches people out on QuickFile and untied.

Niche Products

If you’re a sole trader

Coconut is built for sole traders rather than businesses of every shape and size, which makes it quicker to set up and simpler to use day to day if you fit that description. It supports MTD with bank feeds as standard.

If you’re a landlord

Hammock is the landlord equivalent, priced per property and built around rental income rather than trading income. It supports MTD with bank feeds too. Sole traders and landlords are the only groups MTD for Income Tax covers at the moment, so these two niches are unusually well served.

If you have a lot of physical documents

If you’re still working from a shoebox of receipts, Dext Prepare (formerly Receipt Bank) reads them with OCR, categorises them, and feeds the data into Xero, QuickBooks or FreeAgent. It won’t file anything with HMRC, so pair it with bridging software (see below) to handle the submissions. Its sibling Dext Solo does both, but Dext sells it through accounting practices, so you’ll only get it if your accountant offers it.

Bridging software (the one you might not have heard of)

This is a great option if you already run your business from a spreadsheet, or from other software that isn’t MTD-approved: bridging software connects a spreadsheet you already keep, whether it’s your own or one exported from other bookkeeping tools, directly to HMRC, so you can submit without buying full accounting software or changing banks.

Prices range from free to around £40 a year. Some free options come with strings attached, like being tied to using a particular accountant. Of the products I looked at, 123 Sheets is the only one confirmed to read from Google Sheets, Apple Numbers or LibreOffice as well as Excel. Most of the rest are Excel-only.

Absolute Excel Income Tax Filer is worth a closer look if you already keep a working spreadsheet: it’s literally spreadsheet cells mapped directly to HMRC’s submission fields, no accounting software required. That makes it the clearest example of a product designed for exactly the kind of “build your own” approach the next section covers.

How AI can help

If your bank account, expenses and accounting software are already connected and working, you’re probably already covered for MTD submissions. But if you have gaps or manual steps in your submission process that you would like to iron out then there are lots of ways AI can help.

AI already built into your accounting software

Several of the products above have AI features worth knowing about. FreeAgent and QuickBooks, among others, offer receipt scanning and capture. APARI Pro goes further, with AI-powered document analysis that covers receipts, dividend vouchers and rental statements.

Dext is the most AI-native of the lot. Its OCR extracts data from receipts, invoices and bank or rental statements at a claimed 99.99% accuracy, and its “AI Assist” feature acts as a bookkeeping agent, giving automated guidance as you go.

Here are the AI and automation features for the products in this rundown:

If you’re working from a spreadsheet

This is where AI earns its keep. You still need HMRC-approved software to submit (AI doesn’t replace that requirement), but a bridging product paired with some AI-assisted prep can get you most of the way there without buying a full accounting package:

• Scan receipts into a spreadsheet from a phone photo. Most people don’t realise AI can do this at all, no dedicated OCR app needed.
• Paste a bank statement export and ask AI to sort it into HMRC’s self-employment or property income and expense categories, flagging anything that looks non-allowable before it becomes a problem at year-end.
• Turn a rough note, like “drove to client X on Tuesday, site visit Thursday,” or your phone’s location history into a proper mileage log at HMRC’s approved rate, instead of guessing at year-end.
• Write a prompt that checks your submission against your bank statements before you send it, and flags anything that looks like a missing transaction or expense.
• Ask AI to add a simple running tax-liability formula to your bridging spreadsheet, mimicking the “real-time tax estimate” feature paid apps give you for free.
• Build a Zapier (or similar) workflow that updates your spreadsheet automatically whenever a transaction happens in your bank account. It’s a bigger task if you’re not used to automations, but it can save the cost of accounting software or the hassle of switching banks entirely.

Where this leaves you

This space is still finding its feet. I’d expect it to keep maturing over the next few quarters, as HMRC works through the launch-week bugs and vendors catch up on the gaps. While your first submission may have been frustrating, you are already well placed if your existing bank or software already supports MTD submissions and I would be surprised if any of the major issues resurface at the next filing deadline on the 5th of November (although it is fireworks night, so never say never).

For those of you who are not fully digital, or run on documents and spreadsheets you created yourself, a bridging product could work better for you - even if you just use it as a stop-gap while you transition to one of the other solutions.

In all cases, AI can play a role - whether it’s helping you inside your existing products or building your own system to glue together different parts of your process or to help prepare or check your submission, it’s a useful tool and a time saver when it’s used properly.

Just don’t ask it to prepare your whole submission. I always say you should use AI as a helper and never outsource the thinking to it. This is never more true than when dealing with your finances and taxes.