Business Bank Accounts With Making Tax Digital Software

Making Tax Digital (MTD) is arguably the biggest change to UK business tax reporting in a generation. For sole traders and small business owners, it affects how you keep records, what software you use, and in many cases, which business bank account makes the most sense.

This straightforward guide explains what the MTD rules mean in plain English, when you’ll need MTD‑compatible software, and compares business bank accounts that include built‑in accounting features or integrate with approved tools.

What is Making Tax Digital (MTD)?

Making Tax Digital is a UK Government initiative designed to make tax reporting more accurate and more efficient by:

1. Replacing manual, paper-based records

2. Requiring digital record‑keeping

3. Submitting tax information to HMRC via approved software

MTD already applies to VAT-registered businesses, and is now being rolled out to Income Tax Self Assessment (ITSA) for sole traders and landlords.

Who Does Making Tax Digital Apply To?

MTD for VAT

You must follow MTD rules if you are:

• VAT registered (regardless of turnover)

• Submitting VAT returns to HMRC

You must:

• Keep VAT records digitally

• Submit VAT returns using MTD‑compatible software

MTD for Income Tax

As the rules currently stand:

1. From April 2026:
   Sole traders and landlords with annual business or property income over £50,000

2. From April 2027:
   Those with an income over £30,000

Under MTD for Income Tax, you’ll need to:

• Keep digital records of income and expenses

• Send quarterly updates to HMRC

• Submit an End of Period Statement (EOPS)

• Finalise your tax position with a Final Declaration

Is a Business Bank Account Required for Making Tax Digital?

A business bank account is not legally mandatory for sole traders, but in practice it’s strongly recommended - especially under MTD.

Why a Business Account Helps With MTD

Using a dedicated business bank account:

• Separates personal and business transactions

• Makes digital record‑keeping easier

• Reduces errors when submitting quarterly updates

• Allows your bank to feed into accounting software

Many modern business accounts now include:

• Built‑in bookkeeping tools

• Automatic transaction categorisation

• Direct integration with HMRC‑approved MTD software

For MTD compliance, this can remove a lot of admin.

Do I Need Accounting Software For MTD?

Yes. Under MTD rules:

• Spreadsheets alone are not enough

• You must use HMRC‑recognised MTD‑compatible software

This software:

• Connects securely to HMRC

• Submits VAT returns or Income Tax updates

• Maintains a digital audit trail

Some business bank accounts include built‑in accounting software, while others integrate seamlessly with third‑party tools like Xero, QuickBooks, or FreeAgent.

What to Look for in an MTD‑Friendly Bank Account

When comparing options, look for:

• HMRC‑recognised MTD compatibility

• Automatic bank feeds

• Expense categorisation

• VAT tracking (if applicable)

• Integration with popular accounting software

• Clear pricing and low monthly fees

Business Bank Accounts With Making Tax Digital Software

Detailed Comparison of the Top Options

Mettle (by NatWest)

Best for: UK sole traders and small limited companies

• Free business current account

• Free FreeAgent licence included

• Fully MTD‑compatible for VAT and Income Tax

• Real‑time bank feeds and reporting

This is one of the strongest all‑in‑one options for MTD compliance with no monthly fee.

Starling Bank

Best for: Small businesses wanting flexibility

• No monthly fee for the standard account

• Integrates with FreeAgent, Xero, and QuickBooks

• Simple digital banking experience

Accounting features are lighter, but integrations are strong.

Monzo Business

Best for: Freelancers and digital‑first businesses

• Clean, intuitive app

• Integrates with major accounting platforms

• Paid plans unlock more tools

A good option if you already use external accounting software.

Tide Business

Best for: Startups and growing sole traders

• Built‑in invoicing and expense tools

• Supports MTD for VAT and Income Tax

• Multiple pricing tiers depending on features

Useful for businesses wanting basic accounting without a full platform.

Revolut Business

Best for: Businesses trading internationally

• Excellent multi‑currency support

• Integrates with Xero and QuickBooks

• Not accounting‑led by default

Better as a banking solution paired with external software.

Key Takeaways

• Making Tax Digital will require digital records and software

• A business bank account is not always compulsory, but always practical

• Built‑in accounting tools can simplify compliance

• Integration with HMRC‑approved software is essential

• Choosing the right account can save time and money later

Making Tax Digital doesn’t have to be complicated, but it does require the right tools. Business bank accounts with built‑in MTD software or strong integrations can dramatically reduce admin, errors, and stress as your company adapts to the new rules.