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Making Tax Digital

Bridging Software for MTD: What to Do When Your Agency Accounting Tool Isn't Compatible

9 min read · ·

Photo: Mikhail Nilov / Pexels

JW

Editorial Lead · Published 16 May 2026 · Updated 17 May 2026

Editorial content from the Agency Founder Finance team. For decisions specific to your agency, book a call.

Key takeaways

  • From April 2026, agency founders with self-employed or partnership income over £50,000 must submit quarterly MTD updates using compatible software.
  • Bridging software connects your existing accounting tool to HMRC, translating data into the required XML format without replacing your system.
  • Spreadsheets, niche agency tools, older software versions, and custom-built systems are common reasons your accounting tool may not be MTD-compatible.
  • Bridging software allows you to keep your current workflow; you export figures from your tool, import them into the bridge, and submit to HMRC.
  • HMRC maintains a list of MTD-compatible software; if your tool isn't on it, bridging software is the practical fix before your first filing deadline.

Making Tax Digital for Income Tax (MTD for ITSA) is coming. From April 2026, if your agency's self-employed or partnership income exceeds £50,000 per year, you will be legally required to keep digital records and submit quarterly updates to HMRC using MTD-compatible software. The same applies from April 2027 if your income is over £30,000.

Here is the problem a lot of agency founders are facing: their accounting tool is not MTD-compatible. Maybe you run your numbers through a spreadsheet. Maybe you use an older version of accounting software that will not be updated. Maybe you use a niche tool built for agencies that has not yet received HMRC recognition.

You do not need to rip out your entire system. Bridging software is the workaround. It sits between your existing tool and HMRC, taking the data you already hold and formatting it into the XML structure HMRC requires. You keep your current workflow. You just add a bridge.

This article explains exactly how bridging software works for MTD, what to look for, and which options suit different types of agency. If your accounting tool is not compatible, this is the practical fix.

What Is Bridging Software for MTD?

Bridging software is a piece of software that connects your existing accounting records to HMRC's MTD system. It does not replace your accounting tool. It translates the data from your tool into the format HMRC requires for quarterly updates and final declarations.

Think of it as a translator. Your accounting tool speaks one language. HMRC's API speaks another. The bridging software converts between the two.

You still record your income and expenses in your usual tool. You still run your own reports. When it is time to submit your quarterly MTD update, you export the relevant figures, import them into the bridging software, and the software sends the submission to HMRC.

Some bridging software tools are free. Others charge a monthly or annual fee. Some are basic data senders. Others include additional features like forecasting, tax calculations, or integration with specific accounting platforms.

Why Your Agency Accounting Tool Might Not Be Compatible

HMRC maintains a list of MTD-compatible software. As of early 2025, most major accounting platforms are on it: Xero, QuickBooks, FreeAgent, Sage. If you use one of those, you are likely covered already.

But not every agency uses those tools. Here are the common scenarios where bridging software becomes necessary:

  • Spreadsheets. You run your books in Excel or Google Sheets. Spreadsheets are not MTD-compatible on their own. You need bridging software to submit your quarterly updates.
  • Niche agency tools. Some agencies use sector-specific software for job costing, project management, or time tracking that includes basic accounting functions. These tools often lack MTD certification.
  • Older software versions. You might be using an older desktop version of Sage or QuickBooks that will not receive MTD updates. The vendor expects you to upgrade, but you do not want to.
  • Custom-built systems. Larger agencies sometimes build their own accounting or job-costing systems. These are almost never MTD-compatible without a bridging layer.
  • Manual bookkeeping. You still use paper records or a basic cashbook. Bridging software can accept manual data entry for your quarterly submissions.

If any of these describe your agency, you need bridging software before your first MTD filing deadline.

How Bridging Software Works in Practice

Let me walk through how a typical agency founder would use bridging software for their quarterly MTD submission.

Step 1: You run your agency as normal. You record income and expenses in your existing tool. Maybe that is a spreadsheet. Maybe it is a project management tool with basic invoicing. Maybe it is a custom system.

Step 2: At the end of each quarter, you extract your total income and total expenses for that period. You might need to separate these by category depending on your accounting basis (accrual or cash). Your bridging software will tell you what fields it needs.

Step 3: You enter these figures into the bridging software. Some bridging tools let you upload a CSV file. Others require manual entry. A few have direct integrations with common spreadsheet tools.

Step 4: The bridging software validates the data. It checks for obvious errors. It formats the figures into the XML structure HMRC requires.

Step 5: You review the submission. The software shows you what HMRC will receive. You confirm it is correct.

Step 6: The software sends the submission to HMRC through their API. You receive a confirmation that it has been accepted.

That is it. You do not change your accounting system. You do not learn new bookkeeping software. You just add a quarterly step that takes 15-30 minutes.

Bridging Software Options for UK Agency Founders

Here are the main bridging software options available. I have focused on tools that work for the typical agency founder's situation.

HMRC's Own Free Bridging Software

HMRC provides a free bridging tool. It is basic. It allows you to manually enter your income and expenses for each quarter and submit them. No integrations. No CSV upload. Just manual data entry.

For a sole trader agency founder turning over £65k with simple income and expense lines, this might be enough. For a 12-person digital agency billing £800k per year with multiple income streams and cost categories, it will become tedious fast.

The free tool works. But it is not efficient for complex agencies.

Third-Party Bridging Software

Several commercial bridging software options exist. Here are the ones most relevant to agency founders:

BTCSoftware. A well-established tax software provider. Their bridging tool handles MTD submissions for income tax. It accepts manual entry and CSV uploads. Pricing is around £10-15 per month for the basic bridging function. It also handles corporation tax filings if you need that.

TaxCalc. Popular among accountants. Their bridging module works for MTD for Income Tax. It integrates with some accounting platforms but also accepts manual data. Pricing varies by package.

GoSimpleTax. Designed specifically for MTD. It is simple. It lets you record income and expenses directly or upload from a spreadsheet. It calculates your tax position as you go. Pricing is around £10 per month.

KashFlow. Owned by IRIS. KashFlow is a full accounting platform, but it also offers a bridging tool that works with other systems. If you want to eventually move to a proper accounting tool, this could be a stepping stone.

Excel add-ins. Some firms offer Excel add-ins that turn your spreadsheet into an MTD-compatible submission tool. These are less common for income tax but exist. Ask your accountant if they have a preferred option.

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Your accountant may also have their own bridging software or a preferred partner. Many agency-specialist firms, including ours, use practice management software that includes bridging functionality for clients.

What Bridging Software Cannot Do

Bridging software is a workaround, not a replacement for proper accounting. Here is what it does not do:

  • It does not reconcile your bank accounts. You still need to do that in your main tool.
  • It does not manage VAT. If you are VAT-registered, you need separate MTD-compatible VAT software. Bridging software for income tax does not cover VAT.
  • It does not handle payroll. PAYE and RTI submissions are separate systems.
  • It does not produce management accounts. You still need your main tool for that.
  • It does not replace your accountant. You still need someone to review your figures, advise on tax planning, and handle your annual Self Assessment.

Bridging software solves one problem: getting your quarterly MTD submission to HMRC. That is all.

Should You Switch to MTD-Compatible Software Instead?

This is the question most agency founders ask. The answer depends on your situation.

Switch if: You are using spreadsheets or manual records and your agency is growing. The time you spend maintaining spreadsheets is already a hidden cost. Moving to Xero or FreeAgent will save you time, reduce errors, and give you better visibility into your numbers. The bridging software is a temporary fix while you transition.

Switch if: You are using an older version of accounting software that is no longer supported. The vendor wants you to upgrade. The cost of upgrading is usually less than the ongoing cost of maintaining a bridging workaround.

Stick with bridging if: You have a custom-built system that your agency relies on for job costing, project management, and reporting. Replacing that system would be disruptive and expensive. Bridging software is the right call.

Stick with bridging if: You use a niche agency tool that handles your specific workflow well but lacks MTD certification. Keep your tool. Add the bridge.

Stick with bridging if: You are planning to sell or close your agency within the next 12-18 months. The cost and effort of switching accounting systems may not be worth it for the remaining period.

There is no universal right answer. It depends on your agency's size, complexity, and future plans.

Practical Steps to Get Ready for MTD

If you have identified that you need bridging software, here is what to do before April 2026:

1. Check your income level. MTD for ITSA applies if your gross self-employed or partnership income exceeds £50,000 in a tax year. If you are below that threshold, you have until April 2027. If you are close to the threshold, plan for the earlier date.

2. Identify your data source. Where do your income and expense figures live? Spreadsheet? Niche tool? Custom system? Make sure you can export or extract the data in a structured format. CSV is the most common.

3. Choose your bridging software. Start with the free HMRC tool to test the process. If it works for your volume of data, use it. If not, pick one of the paid options above.

4. Test the process before your first deadline. Do a dummy submission. Most bridging software lets you test without submitting real data. Make sure you understand the workflow before you have a real deadline.

5. Talk to your accountant. If you work with an accountant, ask them which bridging software they recommend. They may have a preferred tool that integrates with their own systems. If you do not have an accountant yet, now is the time to find one. We work with agency founders specifically and can help you through the MTD transition.

6. Review your record-keeping. MTD requires digital records. Even if you use bridging software, your underlying records must be kept digitally. That means no paper-only systems. If you are still using a physical cashbook, digitise it before April 2026.

What About Limited Companies?

If your agency is a limited company, MTD for Income Tax does not apply to you directly. It applies to self-employed individuals and partnerships.

However, if you are a director and you also have self-employed income from another source, that income is in scope. And MTD for Corporation Tax is coming. HMRC has announced that MTD for Corporation Tax will follow, likely from 2026 or 2027. The same bridging software principles will apply.

For now, limited company agency founders should focus on MTD for VAT if they are VAT-registered. VAT has been under MTD since 2019. Most accounting software already handles this. If yours does not, bridging software exists for VAT submissions too.

The Cost of Getting It Wrong

HMRC has been clear: they will issue penalties for non-compliance with MTD. The penalty system is points-based. Each missed filing deadline earns you a point. Accumulate enough points and you receive a financial penalty.

The first missed quarterly submission gives you one point. Four points within a two-year period triggers a £200 penalty. More points mean larger penalties.

For a 12-person agency billing £800k per year, a £200 penalty is not going to break you. But the administrative hassle of dealing with HMRC over missed submissions is real. And if you consistently miss deadlines, the penalties escalate.

The bridging software cost is £10-15 per month. That is £120-180 per year. Compare that to the cost of a penalty or the cost of switching your entire accounting system. The bridging software is cheap insurance.

Final Thoughts

Bridging software for MTD is not glamorous. It is a practical workaround for a specific compliance problem. But for agency founders whose accounting tools are not MTD-compatible, it is the difference between a smooth transition and a stressful one.

If you are using spreadsheets, a niche tool, or a custom system, you do not need to change everything. You just need a bridge. Pick one. Test it. File your first quarterly submission. Then get back to running your agency.

If you want to talk through your specific situation, our team are specialist agency accountants who work exclusively with agency founders. We can help you choose the right bridging software, review your current systems, and make sure you are ready for MTD. Get in touch when you are ready.

Frequently asked questions

Do I need bridging software if I use Xero or QuickBooks?
No. Xero, QuickBooks, FreeAgent, and Sage are all MTD-compatible for income tax. You can submit your quarterly updates directly from within the software. Bridging software is only needed if your current tool is not on HMRC's approved list of MTD-compatible software.
Can I use the free HMRC bridging tool for my agency?
Yes, but it is basic. The free tool allows manual entry of income and expenses only. For a sole trader agency with simple finances, it works fine. For a larger agency with multiple income streams and cost categories, a paid bridging tool that accepts CSV uploads will save you significant time each quarter.
Will bridging software handle my VAT submissions too?
Not usually. Bridging software for MTD for Income Tax is separate from MTD for VAT. If you are VAT-registered, you need either MTD-compatible VAT software or a separate bridging tool for VAT. Check with the bridging software provider whether their tool covers both.
What happens if I ignore MTD and keep using my current system?
You will miss your quarterly filing deadlines. HMRC operates a points-based penalty system. Each missed filing earns a point. Four points within two years triggers a £200 penalty. Points and penalties escalate from there. Ignoring MTD is not a viable strategy.

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