HMRC Has Two Compatibility Lists. Is Your Software on Both?

HMRC says your accounting software is compatible. Compatible with what, exactly?

If you registered for Making Tax Digital for VAT in 2019, or were pushed onto it in 2022, you have been using software that connects digitally to HMRC. That is HMRC-compatible. But there is a second compatibility framework, built for a different tax, with different technical requirements and a far shorter list of approved products. If you are a sole trader earning over £50,000, that second framework becomes mandatory from April 2026. And the software you have trusted since 2022 may not be on that list at all.

Making Tax Digital Has Two Rulebooks

The phrase "HMRC compatible" has been printed on software boxes and displayed on pricing pages since 2019, when MTD for VAT became mandatory for businesses above the registration threshold. It means the software can submit a VAT return digitally to HMRC's systems. No paper, no portal login, no spreadsheet printed and posted. The software talks to HMRC directly via an API connection.

That compatibility is real. It works. And the software market built around it is large: HMRC lists over 200 products as compatible with MTD for VAT, from household names like Xero, QuickBooks, and Sage to dozens of smaller bridging tools that do little more than take a spreadsheet and push the nine VAT boxes to HMRC.

But MTD for Income Tax Self Assessment is a different animal entirely. It has different technical requirements, a different submission structure, and a separate compatibility list that HMRC updates independently of the VAT one. When software vendors say their product is "HMRC compatible," they almost always mean for VAT. The income tax piece has been optional, undergoing a pilot, and not yet mandatory for most sole traders. Most vendors have focused engineering resources on the requirement that is already live. That is rational. It also means that millions of sole traders searching for "accounting software compatible with HMRC" are about to buy, or already own, something that solves yesterday's problem.

The VAT List Versus the ITSA List

HMRC publishes two distinct software lists on gov.uk. The MTD VAT list is long, well-established, and updated regularly. The MTD ITSA list is shorter, newer, and contains a meaningful subset of the VAT products. As of mid-2026, fewer than a third of the products on the VAT list have any presence on the ITSA-compatible list, and not all of those support the full suite of ITSA requirements.

What does full ITSA compatibility actually mean? A VAT return involves nine data fields. An ITSA submission involves quarterly profit and loss updates across prescribed income and expense categories, an end-of-period statement (EOPS), and a final declaration that replaces the old Self Assessment return. The data structure is more complex, the categories more granular, and the cadence is quarterly rather than however VAT is filed.

Bridging software deserves special mention here. A significant portion of the 200-plus VAT-compatible products are bridging tools: they read data from a spreadsheet or another system and push it to HMRC. They do not store your records. They do not categorise your income. They are a digital pipe between your existing setup and HMRC's servers. That pipe works for VAT. It cannot work for ITSA, because ITSA requires digital record-keeping at source, not just digital submission. The records themselves must be digital from the point of transaction, not a spreadsheet you scan and transmit at the quarter-end.

If you have been using bridging software for your VAT returns and assumed your MTD obligations were broadly handled, you have a problem that requires attention before April 2026.

The Electrician Who Found Out Too Late

Consider a self-employed electrician in Leeds, turning over £58,000 a year. She registered for VAT in 2021, bought a well-reviewed bridging tool to handle the MTD VAT submission, and has been filing quarterly ever since. The software costs £8 a month. It does its job. She has no reason to question it.

She searches "accounting software compatible with HMRC," finds the product's marketing page, sees "HMRC compatible" in large text, and concludes she is sorted for 2026. She is not. The bridging tool has no ITSA functionality. It cannot store digital records of her income and expenses in the categories HMRC requires. It cannot generate an end-of-period statement. It cannot file her quarterly income tax updates.

She will need to switch to a different product, migrate her historical records, and learn a new system, all while running her business. The cost of discovering this in March 2026 is not just the new subscription fee. It is the hours spent migrating data, potential accountant fees to check the transition, and the stress of learning new software two weeks before a quarterly deadline. As the Accounting Software for Making Tax Digital: The Annual Trap piece describes, the real cost of getting software wrong is rarely the price on the tin. It is the discovery cost, paid at the worst possible moment.

What Genuine ITSA Compatibility Requires

If you are evaluating accounting software and want to know whether it will genuinely serve you through MTD ITSA, the phrase "HMRC compatible" is not sufficient evidence. You need to verify four specific capabilities.

Quarterly income and expense submissions to HMRC

The software must be able to send quarterly updates to HMRC via the MTD ITSA API, not just store your records locally or display them on a dashboard. This is the core technical requirement. Ask the vendor directly: can your software submit quarterly MTD ITSA updates to HMRC via the API? If the answer is a press release rather than a yes, keep looking.

Digital record-keeping in HMRC's prescribed categories

MTD ITSA requires income and expenses to be recorded in specific categories that HMRC has defined. The software must categorise your transactions into those buckets, not just a freeform list of "income" and "costs." Bridging tools cannot do this. Full accounting platforms may do it inconsistently depending on the subscription tier.

End-of-period statement (EOPS) support

At the end of each tax year, you submit an EOPS that confirms your quarterly figures are complete and correct. Not all ITSA-capable software supports this fully. If the software handles quarterly submissions but not the EOPS, you still need a second tool for year-end, which reintroduces exactly the fragmentation MTD was supposed to eliminate.

Final declaration support

The final declaration replaces your Self Assessment tax return. Some software covers quarterly submissions and EOPS but expects you to use HMRC's own system for the final declaration. For most sole traders that patchwork is workable. For those who want one system handling everything, it matters to check before you buy.

How to Check Your Software's Actual Status

The definitive source is not the software vendor's marketing page. It is HMRC's published list on gov.uk, updated as products pass compatibility testing. The list specifies which HMRC taxes each product supports and at what level.

Three steps to check today:

Step 1: Find your software on the MTD ITSA list, not the VAT list. Search gov.uk for "Find software that's compatible with Making Tax Digital for Income Tax." Your software may appear on the VAT list but be entirely absent here.

Step 2: Check which specific capabilities are listed. The HMRC list specifies what each product supports: quarterly updates, EOPS, final declaration, landlord income, and so on. A product may appear on the list but only support a subset of what you need.

Step 3: Ask the vendor one specific question. Has your software been tested and MTD-compatible for MTD ITSA quarterly submissions for sole traders? The answer should be a direct yes with a reference to their HMRC listing, not a statement about a "roadmap" or "upcoming release."

If you are already using software that covers VAT but not ITSA, you have a narrow window before the April 2026 mandate arrives. As the analysis in HMRC Compatible Software: What the Label Cannot Tell You establishes, the label has always carried more marketing weight than technical precision. Nowhere is that clearer than in the gap between the VAT and ITSA lists.

Software Built for ITSA Rather Than Retrofitted

There is a category of newer software that did not retrofit ITSA onto an existing VAT product. These tools were built specifically for the MTD ITSA era: designed around quarterly income tax submissions, digital record-keeping in HMRC's categories, and the submission workflow that replaces Self Assessment.

TapTax falls into this category. It was built for sole traders who need to meet MTD ITSA requirements, with features that map directly to what HMRC expects: digital records, quarterly submissions, end-of-period statements, and a final declaration pathway. There is no VAT legacy to work around, no enterprise feature set you are paying for and never touching, and no marketing page that says "compatible" without specifying which tax.

For a sole trader earning between £50,000 and £80,000 who has never needed to engage with accounting software beyond a spreadsheet and an annual return, ITSA-native software is the lower-friction option. You are not inheriting someone else's VAT architecture. You are starting with a tool shaped around the tax you actually owe. The Sole Trader Software Hides Three Products. You Need One. post describes this from a different angle: the market presents complexity as comprehensiveness. For ITSA-only sole traders, simpler is not a compromise. It is the accurate description of what you actually need.

What to Do If You Are on the Wrong Software

If you have confirmed that your current software is HMRC-compatible for VAT but not for ITSA, here is the sequence that minimises disruption.

Export your records now. Do not wait until you are ready to switch. Export your transaction history, income records, and expense categories in whatever format your current software allows. CSV is universal. This is your migration asset and it costs nothing to gather it today.

Identify your first real deadline. The April 2026 mandate applies to the tax year starting April 6, 2026. Your first quarterly submission covers April to June 2026, due by August 5, 2026. You do not need ITSA-compatible software running on April 1. You need it running before that August deadline, with three months of clean digital records behind it.

Check whether your accountant has a view. Some accountants have preferred systems they can access directly, and aligning with their preference avoids duplication. The Sole Trader Accounting Software UK: Who Pays Your Accountant? piece covers this dynamic in full.

The Answer Your Current Software May Not Have Given You

From April 2026, "accounting software compatible with HMRC" must mean compatible with MTD ITSA, not just MTD VAT. The market has not fully caught up, and the marketing language certainly has not. Before next spring arrives, check the specific list, ask the specific question, and do not assume that what worked for your VAT return will work for your quarterly income tax submission. The two obligations have always been separate. From April 2026, the software requirement is too.