Choosing business accounting software in the UK comes down to three HMRC obligations: reporting your income, filing VAT if you are registered, and running payroll if you employ anyone. Cover the ones that apply to you and the rest is mostly preference. This guide is for sole traders, landlords and small limited companies looking for business accounting software for small business use, with payroll where needed.
What your software has to do for HMRC
- Making Tax Digital for Income Tax. From 6 April 2026, sole traders and landlords with qualifying income above £50,000 (judged on the 2024/25 tax return) must keep digital records and send quarterly updates through compatible software. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income means gross turnover before expenses, not profit. Limited companies are outside this scheme. HMRC explains the rules in its Making Tax Digital for Income Tax guidance.
- VAT. VAT-registered businesses already keep digital records and file returns through compatible software.
- Payroll. If you pay anyone through PAYE, you report pay and deductions to HMRC each time you pay them, using HMRC-recognised payroll software. This is called Real Time Information, or RTI.
Which setup fits which business
| Your situation | What to look for |
|---|---|
| Sole trader under £30,000 turnover, no staff | A simple cloud package with bank feeds and invoicing, ideally one that supports Making Tax Digital if you cross the threshold later |
| Sole trader or landlord over £50,000 | Software on HMRC's compatible list that handles quarterly updates and the final declaration |
| Limited company without staff | Bank feeds, VAT if registered, and support for year-end accounts and Corporation Tax |
| Any business with employees | Accounting that links to payroll, or a separate payroll tool with pension auto-enrolment |
Accounting with payroll: bundled or separate
Several mainstream accounting packages sell payroll as an add-on or a higher plan, and standalone payroll tools exist too. The practical question is whether wages, PAYE and pension contributions post straight into your books or have to be reconciled by hand every month. The best small business accounting software with payroll is the one that does the following without extra manual steps:
- Sends RTI submissions to HMRC: a Full Payment Submission each time you pay staff, and an Employer Payment Summary when needed
- Handles pension auto-enrolment, or tells you clearly that it doesn't
- Supports the Employment Allowance
- Produces payslips and year-end filings
The Employment Allowance cuts an eligible employer's National Insurance bill by up to £10,500 in 2026/27. Employer National Insurance is charged at 15% above a £5,000 threshold, and a company whose only employee is its sole director can't claim the allowance.
What 'free' really covers
Small business accounting software free plans exist, but they tend to cap the number of invoices, users or bank connections, and they may not include payroll or Making Tax Digital submissions. Check the current limits on the provider's own site, because they change.
For payroll, HMRC's Basic PAYE Tools is free for employers with fewer than 10 employees and handles RTI filing. It is deliberately basic: it has no automatic pension auto-enrolment, and nothing connects it to your accounts.
If you search for business accounting software free download, be careful. Genuine desktop packages exist, but cracked or unofficial copies stop receiving updates, are unlikely to keep a working connection to HMRC and often carry malware. Download only from the vendor.
Before you pay
- Check the product appears on HMRC's list of software that works with Making Tax Digital for Income Tax.
- Run the trial with a month of your own transactions rather than the demo data.
- Ask what happens if you leave: can you export transactions, invoices and payroll history?
- Ask your accountant first. Many have a preferred package and can work in your books directly.
- Price the plan you will need in a year, with extra staff or VAT registration, not just the entry tier.
If you bill clients by the hour, pair your books with time tracking software for small business, and see our guide to invoice software for freelancers if invoicing is your main need.