Monzo Business and Making Tax Digital: the built-in MTD software

The short answer

If you are a sole trader or landlord who needs Making Tax Digital for Income Tax, Monzo Business gives you free, HMRC-recognised software inside your bank account. It is built on Sage, it is on every plan including free Lite, and it handles the quarterly updates and the end-of-year return.

If you run a limited company, or you need to file VAT, it is not the tool for you, and Monzo says so. Companies use accounting software or an accountant for Corporation Tax and VAT, and Monzo Business connects to the main packages.

What Making Tax Digital for Income Tax is

Making Tax Digital for Income Tax changes how sole traders and landlords report their income. The tax itself does not change. Instead of one Self Assessment return a year, you keep digital records in software that works with HMRC, send a short summary every quarter, and submit a final tax return after the year ends.

HMRC does not supply the software. You choose a commercial product, and HMRC’s guidance on choosing MTD software says it must let you create and store digital records, send quarterly updates and submit your tax return by 31 January the following year. It also notes that free products exist for people with simple tax affairs, which is where Monzo’s tool fits.

Our full guide to Making Tax Digital for Income Tax covers qualifying income, exemptions and the sign-up process in more depth. This page focuses on what Monzo Business does about it.

MTD for Income Tax dates and thresholds

Short answer: it is phased in by qualifying income, starting with over £50,000 from 6 April 2026, then over £30,000 from April 2027 and over £20,000 from April 2028.

HMRC’s page on when you need to use Making Tax Digital for Income Tax says you must use it if you are a sole trader or landlord registered for Self Assessment, you get income from self-employment, property or both, and your qualifying income is over the threshold for the relevant year. Qualifying income is broadly your combined income from self-employment and property before expenses, not your profit.

As at 9 October 2026, the first group is already in. HMRC says anyone over £50,000 who should have started from 6 April 2026 can still sign up. The £30,000 group starts in April 2027 and is judged on income in the 2025 to 2026 tax year, the one whose Self Assessment return is due online by 31 January 2027. HMRC also says you still submit a normal Self Assessment return for the tax year before you start using MTD.

Partnerships will join later, on a timeline HMRC has not yet set out. Monzo Business does not accept partnerships anyway; see Monzo Business eligibility.

Quarterly updates and the final declaration

HMRC’s guidance on sending quarterly updates describes them as summaries, not tax returns. Your software adds up your income and expenses by category and sends the totals. Each update covers the period from the start of the tax year to the end of the quarter, so if you correct an earlier figure, the next update simply includes it.

So for anyone already in MTD, the next update is due by 7 November 2026, covering 6 April to 5 October. Businesses whose accounts run to 31 March can choose calendar update periods instead, ending on the last day of the month, with the same deadlines. You must send an update even if nothing happened in the quarter.

After the year ends, you submit your tax return, often called the final declaration, by 31 January. This is where you add other income and claim reliefs. Monzo describes the same rhythm: quarterly updates by 7 August, 7 November, 7 February and 7 May, then the end-of-year return by 31 January the following year, all through Monzo.

What Monzo’s MTD tool does

Monzo calls it free, HMRC-recognised MTD software built into Monzo Business as standard. It is built on Sage’s technology, but you do not need a Sage account: it runs inside the Monzo app. Monzo lists Making Tax Digital software for sole traders and landlords among the features on every plan, including Lite.

• Digital records from your transactions. Monzo automatically categorises common expenses as you spend, using tax categories.
• Receipts. Snap a receipt and attach it to the transaction, with notes and tags.
• Money outside Monzo. You can pull in transactions from other accounts and record cash or activity that happened elsewhere yourself in the app.
• Quarterly updates. Sent to HMRC from the app.
• End-of-year return. Monzo says you can send it straight from Monzo, like the quarterly updates.
• Lessons and reminders. Short explainers, timelines and reminders to keep you on track.

The appeal is having everything in one place. Most of the work in MTD is keeping records, and if your business income and spending already go through Monzo, most of the records are already there. Monzo’s phrase is leaving behind the open tabs and passwords that come with juggling different tools.

The tool also pairs naturally with Monzo Business Tax Pots, which set a percentage of each payment aside so the bill is covered when it arrives. Tax Pots are on Pro and Team only, up to 3 Tax Pots. Our tax set-aside calculator helps you pick the percentage.

Setting it up

Monzo describes a three-step setup:

1. turn on tax categories for record keeping;
2. link your HMRC account and opt in to Making Tax Digital;
3. learn how to record money that moves outside Monzo.

Before you open an account, Monzo offers a short five-question check to see whether the tool fits your business. That is worth doing: the exclusions in the next section are the most common reasons it will not. HMRC also recommends choosing your software before you sign up for MTD, and its step-by-step collection walks through signing up.

If you do not have a Monzo Business account yet, our guide to opening a Monzo Business account covers the application.

Keeping records that make the quarterly update easy

Whatever software you use, MTD rewards a few habits, and Monzo’s app makes most of them quick:

• Keep business and personal money apart. A separate business account means every transaction in it is a business record, which is most of the work done. Our guide to using a personal account for business explains why mixing them causes trouble.
• Categorise as you go. Check Monzo’s automatic categories weekly rather than fixing three months of them the night before the deadline.
• Attach receipts at the till. A photo on the transaction now saves searching your inbox later.
• Record what happens elsewhere. Cash takings, a card on another account or a payment into a personal account all need recording in the app, or the update will understate your figures.
• Send early. HMRC lets you send an update any time between the end of the period and the deadline. There is no benefit in waiting until the 7th.

What Monzo’s MTD tool does not do

Monzo is upfront about the limits. Its FAQ says the tool will not support accruals basis accounting, filing VAT or collaborating with accountants.

• Cash basis only. If you account on the accruals basis, recording income when you invoice rather than when you are paid, this tool is not for you.
• No VAT. If you are VAT registered, you need separate software for VAT Returns. More below.
• No accountant access. If an accountant prepares your figures or files for you, they will normally use their own software. Monzo’s bank feed into Xero, FreeAgent, Sage or QuickBooks is the more likely route.
• No limited companies. Covered in the next section.

There is one more point for landlords. Monzo’s MTD page says it is for sole traders and landlords, but Monzo Business eligibility requires the business to be earning mainly from trading, not investments. A landlord with only rental income may not qualify for the account in the first place. Check with Monzo first, and see our guide to bank accounts for landlords.

Limited companies: what to use instead

Short answer: Monzo’s MTD tool is not for companies. Use accounting software, connected to Monzo Business, or an accountant.

Monzo puts it bluntly: “Have a limited company? This one's not for you.” Making Tax Digital for Income Tax applies to individuals’ self-employment and property income. A limited company pays Corporation Tax on its profits and files a Company Tax Return, normally prepared by an accountant or in accounting software alongside the statutory accounts.

The practical setup for most small companies is Monzo Business as the bank, with transactions syncing into accounting software. Monzo integrates with Xero, FreeAgent, Sage and QuickBooks, syncing “every few hours, every single day”. Receipts and categories sync with Xero, and Monzo can auto-export transactions to Google Sheets, Google Drive or OneDrive. The integrations are on Pro and Team. There is also a partner offer: 6 months' free Xero with Pro, 8 months with Team (new Xero customers, until 31 May 2027).

Our guide to business bank accounts for limited companies covers what else matters when choosing an account for a company.

Making Tax Digital for VAT

MTD for VAT is older and separate. HMRC’s VAT guidance says all VAT-registered businesses should now be signed up for Making Tax Digital for VAT. You must register once taxable turnover goes over £90,000 in a rolling 12 months, according to HMRC’s VAT registration rules, and you can register voluntarily below that.

Monzo’s tool does not file VAT, for sole traders or companies. So a VAT-registered sole trader could use Monzo’s free tool for Income Tax and still need other MTD-compatible software for VAT Returns. At that point, many find it simpler to use one accounting package for both, with Monzo as the bank feeding it. Whichever you choose, a Tax Pot named VAT is a sensible companion: the VAT you collect is never yours to spend.

Who should use Monzo’s MTD tool

Good fit: a sole trader with straightforward income and costs, not VAT registered, using cash basis, doing their own tax and banking mainly through Monzo. For them it removes a software subscription and most of the record keeping. Our guide to bank accounts for sole traders compares Monzo with the alternatives for that group.

Poor fit: limited companies, VAT-registered businesses that want one system for everything, accruals-basis businesses and anyone whose accountant does the filing. They are better served by accounting software, with Monzo as the bank underneath.

If the tool suits you and you have never had a Monzo account of any kind, our Monzo Business referral link page explains the reward and the four steps to complete within 30 days. The MTD software is on every plan, so the free Lite plan is enough to use it.