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The digital bank’s free HMRC-recognised tax tool is unveiled ahead of Making Tax Digital changes.
Monzo is aiming to make quarterly reporting and end-of-year submissions easier for sole traders and landlords by launching a free, HMRC-recognised tax tool within its business banking app.
British small businesses are spending almost £5 billion every year on tax and accounting software, according to new research from Monzo, a digital bank with more than 800,000 business customers. The findings highlight the scale of the administrative burden faced by the UK’s self-employed community and come as the government prepares to roll out significant changes under Making Tax Digital (MTD) for Income Tax.
The move is positioned as part of a wider shift in financial services, where banks are increasingly adding “beyond banking” features such as invoicing, bookkeeping, and tax functionality to support small business customers in managing day-to-day operations.
MTD for Income Tax will require sole traders and landlords to use approved digital systems to submit quarterly updates of income and expenses, replacing more traditional methods and introducing more frequent reporting.
The shift is designed to improve record keeping and reduce errors, but for many smaller businesses it also represents a major change in how they manage compliance. While established companies may already rely on accountants and robust software systems, sole traders and part-time landlords often use simpler tools, spreadsheets, or manual processes — meaning the transition could create new pressures.
Monzo’s research suggests awareness is high, but confidence lags behind. Seven in 10 sole traders (70%) said they are aware of the upcoming MTD update, yet more than one in four (28%) said they are not confident they will be ready for April.
This gap between awareness and readiness may become increasingly important as deadlines approach, particularly for the smallest firms that lack dedicated admin support. It also points to a growing market opportunity for tax and accounting tools that reduce complexity and are easy to adopt.
The bank’s findings underline how stressful tax administration can be for self-employed people. Half of sole traders (52%) said managing business taxes is stressful, and nearly half (44%) admitted they have filed late because the process felt too confusing or time-consuming.
Monzo also found sole traders spend an average of around 25 hours a year on tax administration — more than three full working days. For many, that represents time that could otherwise be used to win new customers, complete work, or spend time away from the business.
These pressures can have knock-on effects beyond compliance. Late submissions can lead to penalties and disrupt cash flow planning, while uncertainty about tax liabilities may make it harder for sole traders to budget for upcoming payments. For new businesses, administrative stress can even become a barrier to growth.
In response, Monzo’s free tax tool allows customers to submit tax updates directly to HMRC through the Monzo app. The tool will be available to anyone with a free Monzo Business account and will be powered by Sage’s embedded services technology.
Monzo says the new service will be fully available before the new tax year starts on Apr. 6, giving sole traders and landlords time to prepare and test the tool ahead of upcoming reporting requirements.
The company describes the product as a simple, in-app filing option aimed at customers with straightforward tax needs. It also acknowledged that many small businesses will continue to use more comprehensive accounting platforms or professional advisor support as their requirements become more complex.
This suggests Monzo is targeting a specific segment of the market: self-employed workers and small landlords who want basic digital compliance without paying for standalone software.
Monzo’s research points to growing demand for more integrated tools that combine financial management and tax reporting. Almost two thirds of sole traders (61%) said simpler or more integrated tools would make tax filing easier, indicating interest in solutions that bring banking and tax into one place.
The broader implication is that banks may increasingly compete with traditional accounting software providers by offering embedded compliance services as part of business accounts. For customers, that could mean fewer separate subscriptions and less switching between systems. For providers, it represents a chance to strengthen customer loyalty and become more central to business operations.
However, the shift also raises questions about how effectively simplified tools will handle more complex real-world tax situations, and whether businesses will still need to seek advice as they grow.
Monzo was one of the names in our review of the top crypto-friendly banks.
