Tax & admin 23 September 2020

Software for Making Tax Digital

Devices for Making Tax Digital
Making Tax Digital will become compulsory for all VAT-registered businesses in April 2022
Software for Making Tax Digital is designed to make keeping your books easier. The HMRC initiative requires that companies keep digital records and submit VAT returns digitally, using HMRC recognised software. With hundreds of different software products available, weve summarised six of the best options for small businesses, freelancers and contractors.

Making Tax Digital (MTD) will become compulsory for all VAT-registered businesses in April 2022, so if you havent already got a digital plan in place, now might just be the perfect time to get your business accounts online.

What is Making Tax Digital?

Introduced in gradual stages, HMRC’s Making Tax Digital is designed to make the tax system more effective, efficient and easy for taxpayers. From 1st April 2019, VAT-registered businesses with a turnover of over 85, 000 had to comply. But, from April 2022, Making Tax Digital will be compulsory for all VAT-registered businesses with a taxable turnover below 85, 000.

Why is software important?

Making Tax Digital is all about efficiencies. To comply you will need to use compatible software to send your digital tax returns to HMRC. Although you don’t have to have all your records on one piece of software, HMRC stipulates that you must have links between the software you use by your first VAT period after 1 April 2021.

Before signing up to Making Tax Digital for VAT you must either:

  1. Find an appropriate and compatible software package which allows you to keep digital records and submit VAT returns
  2. Use bridging software to connect non-compatible software, such as spreadsheets, to HMRC systems
While it is possible to link software by emailing records, linking cells in spreadsheets, or uploading files, software designed specifically for business accounting can help make it far easier to keep on top of your books.

The software product you use must be compatible with HMRC. You can find a huge list of compatible software on the government website, but we’ve summarised six of the best available options below…

Read more about Making Tax Digital:

Six of the best accounting software packages for Making Tax Digital

1. Xero

Xero Making Tax Digital Software
“Xero is already leading the way in Making Tax Digital (for VAT) HMRC compatible”
Xero “Easy-to-use VAT online software makes it simple to create and submit your VAT returns online to HMRC as well as to track and manage VAT.”

Best for: Small business owners and their accountants

Key features:

  • Direct bank feeds allow easy invoicing, expense management, stock control and bill payments.
  • Submit VAT and payroll to HMRC online
  • Easy-to-use dashboard to monitor your business finances
  • Handles VAT reverse charges
  • Mobile app for invoicing, expenses and bank transactions
  • New features and updates released regularly
  • Unlimited user access
MTD Compatibilities: Calculates your VAT and lets you file VAT returns directly online.

Price: From 10 per month, free 30-day trial (no credit card required).
Plans have no setup fees or contracts, and you pay monthly.

2. Sage Business Cloud Accounting

Sage Accounting Software screens
Sage Accounting software helps businesses “keep on top of finances and remain compliant”
Sage “No matter your business size or industry, Sage has you covered with a solution for Making Tax Digital.”

Best for: Small business owners, entrepreneurs and start-ups

Key features: Sage’s ‘start? package allows you to:

  • Create and send invoices
  • Track what you’re owed
  • Automatic bank reconciliation
  • Automated Bank Feeds, as well as Direct Bank Feeds with RBS, Nat West, Barclays,
  • Halifax, Santander, Nationwide, and hundreds more.
  • Add Payroll for additional 7+VAT per month
  • Features increase depending on the package you choose
MTD Compatibilities: Calculates your submits VAT directly online.

Price: Get the first 90 days free, then from 12+VAT per month

3. ZohoBooks

Zoho Books Business Accounting Dashboard
“Stay MTD Compliant with Zoho Books”
Zoho Books online accounting software that manages your finances, gets you VAT ready, automates business workflows, and helps you work collectively across departments.”

Best for: Small and medium-sized businesses and freelancers

Key features:

  • End-to end accounting with financial reports including profit & loss, balance sheet and cash flow statement
  • Business transactions including quotes, invoices, bills, expenses, credit and debit notes, recurring invoices, PO and SO
  • Prepare your audit reports and VAT returns
  • Project billing and time-tracking (great for service-based businesses)
  • Automation and customisation
  • 40+ apps to help you manage and run every aspect of your business, including Zoho CRM, Zoho Project, Zoho Expense, Zoho Inventory and Zoho People
  • Available on iOS, Android and Windows; native apps for Apple Watch and iPad.
MTD Compatibilities: Calculates your submits VAT directly online.

Price: Free 14-day trial, then from 6 per month. Plans are based on user numbers. Basic (£6p/m) supports two users; Standard supports three (£12p/m); Professional supports ten users (£18p/m).

4. Quickbooks

QuickBooks VAT return screen
QuickBooks for business taxes, payroll, invoices, bills and expenses
QuickBooks ‘smart, simple accounting software – with no commitment”

Best for: Self-employed, small businesses and accountants

Key features:

  • Sole traders can track income and manage self-assessment
  • Invoicing
  • Receipts
  • Mulitple bank and credit card connections
  • Download bank transactions
  • Payroll
  • Bills and payments
  • CIS Calculations
MTD Compatibilities: Calculates your submits VAT directly online.