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, we’ve 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 haven’t 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.

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).

5. FreeAgent

FreeAgent business accounting software screens
“Nail the admin, take care of tax and see the bigger picture” with FreeAgent

FreeAgent – “Award-winning accounting software for small businesses –
Nail the admin, take care of tax and see the bigger picture.”

Best for: Micro-businesses, freelancers, self-employed contractors, accountants and bookkeepers

Key features:

  • VAT filing
  • Payroll
  • Overview screen detailing invoices, expenses, bank accounts and cash flow
  • Fill and file your Self-Assessment tax return directly to HMRC from the app.
  • Tax Timeline allowing you to see upcoming dates for self-assessment, VAT, corporation tax and payroll
  • Double-entry accounting engine
  • Connect it to your bank accounts to automatically import transactions

MTD Compatibilities: Yes, review automatically generated VAT returns and file with a single click

Price: Free 30-day trial, then from £9.50+VAT p/m for sole traders; from £12+VAT p/m for partnership/LLP; £14.50+VAT p/m for limited companies. (Prices rise by 50% after 6 months.)

6. Brightbook

Sceenshots of BrightBook business accounting software
BrightBook: “Used by creative professionals and companies everywhere”

Brightbook – “The world’s most loved free online accounting system. Used by creative professionals and companies everywhere. Web-based, Secure, Unlimited, Free. No accounting experience required.”

Best for: Freelancers, contractors, small businesses

Key features:

  • Quotes and invoices
  • Dashboard view of money you’re owed, money you owe and cashflow
  • Import bank statements so you can track payments and bills
  • Profit and Loss and VAT Reports
  • In-built currency conversion
  • Scan and upload receipts and supplier bills for quick visual reference and downloading
  • Chase overdue invoices with Brightbook’s perfectly worded emails, including links to
  • PayPal so clients can pay immediately
  • Set up multiple companies and access them with a single login

MTD Compatibilities: Yes, automatically included in the free service

Price: FREE, or you can pay between £1.99 and £3.49 per month to remove any mention of BrightBook from the emails and PDF’s you send out.

A simple, at-a-glance summary

Provider Link MTD Compatible Start Price (per month)
Xero xero.com/uk Yes £10.00
Sage sage.com Yes £12.00
Zoho Books zoho.com/uk/books Yes £6.00
Quickbooks quickbooks.intuit.com/uk Yes £6.00
FreeAgent freeagent.com Yes £9.50+VAT
Brighbook mybrightbook.com Yes FREE

 

Conclusion

Making Tax Digital is an initiative to simplify business tax. We have highlighted some of the best software products on the market to help make life easier, but with hundreds of available options, the hardest part might be choosing which product to use.

Each of the products we have summarised here have detailed websites and support pages to help you make the right choice. If the software has the features you need right now, make sure it will also continue to deliver the required services as your business grows and expands. Making a short-term decision may end up costing you more time and trouble in switching providers later down the line.

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