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9 Min. Read

10 Best Making Tax Digital Software for VAT

10 Best Making Tax Digital Software (MTD for VAT)

Here’s What We’ll Cover:

What is Making Tax Digital?

10 Best Making Tax Digital Software Options

Key Takeaways

Making Tax Digital and Software FAQ

What is Making Tax Digital?

Making Tax Digital is HMRC’s plan to make the UK’s tax system “more effective, more efficient and easier for taxpayers to get their tax right.” These “fundamental changes” are important because it affects the way businesses and individuals report and pay tax to HMRC.

For you, this means an unsettling period of transition from old methods to new processes. This is made even more challenging by concerns about financial penalties for making even genuine mistakes as you adapt to their digital expectations.

But it doesn’t need to be a huge stress. We’ve got you. FreshBooks is fully ‘Making Tax Digital for VAT’ ready. And we’re always prepared for the next step in HMRC’s strategy.

The first thing you need to do is get yourself compatible software. Obviously, we recommend FreshBooks! We know it’s just right for your VAT registered business. But HMRC has a long list of options. We’ve rounded up a list of 10 respected competitors so you can make an informed decision.

10 Best Making Tax Digital Software Options

All these software options have a variety of features. Here we’re only highlighting the software type, VAT specific features and pricing. This gives you a clearer picture to compare.

  • FreshBooks Cloud Accounting

Software Type

  • Record-keeping software: FreshBooks keeps all your required digital VAT records
  • Bridging Software: you can send your VAT returns directly to HMRC through FreshBooks’ portal

VAT Specific Features

  • Check the VAT you owe, whenever you need to
  • View your VAT payment history
  • Submit your next VAT return straight from FreshBooks to HMRC
  • See all your previously submitted VAT returns

Pricing

FreshBooks has four packages based on the number of billable clients you have.

  • Lite: £3.30 per month, up to 5 billable clients
  • Plus: £5.70 per month, up to 50 billable clients
  • Premium: £9.00 per month, unlimited number of clients
  • Select: Bespoke pricing package for unlimited clients and with specialised features

All packages include VAT return filing for HMRC Making Tax Digital. You can try before you buy with a 30 day, no strings, free trial.

Website: FreshBooks.com

  • Xero

Software Type

  • Keep digital VAT records
  • Connects directly to HMRC

VAT Specific Features

  • See VAT history, details and VAT return due dates
  • Accessible to check and change before submission
  • Directly submit VAT return to HMRC from Xero

Pricing

Xero has three levels of pricing:

  • Starter £10 per month
  • Standard £24 per month
  • Premium £30 per month

All of these plans include 'Submit VAT returns to HMRC'. The plans each have at least 6 features and a variety of optional add-ons to appeal to a range of businesses, like payroll and submitting CIS returns.

You can also try Xero for 30 days for free, with the option to cancel at any time. This gives you access to all the features to help you decide which plan suits you best.

Website: Xero.com

  • QuickBooks

Software Type

  • Bridging software supports standard and cash schemes
  • Up-to-date MTD for VAT data collection

VAT Specific Features

  • VAT error checker
  • Submit completed VAT returns
  • Full MTD compliance for your record-keeping

Pricing

QuickBooks has three pricing options, ranging from the Simple Start at £12 per month to the £30 a month 'Plus' plan. All three include 'Check VAT return' and 'Submit VAT directly to HMRC'. You can add payroll to your package for an extra standard or advanced amount. There's also a QuickBooks free trial option.

Website: quickbooks.com

  • FreeAgent

Software Type

  • Record keeping that follows all the MTD for VAT rules
  • File VAT returns online

VAT Specific Features

  • VAT returns generated automatically
  • Support for cash basis and invoice VAT returns
  • Submit VAT returns and make VAT payments directly to HMRC

Pricing

If you have a business bank account with NatWest, Royal Bank of Scotland or Ulster Bank NI you can get FreeAgent for free - including their MTD for VAT services. FreeAgent divides their pricing structure into types of business and you need to add VAT on top:

  • Sole trader: £9.50 per month for the first 6 months, then £19. Or an annual charge of £95 for your first year, then £190.
  • Limited company: Monthly, first 6 months £14.50, then £29. Or £145 for the first year and then an annual £290
  • Partnerships and LLP: First six months for £12, then up to £24. Or £120 for the first year, then £240 annually

Website: FreeAgent.com

  • KashFlow

Software Type:

  • Cloud accounting software that keeps your bookkeeping and data aligned with MTD for VAT
  • Digital VAT submissions directly to HMRC

VAT Specific Features:

  • VAT registered businesses can have VAT automatically added to invoices
  • Live VAT liability dashboard
  • VAT reports
  • VAT return history

Pricing

KashFlow has 3 monthly pricing solutions:

  • Starter Package price: £8.00+VAT
  • Business Package price:£16.50+VAT
  • Business + Payroll price: £22.50+VAT

And 3 annual prices of £56, £121 and £160 respectively - +VAT.

All their accounting packages let you manage and submit your Value Added Tax return online.

Website: KashFlow.com

  • Sage Business Cloud Accounting

Software Type

  • Accounting software that manages bank transactions, cash flow, invoices, self assessment tax returns for the self-employed and everything else you'd expect from a system designed for businesses.

VAT Specific Features

  • Live running total of your tax bill liabilities
  • Data capture of all necessary VAT details
  • Submits quarterly VAT returns directly to HMRC

Pricing

Sage has 75% off for 4 months across their pricing options:

  • Start package: £3 (£12)
  • Standard package £6.00 (£24)
  • Plus package £7.50 (£30)

This is their per month pricing, with the amount it goes up to after your first 4 discounted months. You also need to add VAT. All 3 packages include calculation and submission of your MTD VAT data and submission to HMRC.

Website:Sage Cloud Accounting

  • Zoho Books

Software Type

  • End-to-end online accounting
  • Connects seamlessly to the UK Government's portal for VAT Return filing

VAT Specific Features

  • One solution across multiple VAT schemes
  • International trade recorded by VAT duty
  • Generates business reports to show VAT liability
  • Easily lets your accountant work within the software at no extra cost

Pricing

Zoho Books has a 14 day free trial of each of their 3 pricing plans. They range from £6, £12 and £18 per month. Or £60, £120 and £180 per year. All 3 plans include VAT records, VAT MOSS reports and filing VAT returns.

Website: Zoho Books

  • QuickFile

Software type

  • Bridging software
  • Record-keeping software

VAT Specific Features

  • Record everything you need to meet your digital VAT requirements
  • Submit VAT returns digitally
  • See your entire VAT history and check what VAT you owe in real-time

Pricing

QuickFile prices on a sliding scale, based on "the number of nominal transactions created over the previous rolling 12 month period." The software is completely free for extra-small, small and medium-sized businesses. That means businesses with up to 1000 nominal transactions. For businesses over that number, it's £45+VAT per year. Even the free packages include MTD for VAT returns, full multi-currency support and banking automation. This is great for QuickFile customers that are self employed VAT registered businesses.

Website: QuickFile.co.uk

  • Adminsoft Accounts

Software Type

  • Record-keeping desktop software recognised by HMRC

VAT Specific Features

  • Bridge between your current spreadsheets and HMRC's VAT return submission portal
  • See your previously submitted tax returns and bills paid
  • Submit your tax return directly

Pricing

Adminsoft Accounts is downloadable for free. There is the option to buy a Software Registration Key in order to eliminate the advertising. This starts at £199 for one user.

Website: Adminsoft Accounts

  • MTDSorted

Software Type

  • Digital bridging software
  • Record keeping system for MTD

VAT Specific Features

  • Spreadsheet importer to transfer your VAT details
  • Either use MTDSorted to bridge across to HMRC's portal from your existing software or,
  • Send your VAT return directly to HMRC

Pricing

Businesses can access MTDSorted's Lite plan on their platform for free. This includes all the mandatory bookkeeping and filing elements you need to be MTD for VAT compliant. They also have a Plus Plan, costing £15 per month, which gets you access to their full accounting experience. You can try this for 30 days for free.

Website: MTDSorted.co.uk

Key Takeaways

As you can see, there are many companies that provide software that's MTD for VAT ready. FreshBooks does it in the easiest way possible.

Tax compliance is fully integrated into the rest of your business's financial health. So you can make business development decisions based on a holistic picture with every relevant detail.

That's why people love FreshBooks. You'll find the information to support any business developments within a couple of clicks. We get you back to your customers - yes, even at tax time!

Making Tax Digital and Software FAQs

Is MTD mandatory?

MTD compliance is mandatory if your company’s taxable turnover is over the £85,000 VAT threshold. You can only apply for an exemption to MTD for very specific reasons, like your location inhibiting your access to the internet. Those that are voluntarily registered for VAT can comply with MTD, but it’s not mandatory until 1st April 2022.

What do I need to do for Making Tax Digital for VAT?

There are two main requirements to being MTD for VAT compliant:

You need the right accounting software to meet both of these obligations. Any linking software to connect your records with HMRC must be in place by the first VAT period after 1st April 2021.

Will HMRC provide free software for Making Tax Digital?

Despite initial discussions about providing free MTD software, HMRC decided against it. As an alternative, they created software called ‘application programming interfaces’ (APIs). These enable multiple separate programmes to share digital data. We, and other companies, use them to make sure the VAT records in your FreshBooks account are compliant and your VAT returns can easily be transmitted to HMRC.

What is the deadline for Making Tax Digital?

The deadline for submitting your VAT return and paying your VAT bill through MTD is 1 calendar month and 7 days after the end of your accounting period.

Who is exempt from Making Tax Digital?

Companies are currently exempt from MTD if:

  • Taxable turnover hasn’t been over £85,000 since April 2019
  • You or your business are going through an Insolvency Procedure
  • You’re already exempt from MTD

HMRC consider exemption applications on a case-by-case basis and will consider reasons like religion, disability, location and age.

How do I submit a digital VAT return?

If you don’t already use FreshBooks, you need to sort out compatible MTD software before you do anything else. Then you can sign up for ‘MTD for VAT’ through your Government Gateway account. You need to get all your information together before you start, including your VAT registration number and most recent VAT return.


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