Making Tax Digital for VAT: what to look for in software

The Making Tax Digital for VAT (MTD for VAT) initiative aims to make tax administration simpler and more accurate by requiring that businesses use software to submit their VAT returns to HMRC. However, since HMRC doesn’t offer its own software, business owners must find their own commercial software solutions that are MTD-compliant.

In this informative guide, you’ll discover the key things you should look for in Making Tax Digital software and the best MTD for VAT software packages you can choose from, helping you save money, streamline your accounting process and avoid penalties from HMRC.

What should you look for in MTD for VAT software?

To help you get started on your search for MTD for VAT software, here are the main things your software should be able to do:

1) Maintain digital records of your finances;
2) Communicate with HMRC’s API platform to send and receive VAT information;
3) Seamlessly integrate with other systems you use to run your business;
4) Be cloud-based so you can access your software from any device;
5) Have an intuitive interface;
6) Be customisable so it can grow with your business;
7) Be cost-effective.

The best software for making tax digital for VAT

Software that includes all of the above factors will be the perfect choice for your small business. With this checklist in mind, here are some of the best software packages you should explore.

1) Sage Business Cloud Accounting

With Sage Business Cloud Accounting, you’ll have access to fully MTD-compliant accounting and tax software that’s perfect for keeping digital records, submitting digital VAT returns and tracking your cash flow, no matter the size of your business.
Sage offers a wide range of different packages to suit a variety of needs, which means you won’t end up paying for a long list of features you never use. As your business grows, you can opt for higher-level packages, which include fantastic features such as running advanced reports and multi-currency banking and invoicing. Overall, you can’t go wrong with Sage Business Cloud Accounting.

2) FreshBooks

FreshBooks is fantastic for a wide range of businesses due to its user-friendly interface and the variety of tiers available, helping business owners choose the features they truly need (including invoicing, expenses and time tracking).
However, FreshBooks lacks some features that you can find in other MTD-compliant software packages (such as payroll), and since each plan only comes with one user, it can be costly if you need to add additional users.

3) Xero

To comply with MTD for VAT rules and gain a whole host of accounting features, you could also choose Xero. These features include paying bills, claiming expenses, accepting payments and completing VAT returns.
Unfortunately, some people feel that there is a learning curve with Xero as the user interface is not very intuitive, so Xero may not be the best choice for those who have never used accounting software before.

4) QuickBooks

With QuickBooks, you can create invoices, handle payroll, track expenses and, of course, submit your VAT return to HMRC. In addition, their packages are tailored to many different types of business owners, including sole traders and owners of limited companies, so you can choose a software package that suits your needs.
However, there are some limitations regarding data, as some users have complained about finding it difficult to back up data or restore previous data and settings. There have also been complaints about bugs and crashes on the mobile app.

5) Avalara MTD Filer

For small business owners who keep records on spreadsheets and don’t want to spend money on an all-inclusive accounting software solution, bridging software may be a good choice. Bridging software digitally links your accounting records to HMRC’s systems, allowing you to submit your VAT information digitally and stay MTD-compliant.
Avalara’s MTD Filer is a free-to-use Microsoft Excel add-in that can send and receive data through HMRC’s API platform. This means that Avalara’s MTD Filer can help you file your VAT returns to comply with MTD rules.
Using this free software solution means you won’t have to spend a lot of money on accounting software, which is particularly great for very small businesses. However, you’ll have to be very familiar with Excel as this tool is quite difficult to use, and you won’t have access to all of the amazing features you get with other software packages.

Staying MTD-Compliant

To stick to the new MTD rules, it’s necessary for all business owners to find MTD-compliant accounting or bridging software. Use the helpful checklist in this guide to determine what to look for in MTD software, and check out the top five software options listed above to stay MTD-compliant.

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