From 1 April 2019, more than 1 million VAT-registered businesses will be required to digitize their accounting and VAT filing for the new HMRC Making Tax Digital (MTD) requirements. This ends manual keying-in of VAT return data on HMRC’s existing online VAT platform, which HMRC says is used for 88% of current VAT filings. HMRC will not provide software support for the mandatory change there for small businesses need to find software solutions for Making Tax Digital for VAT

As part of Make Tax Digital (MTD) initiative from HMRC, from April 2019, VAT registered businesses with turnover of over £85,000 are required to submit VAT returns to HMRC digitally.

This guide provides an overview of the top eight software solutions for small businesses of all different sizes. We are a totally independent firm of accountants and are not affiliated to anyone mentioned in this guide.

Best Making Tax Digital Solutions for Excel

We start with the best solutions you can use with excel, by downloading data from your accounting system or existing bookkeeping system. What we are focusing on here is value for money and ease of use with basic features.

Avalara Free MTD Filer – Link

Small businesses don’t need to invest in approved accounting packages and can use their existing systems like SAGE 50, excel or any other legacy system. Avalara is an Excel addon which you download and install, you then run the program through excel and map your submission ready to send to HMRC

Pros

• Free to use! 
• No need to invest in a bulky system or migrate accounting records 
• Excel add on (excel 2010 or later) 

Cons

• You need advanced excel knowledge 
• No meaningful support 
• No automation or validation checks that the information is correct 
• Quite complex 

Vital Tax – Link

VitalTax allows you to submit MTD for VAT return without having to leave Excel. Select the desired cells in your spreadsheet and the application can import their values into the relevant box on your VAT return. 

VitalTax also provides information about historical VAT returns, allowing small businesses to review the details of any VAT return you have submitted

Pros

• Works with any spreadsheet, so you don’t need to change your system 
• It is free for the first year 
• Easier than other excel add-in solutions so you don’t need to be an excel whiz kid. 
• Support 
• Nice interface 
• You can see your VAT information, so you know when you need to submit a return 

Cons

• No digital record keeping 
• The solution not completely free and will cost £12 per year per company after, they may also be tempted to increase prices 
• No automation 

MTDfVAT – Link

This is a slightly more advanced cloud-based version which also allows you to submit data from excel. Another Excel addon so you don’t have to change your entire accounting system. It accepts all imports from sage and other bookkeeping packages like VT software. This solution is good because it’s a clean interface and cloud based; this means that your accountant can review your returns remotely before submitting. It will also give you all the information you need on when a return is due. For a well presented solution it is reasonably priced at £50 per annum. 

Pros 

• Cloud based and can be reviewed anywhere 
• Links into excel 
• Imports files from leading accounting software including VT software 
• Your accountant can review remotely 
• Can use this on macs 

Cons 

• Its more expensive than other excel add-ins 
• There is no direct link to accounting software 

TAXcalc VAT filer for Business – Link

This is the MTD for VAT filer from TAXcalc who has an excellent reputation for providing reasonably priced software which has built its reputation on making easy to use hybrid cloud tax solutions. This is an application you install on your computer while your data is stored on the cloud. It has a excel import function so can work with almost any accounting solution. What we especially love about this solution is the adjustment wizard which allows you, or your accountant to review and make changes to the VAT return before submission. Its very reasonably priced £16.67 for a single business, £20 for two and £30 for up to 6. This is one of the best value for money Making Tax Digital software solutions; it is reliable and don’t expect the product to be continued due to the company’s established presence in the market.

Pros 

• Excel import functionality 
• Stored via the cloud so can be accessed from another computer 
• Adjustment feature is great for you and your accountant 
• Slick interface 
• Supports EC sales lists
• Established supplier with a great track record of similar solutions 
• Competitively priced 

Cons 

• Not fully on the cloud so you still must install on a computer 
• While it can be reviewed by your accountant, they will have to have the software installed 
• Not a complete solution and you may find yourself buying lots of different licenses when a single solution may do it all for less. 

Integrated Making Tax Digital Software solutions

The above Making Tax Digital Software solutions are great for those who are not fully onboard with cloud accounting software. Those who want to migrate to a fully integrated solution or already are using cloud accounting software should look at the following list. 

There is a reason why accountants love cloud accounting software, they can review it easily, the system makes it easy for business owners to record transactions with little accounting knowledge and it’s a one stop shop for VAT, bookkeeping and easily accessible for review. You should be saving money on accounting fees because it’s a complete solution and makes it hard for small businesses to make mistakes. Your accountant should reduce your fee if you are using a cloud accounting solution 

These solutions are going to be more expensive that the excel add-ins because you are subscribing to a solution which does so much more than just MTD compliance. 

Xero – Link

Xero is a one of the big players in the cloud accounting systems for small businesses. It can run your payroll, connect to your bank account, create invoices, record inventory and connect to over 700 third party apps. In built in this is an MTD for VAT functionality which uses the transactions in your business and means you don’t need to worry about having to migrate the data. One of the better Making Tax Digital software solutions.  

The standard subscription is required for MTD for VAT functionality and costs £22 per month though your accountant should be able to get this cheaper. 

Pros

• If you already record transactions in this system, then your VAT return will be created without your input.  
• Fully on the cloud and allows you to access it on any computer or phone 
• Your accountant can manage this remotely 
• Seamless from inputting from creating an invoice to VAT
• Great interface and easy to follow 
• Some of the best user training experiences in the industry 
• Complete solution has more validation checks for VAT, so you won’t make a mistake. 
• 700 third party apps to connect to amazon seller, shopify etc… 
• Your accountant should have access to cheaper subscriptions so try and always ask what your accountant can do for you 

Cons 

• Xero is one of the more expensive accounting solutions in this bracket. Priced at £22 per month for the package which includes MTD for VAT. 
• May be too much for the smallest of small businesses 

Sage Business Cloud – Link

Sage is a big player in the accounting market at all levels. Most people who have been in business for a while will be aware of Sage One, Sage 50 etc… These are the legacy accounting systems which were license based. 

Sage Business Cloud, like the other cloud accounting solutions, can run your payroll, connect to your bank account, create invoices and record inventory. In built in this is an MTD for VAT functionality which uses the transactions in your business and means you don’t need to worry about having to migrate the data. 

There are two subscriptions for £10 a month you can access the VAT for MTD functionality, the top subscription is £22 per month and has more features such as cashflow, multiuser etc… 

Sage does not look as non-accountant friendly as other solutions while offering the same functionality. Accountants like sage but it may be less user friendly for small businesses. 

Pros

• If you already record transactions in this system, then your VAT return will be created without your input.  
• Fully on the cloud and allows you to access it on any computer or phone
• Your accountant can manage this remotely 
• Seamless from inputting from creating an invoice to VAT. 
• Great interface and easy to follow 
• There are third party integrations 
• Probably the most favoured system to use by accountants 
• Complete solution has more validation checks for VAT, so you won’t make a mistake. 
• Sage is a great solution for scaling businesses as it has a portfolio of products for almost all business sizes from Micro business to FTSE 100. 

Cons

• Interface is accountant friendly and not necessarily built of the business user 
• Less third-party apps to integrate than Quickbooks and Xero 
• May be too much for the smallest of small businesses, this solution is better for slightly larger businesses 
• Quite confusing marketing offering due to so many solutions available in the Sage product portfolio  
• Is not as widely used in the UK market as in the US 
• Xero and Quickbooks offer more user-friendly user guides and training 

Free Agent – Link

Freeagent is one of the newer cloud accounting solutions. They have constantly updated their software and made some savvy deals to grow their presence in the market. Again, you can run your payroll, connect to your bank account, create invoices and record inventory. In built in this is an MTD for VAT functionality which uses the transactions in your business and means you don’t need to worry about having to migrate the data. 

It is built for small business users rather than accountants, so it is easy to use but at the same time some accountants dislike the interface because it is not technical enough.  

It costs £29 per month which is relatively expensive considering Sage and Quickbooks. However, Freeagent have teamed up with NatWest and for those who open accounts with the bank get this software for free which is a considerable saving. (please note NatWest also have the worst banking app for business) 

Pros

• The NatWest offer is great for those who want to get access to this software for free 
• Easy to use interface focused on small business users 
• If you already record transactions in this system, then your VAT return will be created without your input.  
• Fully on the cloud and allows you to access it on any computer or phone 
• Seamless from inputting from creating an invoice to VAT. 
• Great interface and easy to follow 
• Complete solution has more validation checks for VAT, so you won’t make a mistake. 
• Your accountant can manage this remotely 

Cons 

• Not favoured by some accountants 
• Expensive if you are not using NatWest and you may be locked into the high subscription after the NatWest offer expires 

Quickbooks Online – Link

Quickbooks online is the most popular cloud accounting software in the UK for no other reason than it offers an easy to user interface which both accountants and business users love. It has arguably the most aesthetically pleasing and easy to use setup of the cloud accounting software segment. 

Again, you can run your payroll, connect to your bank account, create invoices, record inventory and integrate with third party apps. In built in this is an MTD for VAT functionality which uses the transactions in your business and means you don’t need to worry about having to migrate the data. 

Prices start from £12 per month and go up to £27 per month for the top subscription, for this reason you can pay lower fees and can scale up with your business. The payroll module is only £1 per user per month. Your accountant should be able to offer you discounts of up to 60% on the advertised price so it can be a very cheap but powerful solution. 

Quickbooks has the best training resources in the market so any user can use the software and if you have any questions they should be answered easily. 

They are about to upgrade their software with VAT Smartscan which will use AI to validate your VAT returns for the most common errors and help avoid mistakes and increase business user confidence when submitted VAT returns. This looks to be one of the best products now and in the future for Making Tax Digital software solutions.

Pros 

• VAT Smartscan will make it even easier for business users to have confidence that their VAT returns will be correct 
• Fully on the cloud and allows you to access it on any computer or phone 
• Your accountant can manage this remotely 
• Seamless from inputting from creating an invoice to VAT
• If you already record transactions in this system, then your VAT return will be created without your input
• The best training modules in the market 
• Complete solution has more validation checks for VAT, so you won’t make a mistake. 
• Tonnes of third-party apps to connect to amazon seller, shopify etc… 
• Very reasonably priced for what you get 
• Your accountant should have access to cheaper subscriptions so try and always ask what your accountant can do for you 
• Great interface and easy to follow 
• Xero, Sage and Free Agent are all more expensive 

Cons 

• Quickbooks can be slightly slower to load 
• The user interface is not for everyone

Conclusion – Best Software for Making Tax Digital

So, we have went through the top eight small business Making Tax Digital software solutions and we would like to stress that there is no one single solution which will suit everyone.  

For the excel savvy small business owner who uses legacy software or spreadsheets and wants to keep costs down then I would recommend Avalara MTD file because it is free to use and integrates well with excel. For those less confident with excel we would recommend TaxCalc MTD filer due to its low cost of £16.67 combined with the user ability of the system. 

Overall, Your Cloud Accountant would always recommend getting cloud accounting software (Xero, Quickbooks, Sage or Freeagent) because it makes bookkeeping easy and there is seamless integration when submitting VAT returns. It also makes accountants lives easier resulting in lower fees for small business users.  

Overall, we would recommend Quickbooks, it is the most competitively priced, it can integrate with third party apps, interface focused on the business user and for VAT they have the most advanced offering with VAT Smartscan. For the larger businesses (£1 million and over turnover) we would recommend Sage Business Cloud, its competitively priced and will do everything a big small business need. 

Find out more about VAT, such as if there is VAT on stripe or paypal fees

If you have any questions please contact us for a free consultative by going to our contact page or emailing us at info@yourcloudaccountant.net