The UK’s Making Tax Digital (MTD) initiative aims to revolutionize the country’s tax administration system by leveraging digital technology for greater efficiency and accessibility. Launched by HM Revenue and Customs (HMRC) in 2019, MTD mandates that all VAT-registered businesses keep digital records and submit tax returns online as of 2022. This shift not only mitigates errors but also simplifies compliance, marking a significant transition towards a fully digital tax system. While MTD started with VAT, its scope is expanding to encompass income tax and corporation tax.
Essential Software for Making Tax Digital
The MTD initiative requires businesses to utilize compatible software, fostering real-time tax reporting and improving cash flow management. By streamlining tax processes, HMRC aims to enhance accuracy and enrich the overall taxpayer experience. Consequently, MTD signifies a substantial move towards modernizing the UK’s taxation approach, echoing broader trends in financial management.
If you haven’t yet transitioned your accounting software to an online or cloud-based platform, now is the time to embrace Making Tax Digital.
Currently, HMRC does not offer free software solutions, leaving most businesses to choose a suitable MTD software package tailored to their specific needs.
Best Accounting Software Options for Making Tax Digital
Choosing the right accounting software largely depends on your business’s unique needs. For Small and Medium Enterprises (SMEs), several cloud-based options can efficiently handle online transaction recording. Below are some notable platforms to consider:
Xero
Xero offers various pricing plans tailored to different business requirements. While prices are published as of this writing, be advised that the company often provides promotions and optional add-ons.
- Ignite: £16 + VAT/month. Ideal for startups and small contractors, it allows a limited number of quotes and invoices monthly.
- Grow: £33 + VAT/month. This package removes transaction limits and supports payroll for one employee.
- Comprehensive: £47 + VAT/month. Includes more entries per month and supports multi-currency operations along with cash flow modelling.
- Ultimate: £59 + VAT/month. Offers the full suite of features, including project tracking for up to 10 users.
Each package comes with a 30-day free trial.
QuickBooks
As of this writing, QuickBooks provides five packages:
- Self-employed: £10 + VAT/month for sole traders not registered for VAT.
- Simple Start: £14 + VAT/month for managing VAT and income tax.
- Essentials: £28 + VAT/month for SMEs dealing with multiple suppliers, bills, and payments.
- Plus: £38 + VAT/month for businesses needing stock management and budget tracking.
- Advanced: £90 + VAT/month for those requiring customized reporting and automatic backups.
All packages offer a 30-day free trial, with frequent promotions available.
FreeAgent
FreeAgent caters to different business structures with various packages:
- Sole Trader: £9.50 + VAT/month with full features including expense tracking.
- Partnership/LLP: £13.50 + VAT/month providing profit-sharing calculations.
- Limited Company: £16.50 + VAT/month, including dividend vouchers.
FreeAgent also offers specialized packages for landlords and accountants, as well as a free option for customers with certain bank accounts.
KashFlow
IRIS KashFlow provides three packages:
- Starter: £11.50 + VAT/month for contractors and sole traders with basic needs.
- Business: £23.50 + VAT/month for growing companies requiring unlimited invoices and multi-currency support.
- Business and Payroll: £31.50 + VAT/month, featuring payroll capabilities for up to five employees.
Sage Business Cloud Accounting
Sage is a trusted name in accounting with three distinct packages:
- Sage Accounting: 3 months free, then £15 + VAT/month for freelancers and small businesses.
- Sage 50 Accounts: 30 days free, then £92 + VAT/month, suitable for SMEs with advanced needs.
- Sage Intacct: Customized pricing for companies with 50 or more employees.
Zoho Books
Zoho Books offers six pricing structures:
- Free: For solopreneurs and microbusinesses, includes essential features and the ability to file MTD VAT returns.
- Standard: £10 + VAT/month for bigger businesses.
- Professional: £20 + VAT/month for larger operations requiring extensive features.
- Premium: £25 + VAT/month for enhanced customization and automation.
- Elite: £85 + VAT/month for comprehensive inventory management.
- Ultimate: £85 + VAT/month, offering advanced business intelligence capabilities.
Each package includes a free trial, with the ability to add users at an extra cost.
Exploring Free Software Options for Making Tax Digital
For small businesses looking to avoid costs, several free software solutions are available. Besides the free package from Zoho, consider:
QuickFile
QuickFile offers free access for small and medium-sized businesses with features like professional invoicing and banking automation, all MTD compliant. Larger businesses with over 1,000 ledger entries per year can access the platform for £60 + VAT annually.
Adminsoft
Business owners can download adminsoft at no cost. It includes a comprehensive double-entry accounts system with functionalities such as accounts receivable, stock control, and payroll. With multi-user and multi-currency capabilities, it’s suitable for various business types.
Special modules are offered for retail and hospitality sectors as well, supporting point-of-sale operations and workshop management for the autotrade.
Mariah Tompkins is the founder of WKM Accountancy.
Further Reading on Accounting Solutions
Which digital accounts software is right for your small business?
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