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The UK’s Making Tax Digital (MTD) strategy is an initiative aimed at transforming the tax administration system by making it more efficient and accessible through digital technology. Initially launched by HM Revenue and Customs (HMRC) in 2019, since 2022 MTD now requires all VAT-registered businesses to maintain digital records and submit their tax returns online, thereby reducing the risk of errors and simplifying compliance. The strategy initially focused on VAT-registered businesses but is expanding to include income tax and corporation tax.
Software for Making Tax Digital
By mandating the use of compatible software, MTD promotes real-time tax reporting and enables businesses to better understand their tax liabilities and manage cash flow. By streamlining the tax process, HMRC also wants to improve accuracy and enhance the overall taxpayer experience. As such, MTD represents a significant shift towards a more modern, digital approach to taxation in the UK, reflecting broader trends in financial management and reporting.
Now that Making Tax Digital is here, you should be moving your accounting software to an online or cloud platform if you haven’t done so already.
HMRC has no plans to provide their own free software. This forces the majority of businesses to obtain an MTD software package which will be suitable for their type of business.
Which is the best accounting software for making tax digital?
It largely depends on the type of business you run. Each business has to decide based on their personal circumstances. For SMEs specifically there are a number of different cloud software systems currently out there which are capable of recording transactions online.
Here are some platforms to consider:
Xero
Xero has several plans which businesses can choose from depending on their needs. The prices quoted are for standard packages (as at time of publishing) but the company has regular promotions and there are optional add-ons as well.
Ignite: £16 + VAT per month. This is the basic package suitable for businesses that are ‘just starting out’ and smaller contractors as it only allows you to send a limited amount of quotes and invoices per month.
Grow: £33 + VAT per month. As per the Ignite package, but it doesn’t restrict you on the number of quotes, invoices and transactions you can input, and you can do payroll and expenses for one person.
Comprehensive: £47 + VAT per month. This package is similar to ‘Grow’ but you get more ‘Pay Bills’, ‘Payroll’, and ‘Expenses’, entries per month, plus you can use multiple currencies and get Xero’s ‘Analytics Plus’ package for cash flow modelling.
Ultimate: £59 + VAT per month. The top package – all the above but with expanded number of users and the ‘Track Projects’ function for up to 10 users.
Each package has a 30-day free trial.
QuickBooks
As at time of publishing, Intuit QuickBooks’ has five packages on offer, including:
Self-employed: £10 + VAT per month. Aimed at sole traders not registered for VAT who need to prepare self assessment.
Simple Start: £14 + VAT per month. A package for sole traders or small businesses managing VAT, income tax and preparing self assessment.
Essentials: £28 + VAT per month. This one’s more suited to SMEs who are working with multiple suppliers. It includes all of the capabilities of Simple Start with the ability to manage bills and payments as well as multi-currency support.
Plus: £38 + VAT per month. Plus provides all the features QuickBooks online software has to offer, including capabilities to manage stock, create budgets and purchase orders and track employee time.
Advanced: £90 + VAT per month. For businesses needing automatic data backup, custom permissions, bespoke reporting and insights.
Again, each package is available on a 30-day free trial and the prices quoted are for standard packages (as at time of publishing) but there are regular offers / discounts.
FreeAgent
FreeAgent offers different accounting software packages to suit different business structures.
Sole trader: £9.50 + VAT per month. Sole Trader gives you access to all the features of the software including expense tracking, automatic bank feeds and corporate tax forecasting, plus self assessment filing.
Partnership/LLP: £13.50 + VAT per month. It give you access to all of the features plus profit-sharing calculations.
Limited company: £16.50 + VAT per month. This package has everything else plus dividend vouchers.
Each package has a 30-day free trial offering.
FreeAgent also has specialist packages for Landlords (starting at £5 per month +VAT) and Accountants or Bookkeepers (as part of their ‘Partner Programme’.
There is a Free option as well for those who have business current accounts with either NatWest, RBS, and Ulster Bank, as well as for those who have a Mettle bank account and make at least one transaction per month.
KashFlow
IRIS KashFlow also comes with three packages which are as follows:
Starter: £11.50 + VAT per month. Starter is suitable for contractors, sole traders and small businesses. Its features include unlimited quotes, up to ten invoices, reconcile 25 bank transactions, access to other 50 reports and bank feeds.
Business: £23.50 + VAT per month. This package is ideal for many limited companies and those that are fast-growing. Invoices, bank transactions and quotes are unlimited, with multi-currency available.
Business and Payroll: £31.50 + VAT per month. Business and Payroll provides a similar package to Business with a payroll package of up to five employees added to it.
The company also partners with payment processors such as GlobalPayments, GoCardless, and Square.
Sage Business Cloud Accounting
Sage is well-known in accountancy and has three packages, depending on the size of your business.
Sage Accounting: 3 months free then £15 + VAT per month. This package is primarily aimed at freelancers, sole traders and smaller businesses. Features-wise, you can create sales invoices, submit VAT returns and track what you’re owed, on any online device.
Sage 50 Accounts: 30 days free then £92 + VAT per month. As per the Sage Accounting package but with more advanced features for SMEs with more advanced needs, such as the ability to generate quotes and estimates, record purchase invoices and view cash flow statements.
There are options to add on a Payroll packages.
Sage Intacct: For companies of 50 employees or more. Bespoke pricing plans for this one.
Zoho Books
Zoho Books has six pricing structures, charged per organisation per month.
Free: The Basic package for 1 user and 1 accountant. Quite a lot of features for free including the all important ability to file MTD VAT returns. Aimed at solopreneurs and microbusinesses.
Standard: £10 per month + VAT. For slightly bigger businesses, Standard works for up to 500 contacts with ten automated workflows and up to three users. It has everything from the Free package, plus features like vendor credits, reporting tags, purchase approval and budgeting.
Professional: £20 per month + VAT. This package suits businesses with over 500 contacts, can create up to ten automated workflows allows access for up to five users. It has everything on the Standard plan plus purchase orders, sales orders, inventory and custom domain.
Premium: £25 per month + VAT. 10 users. Enhanced customisation and automation to streamline business processes.
Elite: £85 per month + VAT. 10 users. Advanced accounting bundled with full-fledged inventory management
Ultimate: £85 per month + VAT. 15 users. Gain deeper insights with advanced business intelligence capabilities
Each package has a free trial and has the ability to add users for an extra cost. Prices quoted are for the offer available online at time of publishing.
What about free software for Making Tax Digital?
For small businesses that don’t want to incur any costs, there are a number of free software systems that are worth checking out. Zoho (as detailed in the section above) has its free package. Two others worth exploring are:
QuickFile
QuickFile‘s small and medium-sized accounts are free. They provide professional invoicing, purchase/receipt management, banking automation and full multi-currency support. And it’s all MTD compliant. For larger businesses requiring over 1,000 ledger entries per year the package is £60 + VAT per year.
adminsoft
Business owners can download adminsoft for free. It’s a full double accounts entry system with accounts receivable, accounts payable, general ledger, stock control/inventory, purchase order processing, invoice software, human resources and payroll software. It’s also has multi-user, multi-company and multi-currency capabilities.
Special modules are available free of charge for retail, cafés and restaurants as well as point of sale and workshop operations in the autotrade.
It’s Windows only and whilst there is a support function, users are encouraged to visit the (quite active) online ‘Forum’ where answers to most questions can be sought.
Mariah Tompkins is founder of WKM Accountancy.
Further reading on accounts
Which digital accounts software is right for your small business?
