Tax returns can be very stressful for many small businesses and sole proprietors. Fortunately, HMRC came to their rescue with the Making Tax Digital initiative to make things more comfortable for them. In this article, we will explain everything you need to know about MTD, including our guide to the best Making Tax Digital software providers
What Is The Purpose Of Making Tax Digital (MTD) Initiative?
The Making Tax Digital software initiative was launched by HMRC with the purpose of making tax returns more simplified, in addition to making the tax-return process completely digital and entirely paperless. This is good news for businesses that want to block wastage and also means the end of those days of rushing to the post office, hoping your paperwork gets to HMRC on time.
Who Are The Users Of The Making Tax Digital Software?
At the moment, the Making Tax Digital software initiative is available to companies with a taxable turnover of £85,500 that are registered for VAT take part in this initiative. However, this will be extended to include all VAT-registered businesses by April 2022. The next year, it will apply to anyone who needs to complete a self-assessment tax return. At this point, you can voluntarily sign up for the initiative even if you are not required to.
Then there is also software that can be used by actual accountants (to do clients bookkeeping) so there is also accounting software that is Making Tax Digital compatible, so if you are an accountant then software like that is very useful indeed.
What is the HMRC Making Tax Digital software?
No provision has been made to create a dedicated MTD software, or even a Making Tax Digital bridging software that could ease the transition. Nevertheless, there are plenty of available options, and all of them offer the user-friendliness that you expect from modern-day software. While moving digital on-demand may seem very stressful at the beginning, but later you will realise that it's a good choice.
HMRC Making Tax Digital compatible software
What is the best software for Making Tax Digital? From the gov.uk database, you can find Making Tax Digital compatible software providers, but here's a quick review of some of the best software for Making Tax Digital in 2021
Xero is one of the most popular choices when it comes to finance software in the UK. Apart from helping you with tax returns, it has dozens of other applications, such as payroll, expenses, invoices and reminders, project management, etc. It's a great choice of Making Tax Digital software, while it is also a valuable tool for your business.
QuickBooks is another popular choice when considering Making Tax Digital software providers. It is specifically designed for freelancers and small businesses. It's easily usable, allowing for easy self-assessment taxes, payroll, invoices, and expenses. QuickBooks place some restrictions on the number of users you can have, though this won't be a problem for most small businesses.
3. Sage Business Cloud Accounting
Sage is a massive name in the accounting industry, so it has to be concluded when choosing your Making Tax Digital VAT software. Sage allows you attend to your taxes, send and track invoices, photograph and record receipts, forecast cash flow, etc.
4. Zoho Books
When it comes to Making Tax Digital compatible software, Zoho Books is a user-friendly pick. With a clear and inviting interface, this software can help with VAT, edge-to-edge accounting, timesheets, and inventory, and boasts plenty of handy app consolidations.
Make Tax Digital bridging software
Xero and QuickBooks can help bridge the gap between your existing offline processes and your new Making Tax Digital software workflows. Other alternatives, like Swift VAT Pro, are not as multi-purpose as Xero and QuickBooks, so you may discover you only use them for your VAT and tax purposes. In this instance, it will make more sense to choose a software that will help transform your whole accounting process, helping to update your finances.
Getting The Best Value From Your Making Tax Digital software
Before settling for any of these Making Tax Digital compatible software options, bear in mind that they work on a SaaS (Software as a Service) basis. There are several advantages to this, such as continual updates which mean that your software will not be left to languish on your computer. In addition to the monthly fee, there are often payment tiers that offer your business with a specific access level. For illustrative purposes, the cheapest tier may not cover payroll, while only the highest tier will give you access to unlimited invoices. Therefore, you have to carefully consider this factor before you choose.
Free accounting Making Tax Digital Compatible Software
Is there any free software for Making Tax Digital? The answer is Yes. Some Making Tax Digital software are free, which can be very helpful to companies and sole traders who aren't able to add more expense to their business. However, with their free features, there are limits to what you can do with it.
Simple, free and reliable, Wave can help with accounting and expenses, but it doesn't come with a payroll service. In addition, you will need to use a Making Tax Digital bridging software in alignment with Wave.
Making Tax Digital VAT software with the initiative at the core of its mission, Quickfile is a good option for those who are only looking for software to go along with HMRC. Quickfile helps with VAT management, multi-currency support as well as banking automation. However, you have to accommodate ads, which can be quite irritating for some users.
One of the benefits of using MTD software is that they will take care of your taxes which will give you more time to increase productivity and profitability. There are several Making Tax Digital software providers you can choose from, all you have to do is to know what you really want then compare with your budget.