Tax returns can be a source of stress for many small businesses and sole traders. Luckily HMRC has tried to make things a little more comfortable with the Making Tax Digital initiative. Find out everything you need to know, including our guide to the best Making Tax Digital software programs.
What does the HMRC Making Tax Digital Initiative mean?
The Making Tax Digital software initiative was launched with the idea of making tax returns more streamlined. Plus, by making the tax-return process completely digital, it's entirely paperless. This is excellent news for businesses that want to cut down on waste and also spells the end of those days of rushing to the post office, hoping your paperwork gets to HMRC in time.
Who needs to use the Making Tax Digital software?
Currently, the Making Tax Digital software initiative only insists that companies with a taxable turnover of £85,500 that are registered for VAT take part in this initiative. In April 2022, this will be extended to include all VAT-registered businesses. The following year, it will apply to anyone who needs to complete a self-assessment tax return. You can voluntarily sign up for the Making Tax Digital software initiative even if you aren't required to at this point.
What is the HMRC Making Tax Digital software?
There are no plans to create a dedicated Making Tax Digital software, or even a Making Tax Digital bridging software that could ease the transition. That said, there are plenty of options out there, and all of them offer the easy usability that you expect from modern-day software. While moving digital on-demand may seem stressful at first, you'll soon realise that it's a good choice.
HMRC Making Tax Digital compatible software
You can use the gov.uk database to find Making Tax Digital compatible software, but here's a rundown of some of the more popular choices:
Xero is one of the UK's leading choices for finance software. Not only can it help with tax returns, but it has dozens of other applications, including payroll, expenses, invoices and reminders, project management, and more. It's a great choice of Making Tax Digital software, while it's also a valuable overall tool for your business.
Another popular choice for Making Tax Digital software, QuickBooks is designed specifically for freelancers and small businesses. It's simple to use, allowing for easy self-assessment taxes, payroll, invoices, and expenses. QuickBooks does place some restrictions on the number of users you can have, though this is unlikely to be an issue for most small businesses.
Sage Business Cloud Accounting
Sage has long been a massive name in accounting, so it should be considered for your Making Tax Digital VAT software of choice. Sage lets you take care of tax, send and track invoices, photograph and record receipts, forecast cash flow, and more.
Zoho Books is an easy-to-use pick when it comes to Making Tax Digital compatible software. With a clear and inviting interface, this software can assist with VAT, end-to-end accounting, timesheets, and inventory, and boasts plenty of handy app integrations.
Make Tax Digital bridging software
Xero and QuickBooks can help bridge the gap between your current offline processes and your new Making Tax Digital software-based workflows. Other options, like Swift VAT Pro, are not as multi-functional as the names above, so you may find you only use them for your VAT and tax purposes. In that case, it might make more sense to opt for software that will help transform your whole accounting process, helping to future-proof your finances.
Getting the best value from your Making Tax Digital software
Before choosing any of these Making Tax Digital compatible software options, remember that they work on a SaaS (Software as a Service) basis. There are plenty of advantages to this, such as constant updates that mean your software will never be left to stagnate on your PC. As well as the monthly fee, there are often payment tiers that provide your business with a specific access level. For example, the cheapest tier may not include payroll, while only the highest tier will give you unlimited invoices. Consider this carefully before you make your choice.
Free accounting Making Tax Digital compatible software
Some Making Tax Digital software solutions are free, which can be very advantageous to companies and sole traders who aren't able to add more expense to their business. That said, as with anything free, there are limitations to what you can achieve.
Free, simple, and reliable, Wave can help with accounting and expenses, but it doesn't come with a payroll service. Plus, you will need to find a Making Tax Digital bridging software to use in conjunction with Wave.
Making Tax Digital VAT software with the initiative at the heart of its mission, Quickfile is an excellent option for those who are only looking for software to align with HMRC. Quickfile helps with VAT management, and you'll get multi-currency support and banking automation as well. However, you will have to put up with ads, which can be annoying for some users.
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