VAT Return Software: Making Tax Digital simplified

In April 2022, it became a legal requirement for all VAT registered businesses to comply with the Making Tax Digital regulations.

This means that you need to keep digital VAT records and file your VAT return online using the right digital software.

But how do you know which VAT return software to use? Here’s our summary of the main features to consider when you’re choosing VAT return software for your business.

HMRC compatible VAT Return Software

This is the most important element of your VAT return software – it must be compatible with HMRC’s systems. You have two choices:

• Bridging VAT return programme: this connects your existing non-compatible software (eg: spreadsheets) with HMRC’s system.
• HMRC compatible software: designed to keep the necessary digital records and file VAT returns directly to HMRC.

The idea is that you don’t have to go to HMRC’s website in order to submit your VAT return. If the software you choose isn’t compatible with HMRC’s systems then you won’t be fully compliant.

HMRC don’t provide any software and they don’t recommend particular software in either category. But they do list all the VAT software providers that HMRC recognises here.

There are some free options, but most of them are software packages that you have to pay for.

The only advice on choosing between them from HMRC is: “You should choose software that is suitable for you.”

The list of compatible MTD VAT software can be filtered by a number of criteria:

• Suitable for businesses or tax agents.
• Software for VAT record keeping or bridging.
• Software features: View submitted VAT returns, check what VAT you owe, view VAT payment history.
• Only free software.
• Welsh language software.
• Supportive accessibility features: visual, hearing, motor, cognitive.

As you click on each software provider, the list tells you: who it’s for, the type of software it is and the specific VAT features it contains. Followed by a link to that company for you to find out more. But what other details should you consider?

Important considerations for your VAT Return Software

HMRC compatibility is the most crucial factor. But once you’ve ticked that off, what other considerations are on your list? HMRC are right when they say you need to choose the right software for your business.

It needs to do what you need, without paying for extras you’ll never use. So before you even start looking, have a think through these questions:

• Is there the flexibility to choose different VAT rates and types of returns – like invoice and cash basis returns?
• Does it include the Flat Rate Scheme?
• How does it deal with EC Goods and Services? Can it handle the VAT reverse charge?
• Does this VAT return software integrate fully with other accounting, payment and banking software you use?
• Can you access your full VAT submission and payment history?
• Does it backfill your records with archived banking details automatically?
• Will it create VAT returns automatically and submit directly to HMRC?
• Can you run VAT reports, so you always know how much your VAT bill is?
• Is there an app version to maximise accessibility?
• Are there more detailed customisable features available, like setting a VAT bill payment reminder, or how often to apply VAT?

Write yourself a list of VAT software non-negotiables – what must be included for it to be beneficial to your business? And this definitely won’t be everything on this list. For example, if you don’t use the Flat Rate Scheme, then that feature doesn’t matter.

Once you’ve curated your ‘must haves’, you can start to think around other factors that might be important to your choice of VAT return software.

Comparing VAT Return Software providers

When it comes to comparing different accountancy software providers, businesses also have different priorities. The main things that influence decision making around accounting software are listed below.

VAT Software cost

Of course, cost is a major factor. Most VAT return software is packaged in pricing tiers, based on the size of the business. There are free options on HMRC’s list. And most software providers offer a month’s free trial, followed by a monthly or annual cost.

The prices are usually set at an affordable level given the size of the business each tier is tailored for. The most expensive ones usually include a high degree of customisation that really isn’t necessary for the majority of sole traders and SMEs.

You’re likely to find a series of deals attached to most of the VAT return software packages. Things like, 50% off your first 6 months. But look carefully at what’s included in each package and what’s an ‘additional fee’. Sometimes, the package that’s a higher monthly cost works out as better value, if you need several of these optional extras.

VAT Software support

Even if you don’t need any specific accessibility features within the software, you should check the kind of general support available from the company you choose. Some have a full suite of phone, chat or email customer service teams.

And some software companies only offer one of these. It’s likely that you’ll need to ask about something, so it’s important that you can access help in the way you prefer. Often accounting software companies also provide free knowledge hubs that are full of excellent information.

VAT Software providers

You need to know that the company providing your VAT return software is on the ball – that they constantly update their product to incorporate the latest HMRC regulation changes. You can trace this evolution with an established software company.

Just take a look at their news blog and you’re bound to see announcements about – most likely – MTD for VAT. Knowing that your provider has been around for a while is an indicator that you can rely on them to be there in the future.

How does VAT Return Software simplify MTD for VAT compliance?

Yes, you initially need to invest a bit of time researching the best VAT return software for your business.

Then you’ll need to put in a bit more time learning how it works. But once you’re set up, the time – and hassle – savings are meaningful.

• Previously labour-intensive data entry tasks are done automatically. Syncing is done by the software, reducing the chance for human error.
• Reports are automatically created – you don’t have to sit and write them. All the business insights, with a couple of clicks, and without the time investment.
• Reduced bookkeeping and accountant costs.
• Flexibility of accessing your VAT information whenever you want, wherever you are.
• Allow other professionals access to your data easily.
• Remove the worry of accidental non-compliance and genuine mistakes – you know your records and returns are accurate.

Your spreadsheet has served you well over the years. But as the rules change, so must our processes. What initially might feel like unnecessary effort to meet the change, will eventually feel like an admin burden lifted.