Female business owner on mobile phone

Finding the right VAT Return online software for your business

August 9, 2022
HMRC’s Making Tax Digital — or MTD — is officially underway, with the Making Tax Digital for VAT scheme officially mandatory for all VAT registered self-employed business owners earlier this year.

If you’ve just surpassed the VAT threshold, or have recently registered on a voluntary basis, you’ll need to not only make sure that you’re registered for the scheme, but that you have the right software in place to keep compliant.Not sure which online software is the best fit for your business? We’ll explore the different MTD-compatible software options out there and the factors you’ll need to consider to find the best solution for you.

What is Making Tax Digital?

Before we dive in, we’ll quickly refresh your memory on what exactly Making Tax Digital is.
Making Tax Digital is a government initiative designed to make it easier for business owners to keep their tax records accurate and up-to-date using digital software.

Launched in 2019, the first phase was aimed at digitalising the way VAT registered business owners earning above the £85,000 VAT registration threshold both filed their VAT Returns and stored their VAT records. The latest phase, launched in April 2022, targeted all VAT registered business owners, including those that had voluntarily registered for VAT, irrespective of whether or not they were earning over the threshold.

Under this scheme, now all VAT registered business owners must store their VAT records digitally, and must file VAT Returns to HM Revenue and Customs (HMRC) using compatible software.HMRC aren’t stopping at VAT, with MTD for Income Tax Self Assessment (MTD for ITSA) and Corporation Tax due to roll out in 2024 and 2026 respectively.In this piece we’ll be walking you through MTD-compatible software for VAT, but be sure to watch this space for future MTD updates.

MTD for VAT online software

Under MTD for VAT, there are two types of compatible software recognised by HMRC: bridging software and accounting software.

Bridging software

For the sole traders and small business owners who prefer using spreadsheets to keep tabs on their taxes, bridging software might be for you.Bridging software is a way of connecting digital records stored in non-compatible software, such as Excel or Google Sheets, to HMRC systems using digital links.By acting as a channel between the data on the spreadsheets and HMRC, bridging software is best suited to those who need to comply with MTD for VAT, but are hesitant to commit to using full MTD for VAT software.

Accounting software

Accounting software, on the other hand, offers business owners the platform to upload, store and send their data directly to HMRC.This option is for those who are looking for a more hands-off approach, where rather than manually calculating what they owe, the accounting software does it for them.
When shopping around for MTD for VAT-compliant accounting software, be sure to look into what each package has to offer. Some packages only offer the basics, while others — such as Ember — offer guidance throughout the entire process, from getting you registered for MTD for VAT, to filing your VAT Returns directly to HMRC for you.

Why choosing the right MTD software is important

Since you’ve got more pressing matters to attend to — like actually running your business — you might be tempted to settle for the first package that you come across. However, it can pay — literally — to take the time to find the accounting software that’s best suited to your business needs.Aside from compliance, choosing the right MTD software can benefit your business by:
    Minimising the risk of errors by increasing the accuracy of the records you keep and, as a result, increases the likelihood you pay the correct amount of tax. Reducing the risk of filing late and incurring late payment penalties. Reducing the total amount of paperwork you have to do, freeing up more time for you to focus on your business. Simplifying complex processes, such as partial exemption and differentiating between zero-rate and VAT exempt items on your tax Return. Providing additional business insights. For example, consistent VAT data entries can provide insight into profit margins and can be used to assess current business strategies.

Things to consider before settling on a software

Before starting your search for the perfect MTD-compatible software, make sure you’ve taken the following factors into consideration to avoid any issues further down the line.

Check the provider is HMRC-approved

HMRC uses APIs, otherwise known as Application Programming Interfaces, to securely enable data exchanges between their systems and your software.As a result, even if you are storing your records digitally (for example, in an Excel spreadsheet), you’ll need to make sure the software you’re using is MTD-compliant, otherwise it won't be able to connect to HMRC.
You can find the full list of MTD for VAT approved software at GOV.UK — but to save you from scrolling, we can confirm that Ember is MTD for VAT approved.

Choose the best solution for your business

Depending on the details of your business, you might find it beneficial to opt for an MTD software that can also offer support in other areas of your business. For instance, if you have employees you might want a software package that can integrate with a third-party payroll software, or opt for accounting software that can automate your tax and accounting business admin for you.

Find the right software in your price range

Regardless of whether you registered your business for VAT voluntarily or not, understandably you wouldn’t want to pay more for an MTD for VAT-compliant provider than you have to.While there are plenty of free online software options out there, you might find they don’t offer the support you need to successfully file your VAT Returns. Other accounting software providers may charge a flat rate irrespective of your business size, meaning that you’re paying for more than you actually need.
Here’s where Ember’s pay-as-you-grow pricing model comes in. We’ve tailored our payment plans to meet your business needs, meaning you’ll never pay more than you have to. To find out more, head over to the Ember Pricing page, or book a demo with a member of our team via the button below.