As a small business owner or self-employed sole trader, choosing the right Making Tax Digital (MTD) software for your needs is crucial. With the UK government's shift towards digital tax reporting, it’s vital to find a software solution that not only helps you stay compliant with HMRC regulations but also streamlines your financial processes.
Today’s article walks you through the landscape of MTD, helping you to choose the right software for your Self Assessment and VAT needs.
What is Making Tax Digital (MTD)?
Making Tax Digital represents the UK government's movement towards online, paper-free tax returns. By slowly phasing out traditional, paper-based tax, it is expected that efficiency will increase and human error will be minimised. For small businesses, this means less time spent on administration. For HMRC, this should translate into a reduction of the so-called "tax gap".
What types of software are available for MTD?
There are two key areas relating to MTD software: Income Tax Self Assessment and VAT Returns. Depending on your business and personal financial situation, you could benefit from incorporating MTD software into one or both of these tax processes.
MTD for Self Assessment
Self Assessment is an essential way for self-employed sole traders and small business owners to file Income Tax with HMRC. Moving on from the old-fashioned paper forms means that we can now file Self Assessment online from the comfort of our own home or office. This saves time and effort – as well as money!
MTD for VAT
Making Tax Digital for VAT is a revolutionary step in tax reporting. Since 2022, it is now mandatory for all VAT-registered businesses to comply with MTD for VAT (barring some exemptions). Depending on budget, time constraints and existing bookkeeping methods, there are multiple options to choose from.
If you are already using Excel spreadsheets to keep track of your business’s finances, then VAT bridging software is a key tool for going digital. If you’re interested in saving time and money, this is usually the best option as it requires little effort and enables you to comply at surprisingly low cost.
Factors to consider when choosing software
Compatibility with existing bookkeeping
When choosing MTD software, make sure it is compatible with your existing accounting system. This can help to prevent any technical issues later and ensure a smoother transition into digital tax. One way to achieve this is by using MTD bridging software for your VAT Returns.
MTD bridging software for VAT allows you to “bridge” the gap between Excel (which is not MTD-compatible) and HMRC’s VAT system. This enables you to carry on using Excel for your business’s financial records while also keeping MTD-compliant.
Budget-friendly (and free) services
Many MTD services are available at a low cost, or even for free. When it comes to VAT Returns, very reasonably priced providers such as AbraTax can help you to keep on top of your VAT Returns for as little as £8/month. This includes filing unlimited VAT Returns, access to historic data, and real-time feedback from the HMRC system.
For your Income Tax, AbraTax provides a completely free Self Assessment service. This includes comprehensive step-by-step guidance, as well as compatibility with a range of HMRC’s supplementary pages. Best of all, AbraTax is an HMRC-recognised provider with total GDPR compliance – so you can count on us to get the job done safely and securely.
Make use of free trials
Reputable HMRC-recognised MTD providers like AbraTax frequently offer a free trial to test out their services. This is a great way to see how you feel about the MTD software and decide if it’s right for you – with no strings attached and no credit card details needed. For Self Assessment, there’s typically no need for a free trial as the service is already totally free!
TL;DR
As a small business owner or sole trader, selecting the right Making Tax Digital (MTD) software is essential for compliance and efficiency. With the UK moving towards digital tax, it’s important to choose software that meets HMRC regulations and streamlines your finances.
Key factors to consider:
- Compatibility with your existing system
- Budget-friendly options like AbraTax (£8/month for VAT, free for Self Assessment)
- Try free trials to find the best fit