Filing VAT returns can feel like a headache, especially with all the paperwork and regulations. If you’re tired of the manual hassle, it’s time to switch to business accounting software that simplifies the process, automates calculations, and keeps you compliant with HMRC rules.
But with so many options out there, how do you choose the right one?
In this guide, we’ll walk you through the best VAT software for UK businesses, helping you find the perfect fit for your needs.
Whether you’re looking for small business accounting apps or a full-fledged VAT compliance solution, this guide will make your decision easier and more informed.
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Best Tax Software For Managing VAT Returns In The UK – Quick Overview
Here’s a quick look at the best VAT software for businesses in the UK. This table provides a snapshot of what each software offers, and who it’s best suited for.
| Software | Best For | Key Features | Pricing |
|---|---|---|---|
| QuickBooks Online | Small to medium businesses | Real-time VAT calculations, MTD filing | Starts from £10/month, with higher tiers available. |
| Xero | Small businesses with multiple users | HMRC integration, invoice tracking | From £16/month |
| Sage Business Cloud Accounting | Medium to large businesses | Custom VAT rates, multi-currency support | From £18/month, with higher plans for more advanced features. |
| FreeAgent | Freelancers and small businesses | MTD compliance, automated VAT filing | Starts at £19/month for sole traders, with higher prices for limited companies and partnerships. |
| Zoho Books | Small businesses | VAT rates management, HMRC filing | From £10/month, a free plan is also available. |
| ClearBooks | Small businesses | Free for VAT returns, simple interface | 7.50/month, Free version also available |
| Absolute Excel VAT Filer | Small businesses using spreadsheets | Spreadsheet integration, MTD compliance | From £40/year |
| My Tax Digital | Businesses new to digital VAT filing | Simple interface, automated MTD submissions | Free |
Quick Note: Prices and features for VAT software can change. It’s always a good idea to double-check the latest details on the providers’ websites before making your choice!
Best Tax Software for Managing VAT Returns in the UK
Let’s get into the features, pros, and cons of each of the top VAT software options for UK businesses.
We’ll also cover who they’re best for and who might not find them suitable.
1. QuickBooks Online VAT Software
QuickBooks Online is a highly popular cloud-based accounting platform in the UK, designed to help small and medium-sized businesses manage their finances, including VAT returns, in compliance with HMRC’s Making Tax Digital (MTD) rules. It offers comprehensive features and is well-suited for businesses that need a full business accounting software suite with robust reporting.
Best for: Businesses that want an all-in-one financial management solution, including bookkeeping, invoicing, and reporting, all with automated VAT processes.
How it manages VAT: QuickBooks Online automates VAT calculations on sales and expenses, allowing for direct digital submission of MTD-compliant VAT returns to HMRC. It also features an error-checker to help you find common mistakes before filing.
Key Features:
- MTD compliance: Seamless submission of VAT returns directly to HMRC.
- Automatic updates: Always stay up to date with the latest VAT rates and tax rules.
- Easy invoicing: Create invoices that automatically calculate VAT and track payments.
- Real-time VAT calculation: Get up-to-date VAT reports and automatically calculate your VAT at any time.
Pros:
- User-friendly interface that is easy for non-accountants.
- Great for businesses with a mix of sales and purchases.
- Automatically calculates VAT on your invoices and purchases.
- Provides multiple plans to suit different business needs.
Cons:
- Higher pricing compared to some free software options.
- Advanced features like complex VAT adjustments may require more time or an accountant’s assistance.
2. Xero VAT Software
Xero is a popular, full-featured cloud accounting platform known for its modern interface and wide range of third-party integrations. It is well-suited for growing and established small to medium-sized enterprises (SMEs).
Best for: Businesses with more complex needs, multiple users, or those who rely on integrated business apps (e-commerce, payment gateways).
How it manages VAT: Xero automatically calculates VAT on transactions and allows for direct, MTD-compliant submissions to HMRC. Its reporting provides real-time insights into your VAT liability.
Key Features:
- Multi-currency support: Ideal for businesses with international clients.
- MTD-compliant: Direct integration with HMRC for seamless VAT submissions.
- Custom VAT rates: Easily set up custom VAT rates for different goods and services.
- Invoice and expense tracking: Automatically track your invoices and expenses for VAT reporting.
Pros:
- Easy to use and integrates with other software tools.
- Strong invoicing and reporting features.
- Multi-user support, making it great for businesses with multiple employees.
- Reliable customer support.
Cons:
- Slightly more expensive compared to some competitors.
- Some businesses might find the invoicing feature a bit too basic for complex needs.
3. Sage Business Cloud Accounting
Sage Business Cloud Accounting is a comprehensive online accounting solution with a long history in the UK market, offering a reliable suite of tools for financial management, including automated and MTD-compliant VAT functionality for small and growing businesses.
Best for: Small and medium-sized businesses that want a reputable, all-in-one accounting solution with strong VAT features and scalable plans to support their growth.
How it manages VAT: Sage automates VAT calculations and allows for direct, MTD-compliant submissions to HMRC with a single click. It provides a real-time overview of your VAT position and is updated to support various VAT schemes and changing legislation.
Key Features:
- VAT management: Customisable VAT rates for different products.
- Real-time financial tracking: Get instant updates on your financial situation.
- Multi-currency and multi-location support: Ideal for international businesses.
- Advanced reporting tools: Track your VAT obligations and generate detailed reports for HMRC.
Pros:
- Offers a full accounting suite with strong VAT management features.
- Excellent for larger businesses or those dealing with international clients.
- Integrates with various third-party apps for a more robust system.
- Advanced reporting capabilities.
Cons:
- The learning curve can be a bit steep for those new to accounting software.
- More expensive than basic options like QuickBooks or Zoho Books.
4. FreeAgent VAT Software
FreeAgent is a well-regarded cloud accounting software that is particularly popular with UK freelancers, sole traders, and contractors due to its simplified, jargon-free approach. Its VAT functionality is fully integrated and MTD-compliant, with a key differentiator being its free availability for eligible customers of NatWest, Royal Bank of Scotland, and Mettle business bank accounts.
Best for: Freelancers, contractors, sole traders, and unincorporated landlords who want a simple, all-in-one solution for bookkeeping and tax, especially if they can get it for free via their bank.
How it manages VAT: FreeAgent automatically generates MTD-compatible VAT returns as you record your daily bookkeeping data. It also provides a unique “Tax Timeline” that tracks how much you owe and when it’s due, with a direct filing option to HMRC. It supports various VAT schemes, including the Flat Rate Scheme and cash or invoice basis.
Key Features:
- Mobile app: Access your VAT data on the go.
- MTD-compliant: Files VAT returns directly with HMRC.
- Time-saving tools: Track income and expenses with minimal effort.
- Automated VAT filing: No need for manual entry VAT is calculated and submitted automatically.
Pros:
- Easy to use and tailored for freelancers and small businesses.
- Automatic VAT calculations and filing with HMRC.
- Free trial available for new users.
Cons:
- Limited features for businesses with more complex accounting needs.
- Doesn’t support businesses with multi-currency transactions.
5. Zoho Books VAT Software
Zoho Books is a popular, feature-rich cloud accounting software that provides a comprehensive suite of tools for financial management, including MTD-compliant VAT processing, making it a strong contender for small businesses in the UK. Notably, it stands out for offering a robust free plan that includes VAT tracking for businesses with simpler needs.
Best for: Small businesses, particularly those looking for a comprehensive accounting solution at a competitive price, with a solid free tier for very small businesses or those just starting out.
How it manages VAT: Zoho Books automates VAT calculations on invoices and expenses, generates accurate VAT returns, and allows for direct, MTD-compliant submission to HMRC. It supports the Standard, Cash, and Flat Rate schemes, and helps ensure your business stays compliant with the latest UK VAT rules.
Key Features:
- MTD compliance: Direct submission of VAT returns to HMRC.
- Multi-currency support: Useful for international businesses.
- Custom VAT rates: Create and manage custom VAT rates for your products or services.
- Comprehensive accounting features: Track expenses, create invoices, and manage inventory.
Pros:
- Affordable pricing plans with a free version available.
- Ideal for small businesses needing basic VAT and accounting features.
- Integrates with various payment gateways and apps.
Cons:
- Lacks some of the advanced features found in more expensive software.
- Limited customer support options.
6. ClearBooks
ClearBooks is an HMRC-recognised, cloud-based accounting software that was specifically developed for the UK market. It is well-regarded for its user-friendly interface and strong customer support, offering a comprehensive suite of tools for small businesses, freelancers, and accountants managing VAT and other tax requirements.
Best for: Small to medium-sized UK businesses, including sole traders, limited companies, and partnerships, seeking a reliable, UK-centric accounting solution with excellent customer support.
How it manages VAT: ClearBooks streamlines the VAT process by providing automated calculations and direct, MTD-compliant submissions to HMRC. Its system is designed to handle various VAT schemes and track your VAT liability in real time, making compliance straightforward.
Key Features:
- MTD-compliant: Easily file VAT returns directly with HMRC, ensuring full compliance with Making Tax Digital (MTD).
- Free for VAT returns: Offers a free solution for small businesses looking to file their VAT returns digitally.
- Simple interface: ClearBooks is known for its user-friendly interface, making it ideal for business owners without an accounting background.
- Automated VAT calculations: The software automatically calculates your VAT, reducing the risk of errors.
- Mobile access: You can manage your VAT returns on-the-go with the mobile app.
Pros:
- The simple interface and easy-to-follow setup make it ideal for those with limited accounting knowledge.
- Highly-rated UK-based customer support provides quick and helpful answers to user queries.
- Offers a wide range of features, including invoicing, expenses, payroll, and project tracking, in a single platform.
Cons:
- Some users have reported occasional performance issues or slow loading times.
- Certain processes, such as editing transaction details or handling refunds, have been described as less intuitive than competitors.
- It may not integrate as seamlessly with other advanced accounting tools as some paid software options.
7. Absolute Excel VAT Filer
Absolute Excel VAT Filer is a popular and straightforward bridging software solution that allows UK businesses to continue using spreadsheets for their VAT calculations while remaining compliant with HMRC’s Making Tax Digital (MTD) rules. It acts as a secure digital link between your Excel file and HMRC’s portal, eliminating the need for expensive and complex accounting software.
Best for: Businesses that are already comfortable with spreadsheets for their accounting, such as sole traders, freelancers, and small businesses that do not need a full-featured accounting package.
How it manages VAT: You prepare your VAT figures in your own existing spreadsheet, then use the Absolute Excel VAT Filer to digitally link the cells containing the final VAT data to the software. With a few clicks, the software submits the 9-box VAT return directly to HMRC’s MTD platform.
Key Features:
- Spreadsheet integration: Import your spreadsheet data into the software for easy VAT management.
- MTD compliance: Allows seamless filing of VAT returns directly to HMRC.
- Simple interface: Ideal for businesses that want a no-frills solution for VAT filing.
Pros:
- Ideal for businesses transitioning from manual spreadsheets to digital VAT filing.
- Affordable and easy to use.
- Compatible with most spreadsheet formats.
Cons:
- Limited features beyond VAT filing.
- Not suitable for businesses with complex accounting needs.
8. My Tax Digital
My Tax Digital is free, HMRC-recognised accounting and bridging software specifically designed for UK businesses to comply with Making Tax Digital (MTD). It provides a straightforward, web-based platform that combines basic digital record-keeping with a secure method for submitting VAT returns directly to HMRC, whether you use its built-in accounting tools or rely on spreadsheets.
Best for: Sole traders, landlords, freelancers, and small businesses who need a simple, free solution for MTD compliance, particularly those who want to use spreadsheets or require basic income and expense tracking.
How it manages VAT:
My Tax Digital manages VAT by offering two distinct modes, a free bridging function and a basic accounting tool, both of which are HMRC-recognised and compliant with Making Tax Digital rules.
- Bridging Mode: This feature allows users to import VAT figures from spreadsheets (including Excel, CSV, and OpenOffice formats) and submit the MTD-compliant VAT return to HMRC for free.
- Accounting Mode: My Tax Digital also offers accounting features for keeping digital records of income and expenses. In this mode, the software calculates the VAT return based on the transactions entered.
Key Features:
- MTD compliant: Direct integration with HMRC for VAT returns.
- User-friendly interface: Designed for users new to digital VAT filing.
- Automated submission: File VAT returns easily with minimal effort.
Pros:
- Great for businesses new to digital VAT filing.
- Simple, intuitive interface.
- Affordable pricing.
Cons:
- Limited accounting features outside of VAT filing.
- May not have advanced features for larger businesses.
How To Choose The Best Tax Software for Managing VAT Returns?
Choosing the best VAT software for your UK business depends on your specific needs, budget, and desired level of automation.
There are two main approaches:
- a full cloud accounting suite
- a simpler bridging software.
Your decision should be guided by your business’s size, your current bookkeeping process, and your future plans.
1. Decide On A Software Approach
For businesses wanting an all-in-one financial management system, full cloud accounting software (like Xero, QuickBooks Online, or Sage Business Cloud Accounting) is ideal. These comprehensive platforms automate VAT calculations, handle bank reconciliation, manage invoicing, and submit VAT returns directly to HMRC, all from one dashboard. They are best for growing businesses that need robust reporting and scalability.
Alternatively, for businesses that prefer using spreadsheets, bridging software (such as Absolute Excel VAT Filer or My Tax Digital) is the most straightforward option. These tools create a secure digital link between your existing spreadsheets and HMRC, allowing you to submit MTD-compliant VAT returns without switching your entire bookkeeping system. They are a low-cost solution best suited for small businesses, freelancers, and landlords.
2. Evaluate Your Business Needs
To help you decide, consider key factors such as your business’s complexity, additional feature requirements, budget, and technical expertise. For example, a sole trader might find FreeAgent’s user-friendly interface and focus on Self Assessment highly beneficial, especially if it’s available for free with their bank account.
In contrast, a larger business might need the extensive third-party integrations and payroll features offered by Xero. If you are on a tight budget, the free bridging software from My Tax Digital or the free plan from Zoho Books might be the most cost-effective option.
3. Confirm HMRC recognition and support
Regardless of your choice, ensure the software is officially recognised by HMRC as compliant with Making Tax Digital for VAT. Use the free trials offered by most providers to test the software’s functionality, ease of use, and customer support. This will give you confidence that your chosen software can handle your specific needs and help you comply with VAT regulations.
How To Make Your Final Choice?
- Assess your current process: Are you a spreadsheet user who just needs MTD compliance, or do you want to automate your entire bookkeeping process?
- Make a list of “must-have” features: Do you need multi-currency support, advanced reporting, or integrated payroll?
- Check for HMRC recognition: Visit the UK government website to confirm any potential software is HMRC-recognised for MTD.
- Use free trials: Most providers offer a 30-day free trial. Use this opportunity to test the software and see if it’s a good fit.
- Talk to other businesses: Ask other small business owners in your industry for their software recommendations and experiences.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
The Bottom Line
Choosing the best VAT return software depends on your business size, needs, and budget. From free VAT return software to more comprehensive accounting systems, the right tool will save you time, reduce errors, and ensure you remain compliant with HMRC VAT rules.
If you’re a small business or freelancer, tools like FreeAgent and TaxScouts may be perfect for your straightforward needs. For medium to large businesses, Sage and Xero offer more advanced features, ideal for businesses that need detailed reporting, multi-currency support, and team collaboration.
WE CAN HELP
At Accotax, we understand that managing VAT returns can be challenging. Our team of experts is here to help you find the right VAT accounting software to suit your business needs. We offer a range of solutions designed to simplify the VAT filing process and ensure that you’re always compliant with HMRC VAT software requirements.
Reach out, get an instant quote and let us help you stay VAT compliant!
Disclaimer: All the information provided in this article on Best Tax Software for Managing VAT Returns in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.