What Software Can I Use for Making Tax Digital VAT Returns

Making Tax Digital for VAT has fundamentally changed how VAT returns are prepared and submitted in the UK. Since the rules were introduced, most VAT registered businesses can no longer type figures directly into the HMRC website. Instead, VAT returns must be submitted using Making Tax Digital compatible software, with digital records and digital links all the way through to submission.

I am often asked which software is best, whether spreadsheets are still allowed, and whether businesses really need full accounting software just to stay compliant. The honest answer is that there is no single best option for everyone. The right software depends on the size of your business, how complex your VAT position is, and how confident you are with bookkeeping.

In this article, I am going to explain clearly and practically what software you can use for Making Tax Digital VAT returns, how the options differ, and how to choose the right setup for your business. I will also cover common mistakes, misconceptions, and how I see these tools used in real businesses day to day.

By the end, you should have a clear understanding of your options, and confidence in choosing software that keeps you compliant without creating unnecessary work.

A quick reminder of what Making Tax Digital requires

Before looking at software, it is important to understand what Making Tax Digital actually demands.

For VAT, Making Tax Digital requires businesses to:

• Keep digital records of sales and purchases

• Maintain digital links between records and VAT calculations

• Submit VAT returns digitally to HMRC using compatible software

The key word here is digital. HMRC wants to reduce manual entry, copying, and re keying of figures, which is why software choice matters.

What counts as Making Tax Digital compatible software

HMRC does not approve individual products in a traditional sense, but it maintains a list of software that can connect directly to its systems via an API.

Broadly, Making Tax Digital VAT software falls into two categories:

• Full accounting software

• Bridging software

Both can be compliant if used correctly.

Full accounting software

Full accounting software records your day to day transactions and submits VAT returns directly to HMRC. For most businesses, this is the cleanest and most robust option.

Xero

Xero is one of the most widely used accounting platforms for Making Tax Digital VAT.

It allows you to:

• Record sales and purchases

• Reconcile bank accounts

• Apply VAT codes automatically

• Generate VAT reports

• Submit VAT returns directly to HMRC

Xero works particularly well for small and medium sized businesses that want a clear overview of their finances, not just VAT compliance.

From my perspective, Xero is popular because it is intuitive, widely supported by accountants, and integrates well with other tools.

QuickBooks

QuickBooks is another major player in the MTD VAT space.

It offers:

• Cloud based bookkeeping

• VAT tracking and reporting

• Direct submission of VAT returns

• Strong reporting tools

QuickBooks is often favoured by businesses that want detailed reporting and automation. It is particularly common among growing businesses that want more control over financial data.

Sage

Sage has been around for decades and has adapted its products to meet Making Tax Digital requirements.

Sage offers:

• Desktop and cloud accounting options

• MTD compliant VAT submissions

• Industry specific solutions

Sage often appeals to businesses that have used it historically or prefer a more traditional accounting environment.

FreeAgent

FreeAgent is popular with freelancers, contractors, and micro businesses.

It provides:

• Simple bookkeeping

• VAT tracking

• Direct MTD VAT submission

• Integrated tax timelines

FreeAgent is often included free with certain business bank accounts, which makes it an attractive option for very small businesses.

Bridging software

Bridging software is designed for businesses that keep their records outside of accounting software, usually in spreadsheets.

It acts as a bridge between your digital records and HMRC, without requiring you to change how you do your bookkeeping.

How bridging software works

With bridging software:

• You maintain VAT records in a spreadsheet

• The spreadsheet totals feed into the bridging tool

• The bridging tool submits the VAT return to HMRC

As long as the link between the spreadsheet and the submission is digital, this can be Making Tax Digital compliant.

Who bridging software suits

Bridging software can be suitable if:

• You are comfortable using spreadsheets

• Your VAT affairs are relatively simple

• You do not want full accounting software

• You already have robust spreadsheet systems

However, it does rely heavily on discipline and accuracy.

Common bridging software providers

There are many bridging tools available, and they tend to focus on VAT submission only rather than full bookkeeping.

Examples include:

• Simple VAT bridging tools

• Spreadsheet to HMRC connectors

• Lightweight VAT filing platforms

While these tools can be compliant, they offer far less error checking than full accounting software.

Using spreadsheets under Making Tax Digital

A common question I hear is whether spreadsheets are still allowed.

The answer is yes, but with conditions.

You can still use spreadsheets if:

• Records are kept digitally

• VAT calculations are linked digitally

• Submission is made via bridging software

What you cannot do is manually type VAT figures into HMRC’s website or copy and paste figures without a digital link.

Choosing between accounting software and bridging software

This is one of the most important decisions to make.

I usually frame it like this.

Accounting software may be better if:

• You want automation and error checking

• You want a clear picture of your finances

• You are growing or plan to grow

• You want your accountant to review data easily

Bridging software may be better if:

• You have very simple VAT affairs

• You are confident with spreadsheets

• You want the lowest cost option

• You only need VAT compliance

There is no right or wrong answer, only what fits your business.

Making Tax Digital and VAT schemes

All Making Tax Digital software must support your VAT scheme.

This includes:

• Standard VAT accounting

• Cash Accounting Scheme

• Flat Rate Scheme

• Annual Accounting Scheme

When choosing software, you must ensure it is set up correctly for your chosen scheme. The software will not choose the scheme for you.

How HMRC connects to your software

All MTD compliant software connects to HMRC using secure authorisation.

This means:

• You authorise the software to submit on your behalf

• The software sends VAT data directly to HMRC

• You receive confirmation of submission

Once authorised, submissions are usually straightforward, provided your data is correct.

Common mistakes I see with MTD VAT software

Over the years, I have seen the same problems arise repeatedly.

These include:

• Assuming software fixes VAT errors automatically

• Submitting VAT returns without reconciliation

• Using the wrong VAT codes

• Relying on bridging software with poor spreadsheets

• Forgetting to pay VAT after submission

Software is a tool, not a substitute for understanding.

Cost considerations

MTD VAT software costs vary widely.

You may pay:

• A monthly subscription for accounting software

• A low annual fee for bridging software

• Nothing if software is included with a bank account

Cheapest is not always best. The cost of fixing VAT mistakes often exceeds the cost of better software.

What HMRC does not provide

It is important to be clear that HMRC does not provide free software for Making Tax Digital VAT returns.

HMRC provides:

• Guidance

• APIs for software developers

• Lists of compatible software

The responsibility for choosing and using software sits with the business.

How I advise clients to choose MTD VAT software

In practice, I advise clients to think beyond VAT submission.

I ask questions like:

• How confident are you with bookkeeping

• Do you want visibility over cash flow

• How complex is your VAT position

• Do you plan to grow or stay small

For many businesses, moving to proper accounting software early prevents far bigger problems later.

When software alone is not enough

No matter how good the software, there are situations where professional advice is essential.

These include:

• Partial exemption

• Property VAT

• International VAT

• Pre registration VAT claims

• VAT inspections and enquiries

Software handles process. Accountants handle judgement.

Why Making Tax Digital software matters

Using the right software does more than keep HMRC happy.

It can:

• Reduce VAT errors

• Improve cash flow visibility

• Save time

• Support better business decisions

In my experience, businesses that embrace good software alongside good advice find VAT far less stressful.

Final thoughts

For Making Tax Digital VAT returns, UK businesses must use compatible software. This can be full accounting software like Xero, QuickBooks, Sage, or FreeAgent, or bridging software that connects spreadsheets to HMRC.

The right choice depends on how your business operates, how complex your VAT position is, and how much support you want from your systems. There is no single best answer, but there is always a sensible one.

In my experience, the biggest VAT problems do not come from choosing the wrong software. They come from misunderstanding what the software is doing, or assuming it replaces VAT knowledge entirely. When software and understanding work together, Making Tax Digital becomes exactly what it should be, a compliance requirement that runs quietly in the background while you focus on running your business.