7 Best digital VAT software for small business

Looking for the easiest way to submit VAT returns and comply with HMRC’s Making Tax Digital requirements in the UK? You’ll need to find the right software.

In this comprehensive guide, we’ll run through some of the best digital VAT software options for UK small businesses. Get the right fit, and it could help your finance team improve efficiency, save time and tick all the right compliance boxes.

And while you’re thinking about ways to make managing your business easier, make sure to check out clever solutions like Wise Business. This powerful multi-currency account integrates seamlessly with popular cloud accounting solutions, making it easier to manage business finances both in the UK and internationally.

💡 Learn more about Wise Business

Best VAT software for small business - overview

Let’s start with a quick at-a-glance comparison of all the providers we’ll be looking at here in this guide:

Provider	Pricing	Trustpilot score
QuickBooks	£16 to £115/month, discounts for first 6 months¹	4.4 from 15,500+ reviews²
FreshBooks	£15 to £35/month,discounts for first 3 months³	3.3 from 800+ reviews⁴
Xero	£16 to £59/month, discounts for first 6 months⁵	3.7 from 7,700+ reviews⁶
FreeAgent	£27 to £33/month depending on business type, discounts for first 6 months⁷	4.7 from 2,500+ reviews⁸
KashFlow	£11.50 to £31.50/month, discounts for first 6 months⁹	1.2 from 140 reviews¹⁰
Sage	£15 to £39/month, free for 3 months¹¹	4.3 from 18,700+ reviews¹²
Zoho Books	£0 to £30/month¹³	4.2 from 5,000+ reviews¹⁴

Making tax digital compatible software: how does it work?

Making Tax Digital (MTD) is a UK Government initiative initially announced in 2015.

It requires businesses and individuals to keep digital records and submit both income tax and VAT returns digitally. There’s also a requirement to submit quarterly updates, so that the tax system can be brought closer to real-time.

In relation to VAT, all UK businesses must now be signed up to MTD. HMRC will register any remaining businesses automatically, unless they are exempt.

To meet Making Tax Digital requirements, businesses need to use software that is compliant with MTD. This means it’s compatible with HMRC’s systems, so that VAT returns can be submitted digitally directly to HMRC.

All of the software we’ll look at below is MTD compliant, and each clearly says this on their features lists.

Benefits of using MTD compliant software

Here are just some of the advantages for businesses and finance teams of using MTD compliant software:

• All records are digital, so can be viewed, searched and filed online - this eliminates the need to organise piles of paper receipts and invoices in order to file VAT returns
• Fewer mistakes caused by human error
• Timely, organised submission of VAT returns
• Easier, more streamlined bookkeeping, without the need for time-consuming manual data entry
• Access to real-time tax information
• Information is synced across all financial sources, making reconciliation easier
• Custom financial reports, created in just a few clicks.

Best digital VAT software for small business

Now, let’s dive into our list of the best digital VAT software for small businesses here in the UK.

We’ll look at features (especially in relation to MTD and VAT) and what kind of business each software is best for. And crucially, pricing information.

QuickBooks

Intuit QuickBooks is cloud-based accounting software, which offers MTD-compliant features such as:¹⁵

• Submit VAT returns directly and securely to HMRC
• VAT error checker tool
• Assign default VAT rates to products and services
• Track VAT in real time
• Set up email deadline reminders.

It has options for limited companies of all sizes, with price plans ranging from £16 to £115/month (plus discounts available for the first 6 months).¹ Check our complete review on Quickbooks pricing.

All plans apart from the Sole Trader plan offer VAT MTD features. Check our complete Quickbooks reviews here.

And good to know - QuickBooks can be seamlessly integrated with your Wise Business account.

💡 Learn more about Wise Business

FreshBooks

FreshBooks is simple cloud-based accounting and invoicing software aimed at small businesses, sole traders and freelancers. It’s HMRC recognised, and offers the following VAT MTD features:¹⁶

• Automatically generates VAT Return Reports
• Connects to HMRC for direct filing in just a few clicks
• Export files for your accountant
• Choice of VAT schemes - Cash Accounting, Accrual Accounting and Flat Rate.

It’s the ideal fit for smaller and new businesses, who don’t need a lot of advanced features. Plans range from £15 to £35 a month, with discounts available for the first 3 months.³ There’s also a free trial available. All plans offer the ability to submit MTD-compliant VAT returns directly to HMRC.

And like with QuickBooks, your Wise Business account can be seamlessly connected with FreshBooks for streamlined financial management.

Check our comparison between FreshBooks and Quickbooks here.

Xero

Xero is a popular cloud-based accounting software designed for smaller businesses. It’s MTD compliant, offering the following features for managing VAT returns digitally:¹⁷

• Automatic VAT calculations
• File VAT returns directly to HMRC
• View VAT transaction details and make adjustments online
• Manage CIS deductions.

Xero has plans available from £16 to £59 a month, with discounts for the first 6 months.⁵ All plans let you submit VAT returns directly to HMRC.

Check our comparison between Xero and FreeAgent here.

And to streamline finances even when managing a global business, you can also link your Xero account seamlessly with Wise Business.

FreeAgent

The UK-based cloud accounting software FreeAgent offers solutions for limited companies, partnerships and sole traders. It is MTD-compatible, and offers features such as:¹⁸

• Generate VAT returns automatically from your bookkeeping data
• File directly to HMRC in minutes
• Reminders when payments are due
• Tax Timeline feature to help you keep track of what is owed and when
• Support for the VAT Flat Rate Scheme
• Support for EC Goods and Services.

Pricing ranges from £27 to £33 a month depending on business type (whether Limited Company or Partnership), with discounts for the first 6 months.⁷

Check our comparison between FreeAgent and Quickbooks here.

Your Wise Business account can also be integrated seamlessly with FreeAgent for easy financial management and reconciliation.

KashFlow

KashFlow, from the IRIS Software Group Limited, is cloud software for accounting, bookkeeping and payroll. It’s a fully compliant, HMRC-recognised MTD software, offering useful VAT features such as:¹⁹

• File VAT returns and EC Sales lists directly to HMRC from within KashFlow
• Create and access a range of reports, including VAT Return of Trading Details report
• Automatically calculate VAT, so no need to work out percentages and or add tax manually
• Live VAT liability total on your KashFlow dashboard
• Change VAT rates if you need to.

KashFlow is targeted towards UK small businesses and sole traders, and its plans are priced from £11.50 to £31.50 a month (with discounts available for the first 6 months).⁹ All plans offer MTD-compliant VAT features.

Sage

Formerly known as Sage One, Sage Business Cloud Accounting is a cloud-based solution aimed squarely at small businesses - including startups.

As you’d expect from such an established and trusted name in the accounting software world, Sage is fully MTD compliant and HMRC recognised. It’s features include:²⁰

• Select different VAT rates for your invoices
• Automatic VAT calculations for standard, cash and flat rate accounting schemes
• Direct VAT submissions to VAT at just a click
• Automated processes to save time and reduce errors.

Pricing ranges from £15 to £39 a month (free for 3 months)¹¹ and all plans offer the ability to directly submit VAT returns to HMRC.

Zoho Books

Another cloud-based accounting product designed for small businesses with simple accounting needs, Zoho Books also meets HMRC guidelines and MTD compliance standards.

Features for VAT management include:²¹

• Set, adjust and review tax rates, including adding exemptions
• Powerful reporting tools, including generating VAT MOSS reports
• Submit VAT returns directly to HMRC
• Automatic VAT calculations.

Pricing for Zoho Books ranges from £0 to £30 a month.¹³ Unlike with other providers, it gives you access to MTD VAT features even on the free plan, although you may face limits when it comes to other accounting features.

And like many of the other providers on our list, Zoho Books can be seamlessly integrated with Wise Business.

💡 Learn more about Wise Business

How to choose VAT software for small business?

The first and most important feature to look for is MTD compliance and HMRC recognition. Without this, you won’t be compliant with MTD rules, or be able to submit VAT returns directly to HMRC.

Price will always be a crucial consideration, but make sure to look at customer reviews on sites such as Trustpilot.

And if there’s a free trial on offer, this will give you the ideal opportunity to test out features and get a feel for the user-friendliness of the dashboard.

FAQs - best digital vat software for small business

Can I use Excel for VAT return?

It is possible to submit your VAT return from Microsoft Excel in compliance with MTD rules by using software called VitalTax. Once set up, it ensures your VAT return is sent to HMRC via the Making Tax Digital Application Programming Interface (API).²²

Can you submit VAT without MTD?

Unless your company is exempt, all UK businesses must submit VAT returns online in compliance with Making Tax Digital rules.

How do I know if I am registered for Making Tax Digital?

If you’ve signed up for MTD yourself, you’ll receive a confirmation email from HMRC. If you’ve been automatically signed up, you may receive a confirmation email or letter. If you can’t find confirmation and need to check your status, you can contact HMRC for further information.

What are the deadlines for MTD?

Compulsory registration for Making Tax Digital was implemented for all UK businesses (unless exempt) on 1 November 2022. This means that all businesses must now be signed up for MTD, or have been automatically signed up by HMRC.²³

Check all the MTD Deadlines in our complete guide.

Is there free software for MTD?

Yes, there is free MTD-compliant software available in the UK, including VitalTax for use with Microsoft Excel and the Zoho Books free plan.

International finances made easy with Wise Business account

Wise Business can help UK businesses, freelancers and sole traders to manage finances across multiple currencies, with low fees and the mid-market exchange rate.

Wise Business account connects with Xero, QuickBooks, FreeAgent, FreshBooks and more solutions to help you seamlessly manage your finances across borders.

When you open a Wise Business account, you’ll benefit from all of these useful features:

• Hold and exchange 40+ currencies;
• Send payments to 140+ countries for low fees and the mid-market exchange rate - this is a fair exchange rate with no margins or mark-ups added to it;
• Get local account details to get paid in 8+ currencies like a local;
• No monthly fees or minimum balance requirements;
• Debit and expense cards for you and your team, which you can use in 150+ countries;
• Multi-user access for team members, with ways to control and manage permissions;
• Pay up to 1,000 people at once with the Wise batch payments feature;
• Integrate with your favourite cloud accounting solutions, like Quickbooks.

Get started with Wise Business 🚀

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After reading this, you should be able to compare all the best digital VAT software available in the UK for small businesses - and choose the right one for your needs.

Whichever you opt for, just make sure it’s MTD-compliant and HMRC recognised.

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Sources used:

1. QuickBooks - Pricing
2. Trustpilot - QuickBooks
3. FreshBooks - Pricing
4. Trustpilot - FreshBooks
5. Xero - Pricing Plans
6. Trustpilot - Xero
7. FreeAgent - Pricing
8. Trustpilot - FreeAgent
9. KashFlow - Pricing
10. Trustpilot - KashFlow
11. Sage - Pricing
12. Trustpilot - Sage
13. Zoho Books - Pricing
14. Trustpilot - Zoho
15. QuickBooks - Making Tax Digital software
16. FreshBooks - MTD VAT software
17. Xero - Submit VAT returns online
18. FreeAgent - VAT
19. KashFlow - VAT returns
20. Sage - Making Tax Digital VAT software
21. Zoho Books - VAT Accounting Software
22. Microsoft AppSource - VitalTax
23. GOV.UK - When to start using Making Tax Digital for VAT if you've not before

Sources last checked on date: 18-Feb-2025