Accounting Apps That Do VAT Returns Automatically

Introduction

If you are VAT-registered, you know the quarterly routine. Gather your records, calculate your VAT liability, check everything twice, and submit to HMRC through Making Tax Digital compatible software. It is necessary, it is important, and it is thoroughly tedious.

The good news is that several accounting apps can handle much of this process automatically. This article compares the platforms that do VAT returns well, from record-keeping through to HMRC submission.

How Automatic VAT Returns Work

An accounting app that does VAT returns "automatically" still needs accurate data. The automation covers calculating VAT on sales and purchases based on the correct rates, tracking which transactions have VAT and which do not, producing the nine-box VAT return from your records, and submitting the return to HMRC through MTD-compatible APIs.

The key to a genuinely automatic VAT return is having accurate, complete records. If your bookkeeping is up to date and your VAT rates are correctly applied, the return essentially prepares itself.

Accounted

Accounted handles VAT returns as part of its broader automated bookkeeping. Penny applies the correct VAT treatment when categorising transactions, distinguishing between standard-rated (20%), reduced-rate (5%), zero-rated, and exempt supplies.

When a VAT period ends, Accounted calculates your nine-box return from the recorded transactions. You review the figures, and if everything looks correct, you submit directly to HMRC through the platform.

What makes Accounted's VAT handling particularly useful is Penny's ongoing monitoring. She tracks your taxable turnover against the VAT registration threshold (currently £90,000) and alerts you when you are approaching it. For VAT-registered businesses, she ensures the correct rate is applied to each transaction and flags any that look unusual.

The AI categorisation means your records are more likely to be complete and accurate at the end of each quarter, reducing the pre-submission scramble that many sole traders experience.

Pricing starts at £14 per month. See the pricing page.

Xero

Xero has a well-established VAT return process. It calculates your VAT return from the transactions recorded in the system and submits directly to HMRC. The interface clearly shows your nine-box figures, and you can drill down to see which transactions contributed to each box.

Xero handles various VAT schemes including standard accounting, cash accounting, and flat rate. It also supports partial exemption calculations, though these require careful setup.

Xero's VAT return process is mature and reliable. It is one of the most popular platforms for MTD for VAT compliance in the UK.

QuickBooks

QuickBooks supports MTD for VAT submission across its plans. The platform calculates your VAT return from recorded transactions and submits to HMRC. The process is straightforward and well-guided.

QuickBooks supports standard, cash, and flat rate VAT schemes. The VAT return review screen shows your figures clearly before submission.

FreeAgent

FreeAgent handles VAT returns well, with clear presentation of your liability and direct HMRC submission. The platform supports standard and cash accounting schemes and presents your VAT position in an easily understandable format.

FreeAgent's VAT return process integrates neatly with its invoicing and expense tracking. If you raise invoices and record expenses through FreeAgent, the VAT return reflects this automatically.

Sage

Sage Business Cloud Accounting supports MTD for VAT with direct HMRC submission. As a long-established UK accounting platform, Sage handles VAT competently across its product range.

The Flat Rate Scheme

If you are on the flat rate VAT scheme, your accounting software needs to handle this correctly. Under the flat rate scheme, you charge VAT at the standard rate on your invoices but pay HMRC a fixed percentage of your gross turnover (the percentage depends on your industry).

Most major platforms support the flat rate scheme, but some handle it better than others. Check that your chosen platform correctly calculates the flat rate percentage, handles the 1% discount in the first year of VAT registration, and correctly shows the difference between VAT charged and VAT paid.

Common VAT Mistakes Software Should Prevent

Good VAT software should help you avoid common mistakes including applying the wrong VAT rate to a transaction, forgetting to include VAT on sales (especially for mixed-use businesses), claiming VAT on expenses that are not VAT-eligible (business entertainment, for example), submitting the return for the wrong period, and arithmetic errors in the nine-box calculation.

Automated platforms catch most of these by applying consistent rules. The main risk is at the data entry stage. If a transaction is recorded with the wrong VAT treatment, the return will reflect that error.

This is where AI-powered platforms like Accounted have an advantage. Penny applies VAT rates based on the nature of the transaction, not just what you tell her. If you send her a restaurant receipt, she knows that business entertainment VAT is not reclaimable and treats it accordingly.

Pre-Submission Review

Even with automation, you should review your VAT return before submission. Check that the output VAT (on your sales) looks reasonable given your turnover, that the input VAT (on your purchases) is consistent with your spending, that no large or unusual transactions are missing, and that the period dates are correct.

Most platforms allow you to review the return and drill down into the underlying transactions before submitting. Take the time to do this. A VAT return submitted with errors requires a correction, which adds complexity and can attract HMRC attention.

The MTD Requirement

Since April 2022, all VAT-registered businesses must use MTD-compatible software for VAT returns. You cannot submit through HMRC's old online portal. This means you need software with a digital link to HMRC's VAT API.

All the platforms listed in this article meet this requirement. If you are using a platform not listed here, check that it is on HMRC's list of recognised software.

Bridging Software

If you want to keep your records in spreadsheets, you can use bridging software to submit your VAT return to HMRC. Several free and paid bridging tools are available that read your nine-box figures from a spreadsheet and submit them through the MTD API.

This meets the MTD requirement technically, but you lose all the automation benefits. The calculation, checking, and data entry are still manual.

Our Recommendation

For the most automated VAT return experience, Accounted's AI-powered bookkeeping means your records are kept accurate and current throughout the quarter. When submission time arrives, the return is essentially ready.

For the most mature and widely trusted VAT filing process, Xero has years of proven reliability.

For the most affordable option, QuickBooks handles VAT returns competently across its price range.

For NatWest customers, FreeAgent's VAT handling is solid and free.

Whatever you choose, ensure your records are kept current. The best VAT software in the world cannot produce an accurate return from incomplete data.

Sign up for Accounted and make VAT returns something that happens automatically rather than something you dread quarterly.