MTD software for UK invoicing

What MTD software has to do

HMRC states that all VAT-registered businesses should now be signed up for Making Tax Digital for VAT. There is no turnover-based exemption: registering voluntarily below the threshold still brings you into MTD.

Being in MTD imposes two obligations, and they are usually confused with each other:

• Digital record keeping. The details of every supply you make and receive, the tax point, the net value and the VAT rate, held in software rather than on paper.
• Digital submission. The VAT return itself has to reach HMRC through the MTD API. Typing the nine boxes into the old Government Gateway screen is not a valid submission for a business inside MTD.

A product only counts as MTD software for the second job if HMRC recognises it. The authoritative list is HMRC's own search, Find software that's compatible with Making Tax Digital for VAT. A vendor claiming compatibility while absent from that list cannot file your return.

Where free MTD software fits

HMRC's list includes products offered at no cost, so free MTD software is a real option rather than a marketing line. It usually comes in one of two shapes.

The first is bridging software: a small tool that reads the nine box totals out of a spreadsheet and posts them to HMRC. It does not keep your records, so you still need those in digital form, with a digital link into the spreadsheet. The second is a free tier of a full accounting package, which keeps records and submits, but caps something: the number of businesses, the number of submissions, or the features around the return.

Read the limits before committing. Free MTD software is frequently free only for one VAT-registered business, and the moment you add a second company or need a feature behind the paywall the price is whatever the vendor charges. The cost of switching later is re-keying a VAT period, which is the exact manual step MTD exists to remove.

Where Tidybill fits, and where it does not

Tidybill is invoicing software. It is not MTD software: it has no connection to HMRC's MTD API and it does not submit VAT returns. Nothing on this site should be read as saying otherwise.

What it does cover is the record-keeping half, and the arithmetic that feeds the return:

• Your VAT registration number is stored in company settings and printed on every invoice.
• A VAT rate is applied per line item, so one invoice can carry standard-rated and zero-rated lines together, with the net, VAT and gross totals shown separately.
• Invoice numbers run as an unbroken sequence with a prefix you choose.
• Every invoice is kept permanently as a digital record, with the rate and the VAT amount on each line.
• The Tax Summary report totals output VAT and input VAT over a monthly, bi-monthly, quarterly or annual VAT period, and exports to CSV, XLSX or PDF.
• The accounting export writes Xero Sales and QuickBooks Online Sales formats, alongside canonical sales and journal formats.

So the working pairing is Tidybill for the invoices and the VAT figures, and recognised MTD software for the submission. Both Xero and QuickBooks Online appear on HMRC's compatible list, which is why those two export formats exist.

Digital links between your records and your return

MTD requires a digital link at every hand-off: data moves electronically, without anyone retyping a figure from one system into another. Reading a total off a report and typing it into a submission screen breaks that link, whatever software sits at either end.

Exporting a file and importing it is a digital link. So is copy and paste using standard software functions, which HMRC accepts. Retyping is not. That is the practical test to apply when you are working out whether a Tidybill export into your submission tool is acceptable: if no human retypes a number, the link holds.

Choosing MTD software

Four questions settle most of it. Is the product on HMRC's list, under the exact name you are buying? Does it keep records as well as submit, or is it bridging only? What does the free tier actually cap? And does it accept a file from wherever your invoices already live, so no one has to retype a VAT period every quarter?

For the record-keeping rules in detail, see the MTD invoice requirements guide. For what a compliant invoice must contain, see UK VAT invoice requirements.