If you are a VAT-registered UK business, you will be all too aware that Making Tax Digital came into play for VAT periods that began on the 1st April 2019. This is intended to be an overhaul of the tax and VAT system, making administration more effective, more efficient and easier for taxpayers. And it definitely has its benefits, with the government’s long-term goals to become more digitally advanced certainly in sight. For businesses though (and especially SMEs, small businesses and sole traders), changes in tax mean changes in processes. Making Tax Digital bridging software is one way to ease you into the new routine of digital recordkeeping and VAT Returns, allowing you to transfer your data from spreadsheets directly to HMRC. This can make the transition easier for your business as your current processes won’t be disrupted.

Making Tax Digital VAT software

Using the best VAT software for your business will streamline processes and make the changeover to digital recordkeeping simpler. For some companies, this will be MTD compliant software. For others, this will be MTD bridging software.

So what’s the difference?

  1. Bridging software. This type of software bridges the gap between your spreadsheets and HMRC. You can still use spreadsheets to keep VAT records, and you can use bridging software to submit the final figures to HMRC.
    This can benefit businesses who aren’t ready to change their current processes. It might be that you need to carry out additional, complex calculations, and spreadsheets make this simpler for you. It’s also usually cheaper to use bridging software than a full MTD accountancy package.
    Bridging software is an excellent short-term solution but it shouldn’t be a long-term option. One of the requirements of Making Tax Digital is to keep digital VAT records, so bridging software doesn’t account for this in full. Your ultimate aim should be to use MTD-compliant software that automatically makes you compliant through its usage.
  1. MTD-compliant software for digital VAT recordkeeping. This is a software package that is fully compliant with Making Tax Digital’s requirements, such as Sage, Xero or QuickBooks (do note that they also offer bridging software).
    When you use MTD-complaint software for your record keeping, there is no need for spreadsheets. All records are kept in one place and are directly submitted to HMRC via the software, so there is no need for bridging software.

Making Tax Digital-compliant software

If you think it’s time to move on from spreadsheets and want software that can take care of VAT administration for you, then you will need to use an MTD-compliant software package. The advantage of this is that other elements of MTD will be taken care of, because the software itself is MTD compliant, so it can be less stressful for you.

The following software providers offer both bridging software and MTD-compliant software. This can be a good option if you plan to use bridging software in the short term, as you can become familiar with how a particular piece of software works to make the transition easier:

  • Sage
  • Xero
  • IRIS
  • QuickBooks
  • Solar Accounts

You can find further information on software packages on the HMRC website.  This also allows you to filter by bridging software so you can explore the options most relevant to you.

Do be aware that HMRC won’t offer any advice or recommendations. If that’s what you’re looking for, then you’re very welcome to ask us! Call 020 8468 1087 or email

 

Isn’t it expensive to use bridging software?

This all depends on the software you choose, the package you select and how you pay for it. According to the Federation of Small Businesses, half of the VAT-registered businesses that now have to comply with Making Tax Digital did not have the right software in place in March 2019 – just a month before the implementation of MTD. Small firms estimate costs of MTD software to be around £564 on average.

That being said, it is usually cheaper to use bridging software than to install a full accountancy package. These packages might be cheaper if you are a small business or sole trader, but costs can build up over time, with many of the big names in accounting and VAT software offering you free trials and discounts for your first few months as a customer. This also means that you can waste a lot of time trying out different software packages and finding the right one for you – time that small businesses often don’t have. However, you have the opportunity to get more for your money, with options for bookkeeping, accountancy and other add-ons that could benefit your business.

Essentially, what it comes down to is choosing the option that will free up the most time for you and give you maximum value for money. Value is entirely subjective and every business will define it differently.

Bridging software support – saving you time and money

Making Tax Digital has the power to improve and simplify your VAT Returns and make them easier to deal with when the time comes around – as long as you are using the best processes and software for your business. The bridging software or MTD-compliant software you choose is essential; select a software package that complements your in-house processes, and it will save you time and money in the long run.

What if you didn’t have to trawl through software websites on your own, trying to understand the differences between them and how they would work for your business? You don’t have to when you have an accountant. An accountancy practice like Bells can offer you advice and support, finding the accountancy packages or bridging software that will work for you. All accountancy practices work differently – we take a consultative approach and we’re always there for our clients, acting more like business partners than accountants. This means we will be more than happy to get you up and running with your software and you can benefit from our excellent rates. You aren’t just getting software, you’re getting help, advice and support with all financial matters.

We are always happy to answer questions about bridging software, MTD-compliant software and Making Tax Digital. We also run regular Xero workshops, so you can learn how to make the most of this MTD-compliant software package. Courses are open to all businesses and you can attend as a group or have one-to-one training, helping you bridge the gap between your current processes and Making Tax Digital’s requirements. Only 47% of businesses who weren’t using software or apps ahead of the MTD launch felt comfortable with the idea of using technology to manage their finances. Our courses can provide the perfect starting point.

Please get in touch if you’re interested in learning more about Xero and getting the most out of it for your business.

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