Making Tax Digital - do you need VAT bridging software?

By: Mike Parkes, GoSimpleTax

Date: 27 September 2019

A businesswoman happily uses bridging software to submit VAT returns to HMRC.Making Tax Digital (MTD) for VAT is the first stage of the government’s initiative to completely digitise tax.

It took effect on 1 April 2019, with full compliance starting on 7 August of the same year. This is because the first submission of MTD for VAT records is required by this time (for those businesses whose first VAT quarter ended on 30 June 2019).

Not everyone is ready to meet the deadline, though. There are a number of things to consider: first, working out whether it’s mandatory for you to comply with MTD for VAT. A basic rule of thumb is that you’ll need to if your turnover exceeds the current VAT registration threshold (£85,000 as of 2019/20). You will also need to register with HMRC.

To make it easier, HMRC has allowed the use of spreadsheets under the Making Tax Digital regime - in which case bridging software will be required to file the return with HMRC. You may also be using an old bookkeeping system that has not been updated to comply with MTD for VAT. If this is the case, you will also need to use bridging software to make your VAT return submissions to HMRC.

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Here we explain how bridging software works, along with its benefits.

How does VAT bridging software work?

Once you have registered for MTD for VAT, and received email confirmation that your account is active, you need to ‘authorise’ your bridging software to link with your HMRC account. The software will help guide you through these steps.

Bridging software then transfers your VAT information to HMRC’s systems via an incredibly simple digital process. You’ll complete your spreadsheet or non-compatible bookkeeping software as usual, then upload or link the VAT 100 report to the bridging software product.

After this step is completed, it’s best to check that the prepopulated form’s values match the ones on your VAT 100 report.

When you are happy, you can submit the VAT return direct to HMRC.

What are the advantages of bridging software?

A key reason many are opting for bridging software is that it’s generally cheaper than other MTD-compliant bookkeeping tools. SMEs will be hit with a bill of £564 on average to switch, either in one-off charges or annual subscriptions. And this is just small businesses - larger ones are experiencing an even higher price tag.

Bridging software also allows businesses to continue using their familiar, existing spreadsheet or non-compatible software system.

Bridging software’s tools bear a close resemblance to the requirements of the nine VAT return fields and are a simple way of filing your VAT return under the new MTD regime. They will also record your MTD for VAT submissions, along with details of payments due and made.

What are the limitations of MTD bridging software?

Whilst incredibly beneficial, the software does have a downside. It’s not suitable for other parts of MTD compliance, such as electronic record-keeping. You will still need to use your spreadsheet or non-compatible bookkeeping software for this.

Who could benefit from bridging software?

Anyone dealing with the VAT return process will benefit from bridging software - from accountants submitting on behalf of their clients to businesses large or small filing for themselves.

SMEs, in particular, will find the tools valuable. This is because of the higher cost of other types of software, and the time required to get to grips with them.

It’s also particularly beneficial to those who already have accounting software in place that isn’t compatible with MTD.

Getting the best out of MTD for VAT bridging software

Now you know when and how to get ahead of MTD for VAT, along with how bridging software ties in with it, you can take advantage of these tools.

All you need to do is make sure that you choose the right MTD for VAT bridging software, such as GoSimpleVAT, and you’ll be able to benefit from retaining your existing bookkeeping processes and tools.

Whichever software you choose, make sure it’s on HMRC’s recognised list of suppliers, so you can rest assured that your VAT returns are submitted using a completely compliant tool.

Copyright © 2019, Mike Parkes. GoSimpleTax offers HMRC-approved MTD-compatible software and a specialised bridging software product that can help you comply with MTD.

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