How bridging software can ease the transition to Making Tax Digital

How bridging software can ease the transition to Making Tax Digital

The introduction of bridging software under MTD will allow businesses to continue using some of their same processes going forwards

Making Tax Digital (MTD) for VAT will go live on 1 April 2019 for all UK businesses with taxable turnover over the VAT threshold of £85,000.

The market is flooded with content and advice about MTD, which can be overwhelming. The key is to fight through this noise and focus on the fundamental change: by the 1 April deadline, you will need to begin keeping digital records and filing your VAT returns using software. This software must be able to communicate with HMRC digitally via its Application Programming Interface (API).

One of the main problems facing accountants is the time it may take to guide their clients through the MTD process to compliance in time for the deadline. Especially when different clients are likely to be at varying levels of digital readiness, meaning some will take longer to become compliant than others.

One of the main problems facing accountants is the time it may take to guide their clients through the MTD process to compliance in time for the deadline.

Fortunately, HMRC have put initiatives in place to help make this job easier, including the introduction of a year-long soft-landing period where links between software products will not need to be digital. Additionally, the introduction of bridging software allows firms to continue using spreadsheets if they wish.

Getting ready for MTD

Before MTD was announced, accounting firms’ clients were (and still are) at varying levels of digital readiness. Some were already embracing state-of-the-art technology, while others continued to use processes that had always worked well for them in the past, like manually-maintained spreadsheets.

According to RSM research carried out by YouGov, there could be up to 888,000 VAT-registered businesses in the UK who will not be prepared for MTD by the deadline in April, which is around a third of all businesses which need to be ready.

No matter how prepared your firm is at this stage, you can make the most of MTD as an opportunity for growth. Apart from anything else, it gives accountants a greater chance of getting in front of current and prospective customers to advise and train on MTD, therefore facilitating discussions about other ways you can work together.

For those who choose to continue using spreadsheets there is no need to change the way they work completely. HMRC have allowed bridging software to be part of the process, meaning data can be pulled from spreadsheets into HMRC software.

What is bridging software?

HMRC often get asked ‘do spreadsheets count as functionally compatible software’, as the regulation dictates.

Bridging software essentially allows the continued use of many current processes for submitting VAT returns in the future by allowing the use of spreadsheets in line with MTD systems. Accounting firms can again use this to appease clients who are nervous about changing their processes because of MTD, assuring them that many aspects of their VAT returns process will be similar.

Accountants can, again, give their clients some preference when it comes to preparing for MTD and promise them some familiarity going forwards with bridging software.

How to use bridging software

If accountants need to help their clients go down the bridging software route, they will need to start by helping the customer choose their software solution.

Depending on what you are looking for, the best approach to this might be looking at all-in-one solutions for MTD, incorporating tools for VAT, Income Tax and Digital Tax Account functionality.

The key difference between the old manual processes and the new digital filing is that business records are completely digitally linked from the initial data to submission to HMRC.

Following this, the VAT return information that is contained within a spreadsheet will be required to digitally link to the chosen bridging software solution.

When this has been completed, the VAT submission can be made to HMRC with this information passed from the bridging solution to HMRC via API’s.

The key difference between the old manual processes and the new digital filing is that records are completely digitally linked from the initial data to submission to HMRC. This is very different to a user manually entering the details of the nine boxes of a VAT return into HMRC’s online service.

MTD as an opportunity

One key reason for having a fully digital journey is to remove the risk of error. Manual entering of data, where accountants type in the nine figures into HMRC’s online service, leave a high chance of human error. The aim is to make the process of completing VAT returns more accurate and efficient.

MTD is an opportunity to review your current VAT process and drive greater efficiency. If the transition is handled correctly, MTD will transform businesses and if accountants can be part of their customer’s journey towards this, they will reap rewards in the form of new and continued work and growth.

Whether you are a small business owner or an accountant supporting their client in their MTD journey, be sure to explore what bridging software can offer you further and get more information on what is out there to support you with MTD.

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