What is MTD bridging software & do businesses need it?
Over 1 million businesses that are soon filing their first quarterly VAT return have to register by 27th July for Making Tax Digital (MTD). Why? Their taxable turnover is above the £85, 000 VAT-MTD threshold.
Is making tax digital compulsory?
Simple answer: yes. A lot of business owners or managers are feeling unprepared, so this article should assist with knowledge and structure.
A good place to start, even though late, is storing VAT records digitally. Bridging software can handle old spreadsheet data, and your VAT return via the new MTD will be easier.
Do not leave it to the 11th hour, as you may encounter contact issues with HMRC when 1 million other users are doing the same thing. An accountant or software provider would be a prudent tool to have on-board for this transition.
What is the best software for making tax digital?
MTD bridging software is permitted and will facilitate using spreadsheets for VAT returns, communicate data with MTD systems and assist with compliance. In short, it makes digital filing easier.
If you are using cloud-based MTD compatible software (e.g. Xero, QuickBooks, Sage etc.), you can give your tax advisor remote access. Older versions and small brand accounting software can also work without upgrades if you buy the bridging software.
Bridging software offerings are available from Absolute Software, Avalara, BTC Software, Intuit (QuickBooks), MTD Express, Neilson James Technology, PWC (free to charities), VT.
The license price points are approximately £40 pa. Professional licences are available.
MTD Express (MTDex) is a popular option. The examples below are based on MTDex:
Example 1: Factors = Company turnover >£1m. Old SAGE Line 50 software. Cloud upgrade not favoured. Solution = For £40 a year license. Remain the same—purchase bridging software.
Access your online account with your bridging software and upload your VAT 100. The software will read the VAT 100 and populate the API enabled VAT 100 in their system, ready for uploading from the bridging software.
A spreadsheet can work with a digital link to HMRC, provided by bridging software. Your spreadsheets should summarise into a worksheet aligned to the 9 Box VAT return.
Create a new worksheet using the bridging software to source the VAT 100 template. Download it and copy the cell links on your current VAT 100. Delete the old VAT 100 worksheet, and every quarter upload the templated VAT 100 into bridging software for the VAT return to be submitted.
Example 2: Factors = VAT registered IT contractor, taxable income >£100, 000. Excel spreadsheets. 30 April VAT returns stagger.
The various worksheets being utilised are for sales invoices+payments, purchase invoices and bank reconciliation. Hyperlinks exist from the bank recon worksheet to all other worksheets. A summary worksheet is for VAT returns with nine VAT return boxes hyperlinked to the appropriate cells in sales and purchase worksheets.
In MTD, the contractor can maintain the excel system but needs bridging software. After setting it up locally, the contractor must then do a communication set-up step and grant his software the authority to connect to HMRC via the bridging software links.
The contractor could manually capture his excel VAT return numbers into the bridging software. Next, the contractor could allow the bridging software to upload to the API gateway digitally. There is a one-year soft landing for digital links. A simpler solution would be to use the templated VAT form and upload the templated VAT return into the bridging software. This process would cover returns up to 30 April.
The process will change for the VAT return to 31 July 2020 as the ‘grace period’ or soft landing period for manual uploads has ended. The contractor must now upload the excel VAT return into the bridging software which is facilitated by all bridging software.
Now that your beloved spreadsheets are safe in this cloud and digital era, you can breathe a sigh of relief as well as see that the bridging of them is easy. Desktop access to the internet is needed, then logging into your bridging software and uploading your templated excel VAT 100.
The API enabled VAT100 is then populated automatically from the imported file. And you finish with submitting your return.