What is Bridging Software & How Can It Help Your Business?

Keeping your business tax-compliant can be a significant headache. For VAT-registered businesses whose turnover exceeds £85,000 per year, Making Tax Digital (MTD) has provided yet another compliance hurdle to navigate. But while your first instinct may be to see this as an obstacle, it has the potential to make life easier. You can use bridging software to communicate data from your records directly to HMRC.

Here, we’ll look at the function of bridging software and how it can help your business to simplify MTD compliance. But first, let’s look at what MTD is. 

What is MTD?

Making Tax Digital came into effect on 1 April 2019. It is a new set of rules for how businesses report and submit their VAT returns to HMRC. One of the key stipulations is that businesses must submit their VAT returns online.

This requires data to be submitted in a format that may be at odds with your internal accounting. Some businesses use all-in-one accounting software, while others prefer to use Excel spreadsheets. As a result, some companies may struggle with MTD compliance more than others. 

That’s where bridging software comes in. 

What is bridging software?

External bridging software acts as a translator between HMRC’s systems and your internal record-keeping systems. So you don’t have to learn a whole new method of reporting your VAT returns in order to be MTD-compliant. 

If like many businesses, you prefer to keep your records in the form of Excel spreadsheets, bridging software can make the data in your spreadsheets readable by HMRC’s portal. 

Do I need bridging software?

If you’re currently using an all-in-one accounting solution, this may either already be designed for MTD compliance, or have its own bridging software to ensure that your data is MTD compliant. 

However, if you still use Excel spreadsheets (and intend to keep doing so), these cannot be communicated directly to HMRC, and you will need to use bridging software as a middleman.  

Does HMRC have its own bridging software?

Alas, no. HMRC does not provide a uniform bridging software platform for businesses to use. Instead, it has left the market open for third parties to bridge the gap between Excel spreadsheets and HMRC’s MTD portal. 

Of course, this means additional investment and expense on your part. Bridging software platforms cost around £560 per year on average, although some packages are free in their first year. Some only charge per submission rather than charging a year-round subscription. 

Here are some of the best:

• QuickBooks Bridging Software

• CHM MTD Bridge

• TaxCalc VAT Filer

• Tax Optimiser

What are the alternatives to using bridging software?

If you’re adamant that you want to continue using Excel spreadsheets for your VAT return, you’re going to have to use bridging software to stay MTD compliant. However, if you’re open to the idea of moving away from Excel and towards a more integrated solution, you may benefit from using an online accounting platform instead. 

While you may have to get used to keeping your records in a slightly different way, you’ll have the peace of mind that comes with knowing MTD compliance is taken care of. 

All of the following platforms have MTD baked into their proverbial crust:

• Xero

• KashFlow

• Free Agent

• Zoho Books

• Quickbooks

• Sage Business Cloud Accounting

We can help

If you’re interested in finding out more about bridging software, Making Tax Digital, or any aspect of your business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.