Making Tax Digital bridging software: what is it and how much does it cost?

Making Tax Digital is on the way and bridging software is the easiest way to become MTD-compliant for those who need to prepare.

Making Tax Digital comes in on 1st April and VAT-registered businesses with a taxable turnover of more than £85,000 must have the right software in place for it.

However, it seems that many don’t. HMRC’s own research indicates that one in five firms (19%) that are required to be MTD-compliant by the beginning of April haven’t even heard of it.

What’s more, over a quarter (27%) of firms haven’t started preparing for Making Tax Digital at all. A further one in five (23%) have received quotes for software that will make them compliant but are yet to purchase access to any.

Small firms say that putting MTD-compliant software in place this year will cost a substantial £564 on average. The price is in the form of one-off charges or annual subscriptions.

Bigger businesses will be hit with higher costs. Those with a turnover between £500,001 – £1 million will have an average £872 bill for their MTD-compliant software. Companies with a turnover of more than £1 million will spend £1,019 on average.

“Small firms say that putting MTD-compliant software in place this year will cost £564 on average”

For business owners who still want to use their Excel spreadsheets, there’s a cheaper option: bridging software. It cheaper than the full shebang, only guiding you through the last steps of submitting your return.

It’s also one of the easiest ways to ensure that you’re MTD-compliant, making it an ideal option for businesses who are rapidly running out of time.

What is bridging software?

Bridging software communicates with HMRC’s systems for Making Tax Digital, allowing data to transfer to HMRC from your spreadsheets.

Bridging software is particularly relevant if your business is partially exempt and you need to do complex calculations outside your accounts package.

Alternatively, your business could be using bespoke software which isn’t compatible with Making Tax Digital.

Why do I need it?

You need to use bridging software in conjunction with your spreadsheets if that’s what you want to use to keep your VAT records.

“For some small businesses the additional cost and complexity of using accountancy software, even user friendly and relatively cheap options, may not be appropriate. A spreadsheet solution may be all that is required for them to comply with the new digital records requirements.

“Therefore, in order to meet the filing requirements under MTD, they will require bridging software to enable the VAT return submission,” says Michael Ball, director of Streets Chartered Accountants.

Bridging software doesn’t deal with other elements of Making Tax Digital compliance, such as digital record keeping, so it should only be treated as a temporary measure.

Which bridging software can I use?

HMRC has a rundown all of the compatible software that’s currently available – there are 61 different types of bridging software alone, but none are endorsed by HMRC itself. For more, check out the list of Making Tax Digital software on the website.

We’ve picked out a small handful of examples to give you an idea of what’s out there.

QuickBooks Bridging Software

There’s no need to do the full QuickBooks set-up if you just want the bridging software. You can add more features at a later point.

It has two packages available. Essentials, which is £7 for the first six months (reverts to £18), allows up to three users to do a number of tasks including sending invoices on the go.

The Plus package is £11 a month for the first six months and £27 thereafter. It has the same functions as the Essentials package for up to five users as well as creating budgets and purchase orders, managing stock and tracking costs by project, location or budget.

Tax Optimiser

The Basic package is normally £30 a year, but you can get it free for your business in the first year.

TaxCalc VAT Filer

Prices for TaxCalc VAT Filer start at £75 per year and are frozen until April 2019.

CHM MTD Bridge

This one charges per submission (£7.50 plus VAT). You can download a spreadsheet and try it out for free, though.

Is there free bridging software?

“My understanding is that a lot of these are actually only free for the first year after which there is a fee, often on a monthly basis,” says Ball.

He’d be correct. As with the examples above, you can swing a free trial, but that’s about it.

Further reading on Making Tax Digital

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Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business.

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Making Tax Digital