How bridging software can ease the transition to Making Tax Digital

Content courtesy of Accountancy Age:

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 overhaul current processes.

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 were (and still are) at varying levels of digital readiness. Some were already embracing state-of-the-art technology (Dunkley's), 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 or how digital your client’s business currently is, they can make the most of MTD as an opportunity for growth. So 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?

A commonly asked question to HMRC is ‘do spreadsheets count as functionally compatible software’, as the regulation dictates.

Bridging software essentially allows businesses to continue using many of their current processes they are familiar with for submitting VAT returns in the future. This is good news for businesses who rely on spreadsheets in their current processes, as their process does not need to change, it need only be adjusted.

So 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 you need to help your client 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.

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 business 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 positively transform businesses.

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