VAT: build bridges not walls

Hitting a wall with your VAT return? Bridging software could be a solution for Making Tax Digital, suggests Moore Stephens Associate Matthew Grief


From April new HMRC legislation will mean that all VAT registered businesses will have to submit their VAT returns using ‘functional compatible software’. One of the questions I get asked most frequently is whether spreadsheets count as compatible software. The answer is complicated. In itself, a simple standalone spreadsheet does not meet the criteria. However, you can continue to use a spreadsheet for keeping your VAT records provided you use a piece of ‘bridging software’ to submit the relevant information directly to HMRC. Bridging software is going to be an important solution for businesses where all or any of the following criteria apply:
● The business is partially exempt and needs to perform complex calculations outside the accounts package;
● The business is part of a VAT group;
● The business already uses bespoke software which is not currently Making Tax Digital (MTD) compatible;
● Business owners are not confident at moving from spreadsheet or manual records and so do not wish to adopt a full accounting software solution.

Bridging software communicates with HMRC’s systems for Making Tax Digital purposes and allows the relevant information to transfer through to HMRC from a spreadsheet format. In essence, bridging software will replicate the look of a VAT return and will be incorporated into the spreadsheet workbook that the business records are held in. The user will link the VAT return boxes from the bridging software to the relevant figures in their spreadsheet business records and once completed, the MTD/VAT submission can be made using the appropriate login and passwords for the Government Gateway.

As the links between the business records and the submission to HMRC are digital, this means that the process is MTD compliant. It is distinct from a situation where figures are kept within a spreadsheet which is then manually keyed into the Government Gateway to submit the VAT return (which is not MTD compliant). Whilst we believe that migration to a full cloud-based software package such as Sage, QuickBooks or Xero is the right step for most businesses in terms of ensuring compliance with the new Making Tax Digital regulations, for some businesses bridging software and spreadsheets may be the only practical solution for the foreseeable future. There are a number of different bridging software options currently on the market, including Tax Optimiser, Absolute Excel VAT Filer and Tax Calc. Prices start from around £30 to £40 per year. Other providers have indicated that they are currently developing free bridging software but, at time of going to press, these aren’t yet available to purchase/use.

Moore Stephens

If you need any further advice about compliance with Making Tax Digital for VAT regulations, please contact Moore Stephens on 01733 397300.

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