Bridging software allows businesses to link their financial records to HMRC in a way which complies with Making Tax Digital rules. Quite literally, it ‘bridges’ gap between non-compatible records and HMRC so that tax information can still be shared.
What are the Making Tax Digital rules?
Making Tax Digital, or MTD for short, was introduced to change the way businesses keep financial records. There are two broad requirements; businesses must keep their tax and finance records digitally, and must use special software to send this information to HMRC on a regular basis. The scheme is being rolled out in three separate stages:
- MTD for VAT
- MTD ITSA (Income Tax Self Assessment)
- MTD Corporation Tax
Already in place for VAT-registered businesses, MTD for Income Tax Self Assessment will replace the current system of annual Self Assessment tax returns as we know them. Again, it will mean MTD-compatible software will be necessary instead of simply entering information through an online return portal.
Whilst it’s tempting to put it off and hope a smooth transition magically happens, it’s probably going to make life easier to start thinking about it sooner, rather than later. MTD ITSA rules will start from April 2026 for self-employed taxpayers and landlords earning more than £50,000. The threshold reduces to £30,000 from April 2027.
Making MTD compliant submissions
Not all digital record-keeping systems include a direct connection to HMRC. Although you can use them to record data, you’ll need separate bridging software to connect your records to HMRC systems. Spreadsheets are a common example, but you’ll also find some accounts software in this category too.
If you’re looking for an all-in-one solution which you can use to keep compliant records and make submissions, double check that your software provider is MTD approved before signing up for anything! We’ll say this in a (stage) whisper because we’re being subtle: You can make MTD VAT submissions with Pandle.
Is there any benefit to using bridging software for MTD submissions?
Most businesses have spreadsheets so we’re usually very familiar with using them which, in turn, makes them seem like a safe bet. If you’re feeling nervous about abandoning your current spreadsheets completely, then using bridging software can help you make the switch in a more gradual way.
Bridging software can be a helpful tool but there are limitations. The main one being that although it allows you to make MTD-compliant submissions, it won’t help you meet other requirements like electronic record-keeping.
The upshot is that business owners still need to use their own spreadsheets and software alongside it. That means data is in multiple places, and you’ll need to spend time messing around with imports, exports, downloads, uploads… As such there’s a much higher risk of errors or confusion, and they’re not words anyone likes to associate with their VAT return.
There’s also no guarantee that bridging software will comply with MTD requirements in future. It’s for this reason that it should really be treated as a stop gap – a short-term fix if you like. It’s great now for VAT, but if any further data is needed by HMRC in future then a more permanent, comprehensive solution is needed.
Choosing MTD-compliant accounting software
If you’re ready to take the plunge and choose MTD software with all the bells and whistles, research it just like any other business decision. For example:
- What does your business need?
- What solutions are available that can help you save time, and reduce the risk of any errors?
- Do you have a budget?
- Will other people, like staff or your accountant, need access (that you can control)?
It’s also worth making sure that they appear on HMRC’s list of approved MTD software!
Learn more about using Pandle to make business accounting easier. Create a free account or use Pandle Pro for £6 a month.
