The concept of bridging software is to act as a link, or a 'translator', between two different networks. The term 'bridging software' has become more common since April 2019, when as part of HMRC's Making Tax Digital scheme, bridging software has been necessary to provide a connection between spreadsheets and HMRC's digital tax portal. This applies to businesses that prefer to keep their accounts data in spreadsheets as opposed to dedicated accounting software that is compliant with the Making Tax Digital scheme. This means that VAT returns must be readable by HMRC's own software to ensure a successful VAT return submission.
Why do businesses use bridging software?
Bridging software is particularly relevant if your business has a specific reason that it needs to use spreadsheets for accounting. This may be because you need to do complex calculations outside your accounts package, or that you cannot find an accounting software package that meets the precise needs of your business. Businesses are legally required to keep their accounting records digitally, and VAT submissions must be made via HMRC’s Making Tax Digital API. When the scheme was introduced, HMRC did not provide any form of bridging software to allow businesses to be compliant, meaning that they were reliant on third party software to make the necessary connection.
It is important to note that on its own, bridging software does not fulfil the other requirements of Making Tax Digital, such as digital record keeping and maintaining digital links between data. Additionally, you or your accountant may have to perform further calculations to get spreadsheet data into the format required by the bridging software. In this respect, bridging software is simply a means to an end in ensuring that you can set up your systems correctly.
What are the alternatives to using bridging software?
For businesses that are reliant on spreadsheets, bridging software is essential. If it is possible to migrate the data away into a more integrated solution, accounting software will provide the necessary digital connection with HMRC's portal. The two factors at play here are customisability and peace of mind - spreadsheets can allow far more flexibility than some off the shelf accounting solutions, whereas this creates an additional headache with ensuring HMRC compliance.
All of the following platforms are compliant with Making Tax Digital:
- Free Agent
- Zoho Books
- Sage Business Cloud Accounting
For bespoke software solutions that offer the benefits of both spreadsheets and off the shelf systems, contact Point100 for a free no-obligation consultation today. Contact us to find out more.