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Dictionary
Debitoor's accounting dictionary
Bridging software

Bridging Software - What is bridging software?

Bridging software is an external piece of software used to communicate information to HMRC in the correct format if you choose to continue using spreadsheets for your accounting when Making Tax Digital comes into effect on the 1st of April 2019.

Debitoor has been approved by HMRC as Making Tax Digital software, offering a fully-compliant solution for your online VAT returns. Try it for free with a 7 day trial.

What are my options for Making Tax Digital?

There are a few options under Making Tax Digital rules in regards to how you go about submitting your VAT return to HMRC. One of the main rules is that the VAT return must be submitted online. This can be done via external bridging software for people still using spreadsheets, or directly from online invoicing and accounting software for those who have moved to an all in one solution.

This is where the distinction between online accounting software, Excel spreadsheets, and the need for bridging software occurs.

Who needs bridging software for Making Tax Digital?

If you're not using an online accounting solution and prefer to continue using spreadsheets for your accounting needs, then you'll need to have a way to communicate information needed for your VAT return online directly to HMRC. This is due to new rules from the 1st of April as part of the Making Tax Digital scheme.

The purpose of bridging software for Making Tax Digital

Bridging software acts as the middleman (sort of like a translator) between your Excel spreadsheet and HMRC's portal for submitting your VAT return online. As part of HMRC's Making Tax Digital scheme, all those who meet the requirements must keep digital records and submit their VAT return online straight to HMRC themselves. To remain compliant with this, digital records you have kept, and the VAT return you submit must be readable by HMRC's own software to ensure that a successful VAT return submission occurs.

How to use bridging software, and how much it might cost

Unfortunately, HMRC themselves do not provide any form of bridging software for you to use - instead relying upon third parties to fill the gap. An unfortunate side effect of this is that practically all bridging software provided by these third parties is going to cost money, either in the form of a one off (larger) payment, or a monthly subscription fee.

What are the possible downsides of bridging software?

Bridging software is the only way you'll be able to continue to use spreadsheets for your accounting whilst remaining compliant with Making Tax Digital regulations. However, in practice there are a few things to overcome on the part of third parties that decide to offer bridging software solutions. Namely, how many use cases can be accounted for, and how good of a fit they will be for customers who use them.

Simply put - everyone has their own way of doing their accounting within Excel when it comes to spreadsheets. Some just use basic functions, while others have built their own system using Excel with lots of macros and other functions to streamline their process. The question is how well these bridging software solutions will handle taking data that has been manipulated in certain ways via functions and macros, and maintain it being readable by HMRC's own portal.

A possible solution to this variation issue is for HMRC to offer a standardised template for users who wish to use Excel and bridging software, so that there is a much lower chance of error when submitting a VAT return online via this method. However, currently there does not seem to be any discussion around potentially offering this.

Online accounting software as an alternative to bridging software

Online accounting software is a way to cut out the bridging software middleman between you and HMRC whilst making it easier to remain compliant with Making Tax Digital rules. If you're interested, or comfortable enough with the idea of moving away from Excel for your accounting needs, then you can find more information about the advantages and disadvantages with our moving from excel to online accounting blog post.

One thing to bear in mind is that regardless of whether you move to an online accounting solution, or you decide to use bridging software so you can still use spreadsheets - in either scenario you'll still have to pay a subscription fee.

Making Tax Digital Bridging software and Debitoor

Although not considered bridging software, Debitoor offers a well-rounded and full-feature solution for your accounting and invoicing needs. Features include invoicing, record keeping (in the way of receipts, expenses and document storage), bank reconciliation, and VAT reporting. This means that you can remain Making Tax Digital compliant from start to finish - from sending your invoices, tracking and receiving your payments, through to submitting your VAT return directly to HMRC.

Debitoor has now had approval by HMRC for Making Tax Digital. This means that plans that support VAT reporting will automatically become compliant with the new rules for VAT returns. You can now submit your VAT return directly to HMRC via our integration with ease.

If Making Tax Digital doesn't affect your business yet, then you'll still be able to create VAT reports with Debitoor so that you can submit your tax returns as you're currently doing.