You’ve probably seen the software adverts all over LinkedIn. “Buy me” “No, buy me!” Why is that? It’s because Making Tax Digital is on its way and you’ll probably need software to help you comply. Making Tax Digital (MTD) will eventually require all people and businesses to submit their tax returns online. To do this, you’ll need software that acts as a “digital link” between your data and HMRC.
There are two kinds of digital link software you can choose: 1) An API enabled software, or 2) A bridging software. Here’s more on those:
1) API enabled software
API enabled software has the capability to send data to HMRC built into it. There’ll likely be a send button for you to press and that’s it, everything is done.
Lots of the bigger service providers such as Sage offer products with API enabled software. And we recommend Microsoft Dynamics 365 Business Central. Why’s that? Well, lots of businesses are using MTD as an opportunity to take stock of their current accounting systems to see if they’re working hard enough – especially with further MTD changes coming up in the future.
Microsoft Business Central is an all-in-one solution that also allows you to link up your different Microsoft tools such as Word, Excel and Outlook. Plus, it’ll help you create ways to look at your business’s financials, forecasts and use data to make decisions. It has a payment model built to expand with your business. And if you don’t think you’ve currently got the right systems in place to help your business grow, it could be what you’re looking for.
2) Bridging software
Bridging software is different. It acts as a link between your spreadsheets or bespoke software and acts as a bridge (or a digital link) to HMRC. We think it’s a cost-effective solution if you’re using bespoke software. Or, if your systems are so old and creaky it could be a good short-term solution to make sure you’re being compliant whilst causing minimal disruption. We’ve been recommending Bridging software to clients too, so get in touch and we’ll point you to the right place.
HMRC estimates that the UK has a tax gap of £25bn. This is the amount of tax they’d expect people or business to pay that hasn’t been paid. Of the £25bn, they estimate £9bn is down to honest mistakes in people’s VAT returns.
Therefore, Making Tax Digital has started with everyone’s VAT returns. It’ll require you to file your VAT returns online. And it only applies to you if your business has a taxable turnover above 85,000, the VAT threshold. From 2020, its likely to include other areas of tax too. But HMRC is waiting to see how VAT goes first.
Choosing the right software
This really depends on what you’re after. If, with other tax areas going digital in the future, you decide to use this prompt to revitalise your software and help your business grow, Microsoft Business Central is a very good solution. If not, we’re recommending a bridging software to some of our clients.
But before that, we’re asking people to check to see if they’re using software already that has API enabled software built into it. Lots of the big software providers provide a compliant solution. But it’s down to you to check what you’re using and whether the version you have is up to date.
MTD software providers
HMRC has published a list of the software suppliers providing a compliant solution. This list will grow in time. And eventually, it’s likely most accounting software will have to have this capability built in.
Our software solution
Microsoft Dynamics 365 Business Central already has the capability to help you submit your VAT returns, as well as a whole load of other benefits for businesses. If you’re interested, get in touch and we’ll be able to help you set this up.
Before this, we’d recommend checking what software you’re using at the moment to see if it’s compliant too. If you’re using Excel spreadsheets or bespoke software, it might be best to invest in bridging software.
Check out our latest blog posts here: Melissa Hemsley’s Life Hacks & Making Tax Digital for Businesses..