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Making Tax Digital for VAT – Choosing the Right Software

18th December, 2018

Making Tax Digital for VAT – Choosing the Right Software

As I’ve previously discussed, businesses that fall within the remit of the Making Tax Digital for VAT regime will need to have some form of software in place that is compatible with HMRC’s Making Tax Digital platform in order to submit their VAT returns to HMRC.

Broadly, there are three different types of software that businesses can choose from: Making Tax Digital for VAT compatible software, bridging software, or an Application Programming Interface (API) enabled spreadsheet.

How do I know which type of software is right for my business?

 There’s no perfect, one-size-fits-all solution when it comes to deciding which software will be best for your business under Making Tax Digital for VAT.

However, as a rule, businesses that are heavily reliant on one or more spreadsheets to process their VAT returns may prefer to use either a bridging solution or API enabled spreadsheet to comply with Making Tax Digital, as under this method businesses should still be able to use spreadsheets to prepare their VAT returns.

On the other hand, businesses that aren’t as reliant on spreadsheets to process their VAT returns or that use cloud-based accounting software may prefer a Making Tax Digital compatible software solution. This is offered by several different online accounting software providers, such as Xero and QuickBooks.

Digital links

Another issue to consider when deciding which software is right for your business is the matter of digital links.

Where two or more pieces of software are used to keep VAT return information (for example, where a business relies on multiple spreadsheets to prepare a VAT return) then a digital link should be in place between each piece of software under Making Tax Digital for VAT.

Although HMRC will not enforce this during the first year of the regime as a soft landing period will be in place, digital links must be in place from 1 April 2020 where they are required. As a result, any business currently using multiple software programmes to prepare and store VAT returns and records will have to carefully consider whether they will be able to meet this additional digital link requirement when it is finally introduced.

What are the benefits of Making Tax Digital compliant software?

 Despite the advantages that some businesses may see in using a bridging software solution or API enabled spreadsheet to submit their VAT return under Making Tax Digital, there is an argument to be made that opting for fully functional Making Tax Digital for VAT compliant software is a better choice for most businesses.

This is because:

  •  It lets you see your business’ VAT information and overall performance in real time;
  • It can help your business meet the digital recordkeeping requirements under Making Tax Digital for VAT; and
  • It may be faster in the long-term to prepare and file a VAT return with HMRC using such software.

What’s more, if your business exclusively uses an online accounting software provider such as Xero to store its VAT records and submit its VAT return, then there should be no need to worry about having digital links in place, which would otherwise be required if your business used multiple pieces of software or spreadsheets to prepare VAT returns.

Future-proof your business under Making Tax Digital

While businesses may find it easier at first to use bridging or API enabled software to comply with Making Tax Digital for VAT, particularly if that business has a heavy reliance on spreadsheets, ultimately exclusively using an online Making Tax Digital compatible software provider such as Xero would be a preferable choice for many businesses.

Not only does such Making Tax Digital for VAT software allow businesses to meet the regime’s digital recordkeeping requirements, but it also makes it very easy to send VAT returns to HMRC while doing away with the need for digital links if used exclusively.

If you have any further questions about which type of Making Tax Digital software would be right for your business under Making Tax Digital, give us a call at Advantage Accountancy & Advisory on 029 22 331169

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