Software for ‘Making Tax Digital’
Recently you will probably have seen software adverts all over LinkedIn. “Buy me” “No, buy me!” What are they all about? They are because Making Tax Digital is on its way and to comply, you’ll most likely need some new software. Making Tax Digital (MTD) will require all people and businesses to now submit their tax returns online instead of using paper methods. You’ll need software that works as a “digital link” between your data and HMRC to be able to submit these returns in the new digital only way.
There’s 2 main options for ‘digital link’ software: 1) API enabled software, or 2) bridging software. Find out more about the options below:
1) API enabled software
API enabled software is normally the best solution. It has the capability to send your data to HMRC built right into it. It’s usually as simple as having a send button for you to press and then everything is automated from there.
Several of the bigger service providers like Sage offer products that include API enabled software. However we recommend Microsoft Dynamics 365 Business Central. Why do we recommend it? Well, there are lots of businesses that are using MTD as an opportunity to review their current accounting systems and see if they’re working hard enough, and doing everything they need – especially now that further MTD changes will be coming up in the future.
Microsoft Business Central is a great all-in-one solution that also allows you to connect all of your different Microsoft products like Excel, Word and Outlook. It will also help you create ways to look at your business’s financials, forecasts and use data to make decisions. It can also expand with your business due it’s built in payment model – making it a genuine future-proof product that can grow with you as a business. This is why we highly recommend it to our customers, it is not only a great solution for the MTD changes, but if you think you don’t have the right systems in place now to help your business grow, Business Central could very well be what you are looking for.
2) Bridging software
The other option is bridging software. Unlike the API one-stop solution, it acts as a link between your spreadsheets or other bespoke software and acts as a bridge (or a digital link) to HMRC. It’s a cost-effective solution if you’re using custom bespoke software and need to continue to use this. If your systems are so old and creaky then it could also be a good short-term solution to make sure you’re being compliant without causing too much disruption and down time. We can also recommend Bridging software to clients too, so if you don’t think Business Central is right for you, just get in touch and we can review your current systems to recommend the best Bridging solution for your business.
HMRC currently estimates that there is a tax gap of £25bn in the UK. This is how much tax businesses and individuals are expected to have paid, but haven’t. Out of this £25bn gap, HMRC estimate that a £9bn shortfall is because of honest mistakes people make when filing their VAT returns.
So the Making Tax Digital changes are starting with everyone’s VAT returns. This change means everyone will need to file their VAT returns online going forward. It will only apply to you if your business has a taxable turnover of £85,000 or above, which is the VAT threshold. From 2020, this is likely to include other areas of tax as well. But for now HMRC is waiting to see how VAT goes first before rolling this out to other areas.
How to choose the right software for you
The right software choice will come down to what you’re looking to achieve. As other tax areas will be going digital in the future, if you want to use this opportunity to revitalise your current software and systems to help your business grow, then Microsoft Business Central is the perfect solution for you. However if you’re just looking to meet the minimum requirements without changing your current systems, then we would recommend a bridging software solution, and we would be happy to discuss the best options with you.
Before you start, we’d recommend checking to see if you are using software that is already API enabled. Many of the big software providers already have a compliant solution. But you will need to check what you’re currently using and if your version is up to date.
Current MTD software providers
HMRC has a list of the software suppliers that provide compliant solutions that you can check and this will be updated going forward. Eventually, most accounting software will need to be updated to have this capability built in, but now is the time to update if the software you use is not compliant.
Our recommended software solution
Microsoft Dynamics 365 Business Central has the capability to help you submit VAT returns, on top of a large range of other benefits for businesses. If you’d like to find out more, please get in touch and we can help set this up for your business.
The first step is to check what software you’re using now to see if it’s already compliant. However if you’re using Excel spreadsheets or other bespoke software, then investing in bridging software may be the best option. Feel free to get in touch and we’ll be happy to advise you on the best solutions for your business to get you ready for MTD.