Where is the bridging software to plug the MTD gap?
One of the unresolved mysteries of Making Tax Digital is how and when tools will become available to let businesses transfer spreadsheet-based VAT calculations into the new end-to-end MTD for VAT system.
With the VAT pilot scheme now in its early stages and mandatory online filing less than a year away, the spreadsheet question cropped up again and again in the recent Accounting Excellence Talk on MTD.
During the live webcast, panellist Rebecca Benneyworth explained, “One of the key bits HMRC emphasises in the regulations is that it must be end-to-end digital. It’s fine to take data from some software and then push it through a spreadsheet. If your VAT affairs are extremely complicated, you probably will still have to do that.
“But HMRC says is that is not to be rekeyed. It’s got to be electronically transferred and then submitted from the spreadsheet, or from the spreadsheet back into the product and submitted from that.”
The spreadsheet question is of equal importance to practitioners advising small businesses and large groups with complex VAT arrangements, she continued.
When VAT came up on the rails, she suggested officials visited some large companies to see how they did VAT. In one instance, a company had 23 linked spreadsheets to work out its partial exemptions across the group.
“It was at that point HMRC realised they would have to allow data to pass through spreadsheets,” Benneyworth said.
What is MTD bridging software?
The initial digital taxation proposals cut spreadsheets out of the loop. However, after encountering complex issues such as those described above and intense lobbying from accountants, professional bodies and various select committees HMRC comprised, coining the snappy term ‘bridging software’ in the process.
When HMRC talks about bridging software, this is more than likely to come in the form of an add-in widget that you bolt onto a spreadsheet to transfer the data without rekeying.
Such a solution has been tested on the income tax side, and as the MTD for VAT pilot progresses in the next few months, more such bridging tools are likely to come forward, Benneyworth said.
Companies coming forward
Webcast participant David J asked the panel: “When will HMRC approve software providers' bridging software for those many many (mostly smaller) clients who rely on Excel spreadsheets for their VAT records and returns?”
HMRC’s answer is that commercial developers will provide the bridging software in time for the April 2019 go-live. Companies such as Clear Books, TaxCalc, Wolters Kluwer and DataDear are beginning to come forward with solutions.
Clear Books Micro, for example, replaces a client’s Excel spreadsheet with an equivalent, free online grid program to record sales, cash in and expenses, while the £75 TaxCalc VAT Filer app will import VAT data from a spreadsheet to feed an online MTD for VAT submission.
A public sighting at Accountex
MTD bridging software proved to be an elusive creature at last week’s Accountex in London, but some intrepid seekers found their quarry at the stand of DataDear.
An add-on developer for Xero and QuickBooks Online, DataDear starts from the premise that the business will operate its spreadsheet records in tandem with one of the main online systems. Once a basic ledger has been created for the organisation, it will be able to push data from DataDear’s validated spreadsheets to Xero or QuickBooks Online and filed with HMRC from there (the validated sheets will be filled in by the business user/accountant).
Big Four intrigue
For seasoned MTD watchers, one of the more intriguing aspects of the programme is how the Big Four accounting firms will bridge the spreadsheet gap. Serving the richest, most complex multinational clients across a multitude of different tax regimes, they cannot simply adopt a plug-and-play solution and hope for the best.
Rumours have reached AccountingWEB’s ears that at least two of the four are testing bespoke bridging solutions, although no one was available to comment for this article.
John’s ‘Stok-take’ - Bridging software
When the government changed horses from MTD for income tax to MTD for VAT, it seriously wrong-footed almost all of the developers serving the accounting profession. Specialist tax and practice developers understand how to build code around HMRC specs and regulatory requirements and had invested millions in retrofitting their compliance programs for MTD for income tax. All that work is “effectively redundant” in the words of Xero UK managing director Gary Turner as attention turns to VAT.
VAT invoices and returns are normally recorded in bookkeeping applications like Xero, Sage, QuickBooks and the rest. They tell us that all MTD for VAT needs is a little tweak to swap in the MTD equivalent of the VAT 100 return. But with a few exceptions, these developers don’t really get all the workflows, tracking and data queries that go on within a typical accountancy practice.
Specialist practice developers, meanwhile, are all trying to work out how they’ll link to the VAT bookkeeping engines to access filing dates, tax totals and payment details that should be available via HMRC’s emerging application programming interfaces (APIs). Sage, IRIS, Wolters Kluwer all have feet on both sides of the VAT fence and should be able to cater for all requirements. BTCSoftware and TaxCalc have made the necessary arrangements, while Forbes Computer is said to be courting VT Transaction+ users with a spreadsheet bridging tool.
On the ledger side, QuickBooks Online has a two-way interface with Taxfiler (now owned by IRIS), while Xero is working on a partner strategy with the likes of Thomson Reuters and IRIS.
FreeAgent already handles self assessment returns from its bookkeeping platform and has been an MTD enthusiast for years. Like Clear Books, FreeAgent has confirmed it will have an MTD-ready VAT return output option before too long.
As we have seen from the varied bridging tools that have surfaced so far, such a complex combination of situations and applications is spawning all sorts of different technical approaches. Keep an eye on AccountingWEB as the MTD for VAT pilot progresses, when we hope to compile a more detailed guide to the available applications.
For a detailed look into the mechanics of MTD for VAT and how to prepare your firm and clients, see the May Accounting Excellence Webcast, What’s ahead on the road to MTD?
Additional reporting from Tom Herbert.
You might also be interested in
AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.