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Where is the bridging software to plug the MTD gap?

30th May 2018
Editor in Chief (interim) AccountingWEB
In association with
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a bridge too far

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.

May accounting excellence sponsors Intuit QuickBooks

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.


Replies (92)

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By JCresswellTax
30th May 2018 16:39

John’s ‘Stok-take’

I see what you did there John, Cheesy but I see.

Thanks (1)
By ireallyshouldknowthisbut
30th May 2018 18:29

One wonders who the lowly client is supposed to file their VAT returns.

HMRC seems to forget many small business don't even hire an accountant to do the VAT, they file in year and the accountant has look to make sure they haven't made a hash of it at the year end.

Where are those clients solutions to a problem of HMRC's own making?

If I was a betting man I would happily bet £250 on even odds it will be voluntary (if at all) by April 2019.

Fundamentally there is NO benefit to any side of this, its just a face saver for HMRC for canning full MTD.

If you cant key in 4 numbers correctly into your VAT return, then the rest of your accounts will be garbage anyway given you will already have made 100's of keying entries. Something which seem to bypass the "brains" at HMRC who seem to think the data arrives by magic and photos of receipts (obviously)

We will be slamming in one quarterly sales invoice and two quarterly purchase invoices (one with VAT, one without) into whatever system we use and reccing it back to the 'real' accounts. HMRC wont care if the tax is right.

Thanks (11)
Replying to ireallyshouldknowthisbut:
By Tornado
30th May 2018 22:41

"If I was a betting man I would happily bet £250 on even odds it will be voluntary (if at all) by April 2019."

I think there is NO chance that MTD for VAT will be mandatory from April 2019.

This article sums up nicely the current situation with Bridging Software, and the current situation seems to that we are no wiser than we were this time last year.

I am even more intrigued now to know how bridging software will be able to magically extract the correct information from my spreadsheet based accounting system without getting a programmer in to tell it what to do. Likewise for tens of thousands of businesses, many of whom do not even know yet that MTD for VAT is coming.

Thanks (7)
Replying to ireallyshouldknowthisbut:
By Peter-S
31st May 2018 10:56

ireallyshouldknowthisbut wrote:

We will be slamming in one quarterly sales invoice and two quarterly purchase invoices (one with VAT, one without) into whatever system we use and reccing it back to the 'real' accounts. HMRC wont care if the tax is right.

I have seen this as a tempting 'solution' for some while now. I certainly have little inclination and, more crucially, the time to teach clients who do not want to know anyway how to computerise their accounting systems. All by next summer and without the proper availability of software to do it.
I hope HMRC are planning on hiring more helpline staff for next July when Joe Public finds he can't use HMRC software anymore and doesn't know what to do about it.

Thanks (3)
Replying to ireallyshouldknowthisbut:
By Wyn Lewis
31st May 2018 12:21

Those who don't hire an Accountant don't need to worry. They know nothing about it for some reason! and as I've mentioned here before, I wonder why. I agree, the word 'voluntary' is what I expect to see before the end of this year, it cannot possibly work any other way. Yes, many may say I'm naïve, but I remember software providers telling me that pre April 2017 when I said it would all be postponed. I also think it's pretty appalling that HMRC promote SAGE, what's that all about?

Thanks (3)
Replying to Wyn Lewis:
By Tornado
01st Jun 2018 09:34

"I agree, the word 'voluntary' is what I expect to see before the end of this year,"

Reviewing the chaotic way in which this is being handled, I am now thinking more along the lines that MTD for VAT will not even be voluntary from April 2019 and will simply not happen.

In my opinion now, there is absolutely no chance that HMRC, software developers and businesses will all have the necessary fully tested systems in place by April 2019, not even for a voluntary system.

It is easy for HMRC to continue trying to kid us otherwise as they have nothing to lose. They still have the ultimate last minute 'get out ' which is to just cancel the project and carry on as before.

As I have mentioned before, I think Mel Stride is going to be the scapegoat for all of this as he does not seem to have any real understanding of this project, and is being 'set up' as the person responsible for its ultimate failure.

Thanks (1)
By SteveHa
30th May 2018 22:28

I'd have a little more confidence in HMRC's requirements if HMRC were to exhibit even a modicum of understanding of technology.

Let's look at the most basic example that most teen schoolchildren these days could handle. Logging in.

Login in to the agent portal. Now, how many times did you have to enter your credentials? Once, twice, three times?

How many times last time.

Is there any consistency whatsoever?

Personally, I've started to think of it as a three number lottery. If I get in on the first go, jackpot.

The problem is, this is fundamental stuff, and by no means the worst that HMRC do with tech (possibly one of the most annoying).

So will MTD ever work. My guess, not whilst an understaffed, and demotivated HMRC are calling the shots.

Thanks (4)
Replying to SteveHa:
By Tornado
31st May 2018 10:00

I have only prepared a few 2018 Tax Returns as yet and I already have two instances where Exclusion 70 is applicable. This necessitates filing the Tax Returns on paper and all the hassle that goes with that.

No one can really take HMRC's grand ideas seriously when they cannot even create basic software that is able to calculate tax liabilities correctly ... two years in a row.

I also note that there are 31 (11/05/18) other current exclusions which are still waiting to be fixed. It is disgraceful really.

The tax system is far too complex and needs to be simplified before embarking on fancy digital projects. Even the very simple action of changing the year end to 31st March or some other logical date would help. It is laughable that a massively complex tax system is shackled to a reporting date of 5th April!


Thanks (5)
Replying to Tornado:
By leon0001
31st May 2018 10:40

Until 1752, the beginning of a new year was on Lady Day (the liturgical anniversary of The Annunciation of our Lord to the Blessed Virgin Mary), which falls on 25 March. The year end for financial purposes fell on 24 March.
When Great Britain adopted the Gregorian calendar in September 1752, eleven days were skipped.
In order to preserve a fiscal year of 365 days, the year end was extended to 5 April 1753. It has remained as 5 April since then.

Thanks (8)
Replying to leon0001:
By kevinringer
31st May 2018 10:46

I know the historic "why" but I still ask "why". We are the only advanced economy in the world that has a fiscal year that does not finish at the end of the month. The next most important economy that does this is Iran. It causes no end of bother. CT converted to 31 March in 1965. SA brought the end of PYB. I don't see why the fiscal year cannot change. Personally I would change it not to 31 March but to the calendar year because even 31 March causes some confusion. Eg when HMRC refer to 2017 for income tax they are referring to 2016-17 but 2017-18 for CT.

Thanks (2)
Replying to kevinringer:
By johnjenkins
31st May 2018 11:15

When PYB went to SA many of us asked that the year end be either 31st march or dec 31st and that this would be a great time to change it. We also asked for balancing payments and on account payments to be changed to 31st march and 30th september, but unfortunately we were dealing with Gordon Brown.

Thanks (1)
Replying to leon0001:
By raybackler
31st May 2018 11:00

WOW! I never knew and more worryingly, never thought to ask.

Thanks (1)
Chris M
By mr. mischief
31st May 2018 08:15

The total lack of any credible specification from HMRC is driving the "myriad solutions". They really are utter numpties, the HMRC top brass!

If I were running a pizz up in my local brewery I most certainly would not sub-contract any part of it to HMRC!

Thanks (2)
By booksy
31st May 2018 09:56

Good article Thank you John

Thanks (1)
By johnjenkins
31st May 2018 10:35

Now let