Several bridging software programmes that allow businesses to submit VAT returns as part of new Making Tax Digital rules (MTD) have become available free of charge.

Businesses with an annual turnover above £85,000 are required to keep digital VAT records for accounting periods that begin on or after 1 April 2019.

These need to connect to HMRC’s system directly through a “digital link”, which means the online nine-box VAT return can no longer be filled out manually by MTD-eligible businesses.

The lowest cost option for businesses to be compliant is to use bridging software which provides the digital link from VAT records stored on a standard spreadsheet, such as Microsoft Excel, to HMRC’s system.

At present, a list on the HMRC website states that 74 private firms offer MTD-compatible bridging software for VAT, with more programmes still in development. Several packages are available to download and use free of charge, such as Avalara and Data Dear.

Other programmes are free for an initial period, with a fee charged later. For example, Vital Tax is available free for the first year with £12/year charged thereafter. Some bridging software is available to download free, but a fee is charged for each VAT return submission, such as File My VAT Return, which charges £7.50/return.

Another option is to use accounting software to both file records of business transactions and submit VAT returns. Most companies offer a 30-day free trial and have a range of programmes at various prices, with the most basic packages starting from around £10/month.

The direction of travel within HMRC is to introduce MTD for income tax, which would involve filing digital records of business transactions quarterly for tax calculations.

HMRC confirmed earlier this month that MTD for income tax will not be introduced next year, with April 2021 now seen as the earliest possible start date.

Low-cost bridging software that is currently available is for VAT submissions only, and will not cover income tax, whereas most accounting software is MTD-compatible for income tax.

Agents

According to Gabrielle McArdle from accountancy firm Cavanagh Kelly, most local farmers are planning to avail of the third MTD option – ie using an accountant or bookkeeper to submit VAT returns on their behalf.

To keep costs down, farmers are encouraged to file business transactions on a spreadsheet so that agents are only needed to check over and format records before submitting VAT returns through MTD software. A typical cost of this service is around £25/return.

“Some farmers are planning to move onto annual VAT returns instead of four per year to keep costs associated with submitting VAT returns down. Although after April 2021, quarterly filing will be needed again for income tax,” McArdle said.

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