What is MTD bridging software? Bridging vs bookkeeping

Making Tax Digital for Income Tax needs two things: digital records of your income and expenses, and software that can send quarterly updates and your tax return to HMRC. HMRC does not provide that software. You use a commercial product that works with MTD.

Bridging software is the link between the two when your records live somewhere else. HMRC describes software that connects to existing records, such as spreadsheets, and makes the submissions, and says it is sometimes referred to as bridging software. Your spreadsheet stays your record. The bridging software reads the totals and sends them.

This article is about choosing between bridging and full bookkeeping software. For how keeping a spreadsheet works under MTD, read our MTD bridging software page.

If you use more than one product, for example a spreadsheet and bridging software, HMRC says the records must be digitally linked. The figures must move from one to the other by a digital process, not by a person typing them again.

Retyping figures into another cell or product is not allowed, and neither is copy and paste or cut and paste. Once a record has been sent to HMRC in a quarterly update, you must not move it by hand.

• Allowed: linked spreadsheet cells and formulas.
• Allowed: XML or CSV importing and exporting, and downloading and uploading files.
• Allowed: emailing a spreadsheet to be imported, or handing over a pen drive for import.
• Allowed: automated transfer and API connections.
• Not allowed: retyping totals into the bridging software, or copy and paste.

Both kinds of software can be on HMRC’s list. The difference is where your digital records are created and kept, and how much of your routine moves into the product.

Bridging software suits you if you already keep a tidy spreadsheet and do not want to change how you work. It also suits people whose accountant or bookkeeper keeps the records in a spreadsheet, and landlords with a few properties who track rent and costs in a simple sheet.

Full bookkeeping software suits you if you do not keep records yet, if your spreadsheet has become hard to manage, or if you want income and expenses recorded in the same place you send from. It removes the digital link between two products, which is one less thing to get right.

You do not have to choose forever. HMRC says you can change software at any time, although the end of the tax year is easier. If you change from bridging software, you must unlink the old software, and you keep the old records for at least 5 years after each 31 January deadline.

HMRC publishes a tool to find software that works with Making Tax Digital for Income Tax. All software listed has been through HMRC’s recognition process. HMRC does not recommend any product or provider, and it cannot give advice about specific products.

If you are a sole trader or landlord, the finder asks you a few questions and gives you a personalised list.

1. 1Open HMRC’s Find software that works with Making Tax Digital for Income Tax page on GOV.UK.
2. 2Say which MTD income sources you have: self-employment, UK property or foreign property.
3. 3Say which other income you need to report in your tax return, such as a job, savings or dividends.
4. 4Choose whether you want to create new digital records or connect to existing ones. Connecting to existing records is the bridging route.
5. 5Give your accounting period: standard tax year, calendar update periods or neither.
6. 6Check each product on the list against your needs on the provider’s own website before you sign up.

HMRC’s guidance on choosing software lists the things to check. Use it for bridging and bookkeeping products alike.

One more rule matters if you plan to use two products. You can only use one product for each separate submission. A landlord cannot split the UK property updates across two products, for example.

• It covers all your income sources and any other income you need to report.
• It can send quarterly updates and submit your tax return, not just one of them.
• It fits your accounting period.
• It supports more than one agent if you use one.
• It supports HMRC Assist.
• The price, noting that free products may limit the number of transactions.

A fictional self-employed gardener keeps a spreadsheet with one tab for income and one for expenses. Turnover is well under £90,000, so the gardener sends one income total and one expenses total. The next update covers 6 April to 5 October, and HMRC’s standard deadline for it is 7 November.

Updates are cumulative, so this one covers the tax year so far, not just July to October. Here is how the quarter runs from spreadsheet to HMRC.

1. 1Record each payment received and each cost in the spreadsheet as it happens.
2. 2After 5 October, check the totals in the spreadsheet for 6 April to 5 October.
3. 3Export the totals as a CSV file in the layout the bridging software asks for.
4. 4Upload the file. Do not retype the totals.
5. 5Check the figures the software shows match the spreadsheet, then send the update before the deadline.

Some products do both. SimpleTaxFlow is on HMRC’s software list and works as bridging software: you can import a totals CSV for the tax year so far, or keep simple books in Money and send from there.

Whichever route you pick, the deadlines are HMRC’s. Your own quarterly update deadlines come from HMRC and show in your software and your HMRC account.

Tax rules can change and your circumstances matter. Use HMRC’s current guidance to confirm what applies to you.