MTD bridging software: keep your spreadsheet for Making Tax Digital

Bridging software connects records you keep somewhere else, usually a spreadsheet, to HMRC. It takes your figures and sends them as a Making Tax Digital quarterly update, then submits your tax return at year end. You do not have to move your bookkeeping into new software.

HMRC’s guidance says that if you use spreadsheets for your records, you can continue to use them. You need software that connects to them and makes the submissions, which HMRC says is sometimes called bridging software.

HMRC does not provide software. Its software finder lists products that have been through its recognition process, and HMRC does not recommend any of them.

Full bookkeeping software holds your records itself. Bridging software leaves your records where they are and handles the sending. Both have to send quarterly updates and submit your tax return.

If you are happy with your spreadsheet, bridging software is usually the smaller change. If you would rather stop using a spreadsheet, bookkeeping software keeps the records for you. Our article on what MTD bridging software is compares the two in more depth.

Yes. A Making Tax Digital spreadsheet in Excel, Google Sheets or another spreadsheet app can hold your digital records. Each record needs the date, the amount and a category, and MTD uses the same categories as Self Assessment.

What matters is how the figures move. If you use more than one product, the records must be digitally linked. Formulas that link cells count. So do importing and exporting a CSV file, and downloading and uploading files. Retyping a figure, or copying and pasting it, does not count.

Once a record has been sent to HMRC in an update, you must not move it by hand. If something is wrong, correct it in your spreadsheet and the correction goes into your next update.

Your spreadsheet should hold one row for each transaction, with its date, amount and category. Keep separate records for each business. All your UK lets count as one UK property business, but each self-employment business needs its own records.

Add up your figures with formulas for the tax year so far, from 6 April (or 1 April if you chose calendar update periods) to the end of the update period. That is what each quarterly update sends. Landlords keep residential finance costs, such as mortgage interest, on their own line.

• One row per transaction: date, amount and category
• A separate set of records for each business
• Totals by category for the tax year so far, made with formulas
• Residential finance costs on their own line for UK property

The routine is the same each quarter. You keep your records up to date, let the formulas total them, save a file and upload it. The software shows you the figures before anything goes to HMRC.

Because each update covers the year so far, a mistake in an earlier quarter is fixed by correcting the spreadsheet. The corrected totals go in your next update.

1. 1Record each transaction in your spreadsheet as it happens
2. 2Check the totals for the tax year so far
3. 3Save the sheet as a CSV file
4. 4Upload the file to your bridging software
5. 5Check the income, expenses and profit, then send your quarterly update by HMRC’s deadline

HMRC’s standard deadlines are below. Each upload is for the tax year so far, so the totals grow each quarter. If your accounting period runs from 1 April to 31 March you can choose calendar periods instead, before your first update of the year, and the deadlines stay the same.

Your own deadlines come from HMRC and show in your software and your HMRC online account. You can send up to 10 days before a period ends if you expect no more transactions.

If a business has turnover of less than £90,000, HMRC allows what it calls simpler categorisation. You can send one total for income and one total for expenses. At £90,000 or more, HMRC needs your expenses split into categories. SimpleTaxFlow calls these Simple and Detailed.

The test is for each income source on its own. If turnover reaches £90,000, you must split all records for that source into full categories before your next update, and HMRC says to use full categories from the start if you are unsure. Landlords always keep residential finance costs on their own line.

In SimpleTaxFlow you answer once for each business and tax year. If recorded turnover reaches £90,000, Detailed applies for that tax year and the next. A forecast alone never carries forward.

A fictional window cleaner keeps a spreadsheet with one row for each job and each cost. His turnover is under £90,000, so he sends one expenses total.

Before 7 November he checks the sheet, saves it as a CSV file and uploads it. He then spots a missed £200 job from August, adds it to the spreadsheet and uploads again before he sends.

Bridging software has to do more than send quarterly updates. After your fourth update, you make year-end adjustments, such as allowances and removing costs you cannot claim, by changing the annual total for a category. You also add any other income, such as savings interest or dividends.

Then you submit your tax return through the software by 31 January after the tax year ends. HMRC calls the tax return under MTD the final declaration. When you choose bridging software, check that it can do this part as well as the quarterly updates.

A spreadsheet works well for MTD, but a few habits break the rules or send the wrong figures.

Most of them come down to two things: keeping the link digital and sending the year to date.

• Retyping totals into the software instead of uploading the file
• Copying and pasting figures from one spreadsheet into another
• Uploading only the latest quarter instead of the tax year so far
• Keeping two businesses in one set of totals
• Putting mortgage interest in with other property expenses
• Choosing bridging software that cannot submit the tax return

In SimpleTaxFlow you open your quarterly update, answer the turnover question and upload your spreadsheet as a CSV file. You can download a totals template from your quarterly update, or import a self-employment CSV in GoFile’s layout. The file holds your totals for the tax year so far.

You choose the date the figures go up to, and can add any later days in Money. Uploading again replaces your last upload for that business and tax year. You see your income, expenses and profit as HMRC will receive them, then send, and the exact figures and the date and time sent are saved.

Bridging software suits sole traders and landlords who already keep a spreadsheet and are happy with it. It also suits people who want the simplest route to Making Tax Digital without learning a full accounting package.

If you would rather not keep a spreadsheet, you can record income and expenses in Money instead. Bookkeeping in SimpleTaxFlow is free.

• Sole traders with a spreadsheet of sales and costs
• Landlords who own their UK property on their own
• Anyone under £90,000 turnover who wants to send one expenses total

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