Keeping your spreadsheet for MTD: bridging software and digital links

Gareth is fictional, but plenty of people will recognise him. He has worked as a self-employed decorator for years, and for the last ten of them he has kept every job, invoice and receipt in one tidy spreadsheet, with a tab for each year and a formula that totals everything up. When he heard that Making Tax Digital (MTD) for Income Tax would bring him into quarterly reporting, his first question was whether he would have to give the spreadsheet up. This guide walks through how GOV.UK answers that question, what bridging software does, and which of the bridging tools Acrenvo tracks might fit.

What MTD asks of the records themselves

It helps to start with what HMRC means by a record, because the rules build on it. A digital record is a record of your income or expense that is created and stored using software that works with Making Tax Digital for Income Tax. Each record needs the amount, the date the income was received or the expense was incurred and the category. Making Tax Digital for Income Tax uses the same categories of income and expenses as Self Assessment. For Gareth, that means the columns he already keeps for his Self Assessment return still do most of the work.

MTD does not replace the paperwork behind those records either. You still need to keep the original records or supporting documents (or copies of them) that you use to prepare your tax return, such as bank statements and invoices. So the folder of receipts stays where it is, alongside whatever software he ends up using.

Where a spreadsheet needs help is in getting the figures to HMRC. The sending is the job of compatible software, and GOV.UK sorts that software into two kinds. GOV.UK describes two types of software for MTD for Income Tax: software that creates digital records, and software that connects to your existing records, such as those held in spreadsheets. Gareth’s spreadsheet can carry on holding the records, but on its own it is not the software that sends his quarterly updates, which is why the second type of software exists.

What bridging software does

Bridging software is the link between a spreadsheet and HMRC. Software that connects to your records will connect to existing records kept in spreadsheets or other accounting tools, and it is sometimes referred to as 'bridging software'. GOV.UK gives the example that matters most for Gareth: if you use spreadsheets to record income and expenses, bridging software can connect to them and make your submissions to HMRC. In practice, he keeps entering his jobs and costs in the spreadsheet as he always has, and the bridging tool reads the figures it needs from there when an update is due.

GOV.UK is careful about what bridging products cover, so it is worth checking what each one does before choosing. GOV.UK says there are some bridging software products available that let you send quarterly updates and submit your tax return. GOV.UK also allows a mix of products. You can choose to use more than one software product, but you can only use one product for each separate submission that you need to make to HMRC. You can use different products for each task, for example one for creating records and sending your quarterly updates and another for submitting your tax return. If you use more than one product, you need to make sure they can work together to meet all your Making Tax Digital for Income Tax requirements.

What a digital link is, and why it matters

The digital link is the part of the rules that keeps the figures honest on their way from the spreadsheet to HMRC. If you use more than one software product, you need to digitally link your record-keeping software and the software that uses your records to make submissions to HMRC. You should do this when you set up the compatible software, or before you send your quarterly updates or submit your tax return. You do not need to digitally link your software to other products if you use a single software product to do everything. Because Gareth would be using a spreadsheet and a bridging tool together, the link applies to him.

GOV.UK gives these examples of ways to link records digitally:

• Using linked cells in spreadsheets, for example a formula in one sheet that mirrors the source's value in another cell, where the cells are linked.
• Emailing a spreadsheet containing digital records, so the information can be imported into another software product.
• Transferring a set of digital records onto a portable device, such as a memory stick, and physically giving it to someone who imports the data into their software.
• XML or CSV importing and exporting, and downloading and uploading files.
• Using an automated data transfer.
• Using an application programming interface (API) transfer.

GOV.UK is just as clear about what a link is not. Once you have created a digital record and it has been sent to HMRC in a quarterly update, you must not manually move the record within your record-keeping software or to other software. Its examples of what you must not do are copying information by writing it out in another cell or in other software and using 'cut and paste' or 'copy and paste' to move records. Those examples point to why the link matters: a figure retyped by hand can change on the way, while a linked figure arrives as it was recorded. GOV.UK frames that rule around records already sent in a quarterly update, and it does not describe copying before that point separately, so the simplest habit is to let the link carry the figures from the start.

Some things do not need a digital link at all. GOV.UK lists:

• Records of income that is not self-employment or property income, such as dividends or savings.
• Software that is not used to create digital records of self-employment and property income and expenses, such as a booking system or a till that records sales receipts.
• Software that is only used to submit your tax return, because that software gets the data directly from HMRC.

Correcting a mistake when your records live in a spreadsheet

Mistakes happen in any set of records, and GOV.UK expects the correction to start where the record lives. If you create digital records in separate record-keeping software, such as a spreadsheet, you should make the correction there and then digitally link your records to your bridging software. If you make the correction during the tax year, it will be fixed when you send your next quarterly update. That keeps the spreadsheet as the single place where Gareth’s figures are right, rather than leaving one version in the spreadsheet and another in the software. If you have already sent your fourth quarterly update, you can either correct the digital record and resend your fourth quarterly update, or adjust the category total in your software and also reflect it in your digital records.

The bridging tools Acrenvo tracks

Three of the products in Acrenvo’s dataset are bridging tools. Their entry prices run from £2/mo to £6/mo, and the dearest listed plan among them is £14/mo. For all of them the entry figure either excludes VAT or does not say how VAT is treated, so the billing note under each price is worth reading before you compare them. Each name links to its full profile, and the notes are the ones recorded when the product was last checked.

When full accounting software may suit you better

A bridging tool makes most sense when the spreadsheet is already doing its job well. If you would rather the software created the records for you, GOV.UK describes software that creates digital records by linking to your business bank account to import transactions automatically, scanning receipts and invoices or manually entering your income and expenses. If a bank feed is what draws you towards full software, GOV.UK adds a note of care about that as well. If you use software that connects to your bank account to help you create digital records, you may need to add extra detail, such as the Self Assessment category, and some transactions may need to be created separately because they do not appear in full in the bank feed.

In Acrenvo’s dataset, bank feed import is recorded for 11 of the 14 full accounting products and for one of the three bridging tools (Taxd). All software in HMRC's software finder has been through HMRC's recognition process, and HMRC does not recommend any product or software provider. Acrenvo does not recommend one either, so the comparison table and the software selector are the places to weigh the options against your own setup.

The GOV.UK guidance on digital records and the GOV.UK guidance on choosing software cover these rules in full. The main MTD guide covers the wider rules, and penalties are covered separately in the MTD penalties guide.

Questions spreadsheet users often ask