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Cloud accounting vs bridging software – New study reveals best approach for businesses

A new study has found that VAT-registered businesses that use fully compliant Making Tax Digital (MTD) software make fewer errors and spend less time on compliance and administration than those using only bridging software.

According to the research from HM Revenue & Customs (HMRC), the ongoing benefits of cloud accounting software far outweigh the costs.

The report comes ahead of the full introduction of MTD for VAT in April 2022, when all VAT-registered businesses, including those below the £85,000 turnover threshold, will be required to complete quarterly digital VAT returns, regardless of income.

This will be followed in subsequent years by the further introduction of MTD for Income Tax, and eventually, a similar system for Corporation Tax. 

According to the study, small businesses (defined as those with fewer than 30 employees and an annual turnover of less than £10 million) that are using fully compatible software report more positive changes than those using only bridging software.

In fact, those SMEs using MTD-compliant software, such as cloud platforms, reported benefits including:

  • Reduced scope for error
  • Significant time savings
  • Increased VAT confidence
  • Greater financial confidence, insight and control
  • Reduced emotional stress and anxiety.

Under MTD for VAT, businesses can choose to adopt fully functioning digital accounting software (such as Xero, QuickBooks, or Sage), or use MTD bridging software, which acts as a digital channel between a business’ spreadsheets and HMRC’s proprietary software.

The latter is usually cheaper but does not include additional transformative features, such as integrated billing and invoicing, payroll automation, financial forecasts and analysis, collaborative tools, and more.

If you need assistance with implementing new digital accounting systems, please contact our specialist Digital Solutions Team at enquiries@stca.co.uk or 01494 552100 or your usual Seymour Taylor representative today.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 21 March 2022.