Making Tax Digital: Cloud accounting software users report more benefits than those using only bridging software, study reveals

VAT-registered businesses that use fully compliant Making Tax Digital (MTD) software have more time on their hands and make fewer mistakes than those using only bridging software, a study has revealed.

The research, published by HM Revenue & Customs (HMRC), suggests that 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 will be required to complete quarterly digital VAT returns, regardless of income.

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.

Those using MTD-compliant software reported benefits including:

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.

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