Bridging software for Making Tax Digital

Making Tax Digital (MTD) for income tax comes into force from April 2026, initially affecting sole traders and landlords with a qualifying income of more than £50,000. 

The government initiative aims to modernise the tax system by requiring small businesses to maintain digital records and submit tax returns via MTD-compatible software. VAT-registered businesses must already use MTD for VAT.

To meet the MTD requirements, businesses can choose between full accounting or bridging software. This guide focuses on bridging software, explaining how it works and which businesses it might best suit.

Key takeaways

• Bridging software connects your spreadsheet records to HMRC’s systems, so you can meet MTD requirements without changing your bookkeeping methods

• Full accounting software is more comprehensive, integrating expenses, invoices and bank feeds in one place

• Bridging software is most suited to sole traders and small businesses with simple financial records

• It may become more difficult to stick with spreadsheets as MTD expands, and you may need to invest in full accounting software in the future

What is bridging software for MTD?

Bridging software for MTD is a tool that connects your existing records to HMRC’s systems. It works by providing a digital link between data stored in Excel spreadsheets (or other accounting tools) and HMRC’s MTD platform, acting as a "bridge" between the two.

Bridging software is more lightweight than full accounting software, which is usually cloud-based and integrates your bookkeeping, invoicing and financial reporting in one system. However, bridging software still enables you to send updates and submit your tax returns to HMRC as required under MTD rules – it just doesn’t help you prepare them. 

For bridging software to be MTD-compatible, it must be developed using HMRC’s application programming interfaces (APIs), which enable the secure transfer of financial data through a digital link. 

What are digital links? 

Digital links enable the electronic transfer or exchange of data between different software programs or systems. Once you’ve entered data into the software your business uses, any further transfer of that data must be automatic, through digital links.

Under MTD rules, you can’t copy, paste or manually retype the figures when moving them between programs. This is to ensure information submitted to HMRC is consistent and tamper-proof.

Who needs bridging software for MTD?

You need some form of MTD-compatible software if your business is required to use MTD (either now, due to being VAT-registered, or in the future).

If you’re a sole trader or small business that prefers using spreadsheets for record-keeping, you might choose bridging software because you can connect your spreadsheets to the HMRC software. This then pulls through the data and sends it to HMRC’s system.

However, bridging software is generally best for businesses with simple financial records, because it doesn’t check for errors or highlight missing information. If the data in your spreadsheets is incomplete, bridging software still submits it. 

Bridging software vs full accounting software

Before deciding whether bridging software is right for your business, you should consider the differences between this type of program and full accounting software. 

Bridging software

• Primary purpose – Acts as a link between your spreadsheet records and HMRC, so you can file MTD tax returns without switching to full accounting software

• How it works – Pulls figures from your spreadsheets or other records, and sends them to HMRC via an API

• Record-keeping – You can still maintain your records separately, usually in spreadsheets

• Functionality – Limited. It doesn’t handle invoicing, expenses or reporting, or flag obvious errors

• Cost – Usually cheaper than full accounting software

• Best for – Businesses with simple records or who want to carry on using spreadsheets

Full accounting software

• Primary purpose – To handle all day-to-day bookkeeping, from invoicing and expenses to reporting and tax, in one place and meet MTD requirements

• How it works – Stores and manages all your financial data within the software itself, often by linking to your business bank account and scanning receipts and invoices. It automatically prepares and submits updates and tax returns to HMRC

• Record-keeping – Everything is digital

• Functionality – Invoicing, expense tracking, reporting, forecasting, basic error-flagging and sometimes payroll

• Cost – Subscription fees tend to be higher, but it depends on the features you require

• Best for – Businesses with more complex finances or those who want to automate tasks

Pros and cons of using bridging software

Pros

• You usually pay less for bridging software than for full accounting software, which can appeal to small businesses

• Can suit businesses that already manage financial records through spreadsheets or other systems, and don’t want to switch

• It’s usually quick to get up and running

• You can still make MTD-compliant submissions without switching software

Cons

• It only handles tax submissions and doesn’t manage invoicing, expenses reporting or cash flow insights 

• It doesn’t cover all MTD requirements, such as maintaining digital records

• You’re still responsible for keeping spreadsheets up to date, which can lead to errors

• Most bridging software doesn’t include additional support, such as tax return deadline reminders or error checking