Starting New MTD Software? Don’t Forget Your Opening Bank Balance

If you’re setting up new Making Tax Digital (MTD) bookkeeping software, one of the most important steps is entering the correct opening bank balance.

A bank feed will usually import transactions from a date you choose, but it will not always know how much money was already in your bank account before that date.

For example, if your bank feed starts on 6 April and your bank balance at the end of 5 April was £2,500, your software should begin with an opening balance of £2,500.

If this opening balance is missing, the bank balance shown in your bookkeeping software may never match your actual bank account, even if every imported transaction has been entered and reconciled correctly.

What is an opening balance?

An opening balance is not income or sales. It is simply the amount of money already in the bank account when you started using the software.

Getting this figure right from day one helps ensure your records remain accurate and avoids unnecessary reconciliation problems later on.

Are bank feeds safe?

Many sole traders feel nervous about using bank feeds because they are unsure how they work. In reality, bank feeds are a safe and convenient way to import transactions directly into your bookkeeping software.

You normally approve the connection through your own online banking, and you remain in control of the connection at all times.

Do I have to use a bank feed for MTD?

No. You can still enter transactions manually into a spreadsheet or MTD-compatible bookkeeping software.

However, manual entry can be very time-consuming, particularly if you have a large number of transactions. It is also much easier to make mistakes, such as:

• Missing transactions

• Entering transactions twice

• Using the wrong amount

• Allocating transactions to the wrong category

A bank feed reduces manual typing, saves time and makes it easier to check that every transaction has been included. You still need to review and categorise each transaction correctly, but much of the information is imported automatically.

Don’t be caught out by “free” bookkeeping software

As you start looking at bookkeeping software for Making Tax Digital, you’ll almost certainly come across providers advertising “free” software.

Before signing up, take a little time to read exactly what is included.

Many free versions are intended as introductory products and may restrict the number of transactions you can enter each month, limit access to bank feeds or other useful features, or only provide basic functionality. For some very small businesses these may be perfectly adequate, but for many sole traders they quickly become restrictive.

It is quite common for people to spend time setting up their business, learning how to use the software and importing their data, only to discover they need features that are only available on a paid subscription. By that stage, moving to a different package can feel like more hassle than simply upgrading.

There’s absolutely nothing wrong with software companies charging for additional features, but it’s important to understand what you’re signing up to and what the ongoing costs will be. Don’t choose software simply because it is advertised as “free”—choose software that will continue to meet your needs as your business grows.

A little research at the beginning can save both money and frustration later on.

The key message

Bank feeds can make digital bookkeeping quicker, easier and more reliable, but they work best when the opening bank balance is entered correctly from the outset.

Likewise, taking time to choose the right bookkeeping software can save you from unexpected costs and unnecessary headaches in the future.

If you’re preparing for Making Tax Digital and are unsure where to start, don’t worry—you don’t have to work it out alone.

At VA Business Services, we can help you choose the right software for your business, set it up correctly, connect your bank feeds, enter your opening balances and make sure your bookkeeping is ready for Making Tax Digital.

Whether you’re a sole trader, landlord or small business owner, we’re here to help you make the transition to MTD with confidence.

Need help preparing for Making Tax Digital?

Get in touch with VA Business Services today and let us help you choose the right software and get everything set up correctly from day one.