HMRC's Making Tax Digital (MTD) initiative is foremost amongst several significant trends that are helping drive businesses to move their accounting records online through the use of accounting software. Industry, regulatory and technology shifts include the increased use of cloud technology, as well as the digitisation of tax and compliance systems. We examine this growth and ask what businesses should look for when selecting the right online accounting package for their requirements.
The implementation of Making Tax Digital for VAT (MTD for VAT) in April 2019 was clearly a major driver in the uptake of online accounting software, as evidenced by one major supplier growing its UK customer base by over 50% this year.
Although the initial MTD for VAT returns have now been made, there were around 1.1 million organisations that were able to defer its introduction until the final quarter of 2019, due to their complex VAT requirements. Meanwhile, HMRC will continue to phase in other elements of MTD in the coming years.
What are the benefits of online accounting software?
Broadly speaking, online accounting software will bring a number of benefits to a business. These include the ability to automate the bookkeeping processes, improvements in managing workloads and speeding up the payment process.
Some packages will help businesses predict cashflow better and forecast management accounts. Others can help businesses with financing, from online bank accounts to instant flexible loans. A few software providers have linked up with high street banks, a move which allows lenders to offer financial solutions, including funding, products or advice, directly through the platforms to customers.
There are over 400 software solutions listed on HMRC's website and each will have its own functionality. However, these systems only have to satisfy a minimum set of requirements to be recognised by HMRC, so finding the functionality that suits a business's own unique requirements is essential. HMRC-compliant software must be able to create a digital VAT return from digital records and submit a VAT return via the HMRC Application Programming Interface (API). End-to-end solutions need to keep digital VAT records, including summary data; store records for six years; and be able to receive information digitally from HMRC.
There are several other factors that firms will need to weigh for themselves, including functionality, cost, longevity and the ability to exchange information with other IT systems.
Reviews of the available online software accounting packages suggest that the sector is blessed with a number of well-designed and easy-to-use systems. These will not only make it easier for businesses to manage their accounts and track profits but will also ensure they are ready for the firm's accountant too, thus reducing costs. Some accounting packages are downloadable software, but it is increasingly common for applications to run in the cloud, so they can be accessed on devices while on the move.
A prime cost in implementing MTD will be systems integration, potentially requiring a change management project. Ease of integration is therefore fundamental if the business is to reduce this cost. Firms should look to diminish the capability for error by minimising the amount of human input and protecting access to data. Restrictions should limit data manipulation and determine when and by whom any changes are made. Solutions must also be able to scale on demand with the needs of the business.
Those organisations that need to comply with MTD for VAT will clearly need to find a system that is able to automate complex VAT calculations. Deferred businesses typically need to be able to aggregate large volumes of data from across groups and third parties and handle a diverse range of VAT calculations, such as groups, exemptions and charges, which would benefit from being automated.
It is likely that HMRC will introduce near or real-time reporting of transactions, while MTD for corporation tax is expected sometime after 2021, so a system that is ready to deal with further regulatory change is essential.
Our team are familiar with all types of online accounting packages and can help you to choose the correct accounts software. To benefit from our expertise, please contact us.