Cloud Accounting Businesses
Making Tax Digital for Business
Following consultations, that Richard Sexton & Co were involved in, and considerable resistance from the Accounting bodies and Businesses, HMRC have put back the date that VAT registered businesses will be required to report on a quarterly basis via digital records to 1 April 2019 (from 1 April 2018 as proposed in Autumn Statement 2015).
The first step to Making Tax Digital will see the requirement from 1 April 2019 for sole traders and partnerships with turnover in excess of the VAT threshold to submit their VAT information to HMRC through Making Tax Digital software. HMRC have now confirmed that they will not be offering their own free digital software and so businesses will need to be processing their accounts through a compatible package. This does at least mean that initially, it is largely only businesses already used to quarterly reporting who will need to comply.
At a date no sooner than 1 April 2020, other businesses will need to comply with quarterly digital reporting. To HMRC this will include any of the following with a turnover in excess of just £10,000: –
Sole traders Partnerships Landlords Companies
As part of Finance Bill 2017 (08/09/17), more detail as to how the system will work has been published. The quarterly reports will be called “Periodic updates” to be followed by an “End of period statement” at the end of a basis period for those with a trade or at the end of the tax year in all other cases. The filing deadlines for the End of Period Statement will remain 31 January as for self-assessment and quarterly reporting will be in line with current VAT filing deadlines.
Penalties for failing to keep accurate records are charged from £500 for the first offence, any continuing offence for failing to improve record keeping thereafter will be penalised with a further fine. As filing is going to be mandatory for more detailed information, it becomes more important for all businesses to be on top of accurate record keeping.
When is it best to make the change?
We feel that it may be beneficial for many businesses to make the change to digital (cloud) accounting before it becomes mandatory as there are several benefits. Making the change will inevitably mean some extra work in getting used to a new system but as with many new systems it should be beneficial in the longer term. The chosen digital system can be tailored to each individual business and the implementation of digital record keeping can be sorted out before any compulsory quarterly reporting begins.
We would recommend that you should make the change to cloud accounting at the end of your accounts year or (if not the same) then the nearest VAT quarter. So although April 2019 or 2020 may seem like quite a while into the future, you may only have one year end before then!
Most cloud systems are based around uploading bank transactions (or having a direct feed from your online bank account) and the software is designed to recognise frequently used suppliers and match receipts to sales invoices. It should make routine processing and book-keeping faster and more accurate.
The benefit of having a cloud based system will be that the business would be able to obtain a real-time view of how the business is operating and thus assisting in business decisions. Reports are available that show monthly sales/expenses, aged debtors or creditors lists (to enable the business to keep a track of outstanding amounts owed to the business and by the business) and monthly VAT reports to help the business budget and plan for future VAT liabilities. In all systems there is a dashboard screen on login which gives a snapshot of net profit (over a given time period), balances at the bank and cash in hand and with some packages you also have access to cash flow forecasts.
How we can help
We would be happy to discuss which system will work best for your business and help to set up your cloud accounting package to fit your needs. We currently subscribe to QuickBooks, Sage One and Kashflow (and can therefore obtain favourable rates) but also have a number of clients using Xero, Freeagent and Farmplan so feel that we are well placed to consider the merits of each system. We are Quickbooks ProAdvisors, Sage One Certified Advisors and we are committed to constantly improving our knowledge to provide the best support to your growing businesses.
We are happy to provide assistance at the level you need it: from entering every transaction; reviewing your entries by regularly logging in and providing guidance for the more complicated transactions. The cloud systems mean that we will have the ability to log in to access your records easily at any time (which would be beneficial when going through particular transactions with you remotely, simultaneously being able to view the same screen from our respective computers) in order to provide the support you require. The software providers also provide support so can help with processing issues if required.