MTD draft response: Accounting software
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Only point I would add to that Rebecca is that one of the "selling points" of software is that is intuitive and seeks to automatically post certain items.
I experienced this with a client recently who we had moved to an online digital platform from paper records to help her primarily with her sales invoicing.
Whilst the software did indeed import the entries for her from her bank, it failed to understand that Sainsbury's may mean cleaning materials, petrol, stationery or equally, and often, domestic shopping. This kind of data extraction discourages receipt led entry and even the likes of Receipt Bank, in reality, would find it hard to distinguish what is and is not a business expense for such a client.
Small business owners do not necessarily split business and personal spending in the way perhaps they should when managing their finances and, in that case, the result was an understatement of profit of circa £6,000 in a single quarter. The client didn't notice it as the software was effectively posting for her. More to the point the client does not have time to notice - she is trying to build a business up not learn to be a bookkeeper.
Intuitive software can cause careless mistakes through complacency and we all know they come with a 15% penalty if caught.
Making tax digital (for HMRC) should be compulsory e.g. CIS records becoming viewable to a sub-contractor but quarterly reporting and digital record keeping are unnecessary and, at the most, should be optional to those who see the genuine commercial value in doing so.
[quote=youngloch]
"Only point I would add to that Rebecca is that one of the "selling points" of software is that is intuitive and seeks to automatically post certain items."
Having had one our clients take on a cloud accounting package last year, after many years of using spreadsheets, I would also add that these packages also make assumptions about the VAT status of expenses. Going through their entries now, I am finding numerous examples of VAT inappropriately claimed (eg purchases through Amazon online), which they have not noticed. I hasten to add that they have always done their own VAT returns, otherwise I would have spotted the errors before.
Q 1: challenges for businesses that currently keep their records on paper or simple spreadsheets
This is cart before horse territory. What evidence have HMRC produced that record-keeping via software is automatically more accurate than via paper / spreadsheet? I certainly haven't seen any.
HMRC are wholly wrong and worryingly naïve to conflate in this way. It is true that, in general, larger businesses will use software and will keep better records than smaller ones. That better record-keeping, however, is a function of being larger and more business-like and not a function of using software as HMRC assume.
As any accountant in practice will know, though, that general "rule" is in any case so punctured with exceptions that it is barely a rule whatsoever. I for example still have a couple of larger clients who use paper / spreadsheet and keep meticulous books; I also have some smaller clients who use off-the-shelf software but which I then basically ignore because it is so badly / inconsistently written up.
Before proceeding any further down this route, therefore, HMRC need to be asked to present their "evidence" for critical review.
I look forward to reading other blogs.
Q1 -To some extent disagree on point 1. It is time all businesses should go digital. If spreadsheets work, that should be acceptable.
At times forced change is the only way . This is one of those times.
I am pro MTD. It is the way to go.
Q 2: What information and guidance would you find helpful in choosing the appropriate software for your business?
It isn't HMRC's role to act as a cheerleader for the software industry. Like everything else in life, if a business case cannot be made for using product X (software in this case), then it shouldn't be used. Simple as that.
So, come on HMRC. Let's actually hear the business case for compulsory digitisation of business record-keeping before leaping to the conclusion that it is actually necessary.
I cannot see any justification for imposing digital record keeping on my clients. Those who are VAT registered have become competent in on line filing of information. RTI, on the other hand, still presents problems to my most digitally aware clients. I have no objection to quarterly filing of information (VAT return style) but to impose the use of digital recording is a step too far. The HMRC claim that digital recording will reduce errors just reinforces my view that they are completely out of touch with the average small business.
I agree entirely that record-keeping and reporting should be separated, with the completion of an online for for the latter. Very few of my clients will be capable of running their own software, let alone being enthusiastic about it. HMRC's vision of the mentality of small business people is illusory. David H
I agree entirely that record-keeping and reporting should be separated, with the completion of an online for for the latter. Very few of my clients will be capable of running their own software, let alone being enthusiastic about it. HMRC's vision of the mentality of small business people is illusory. David H
I am pro MTD, there are huge benefits to moving with the times and getting onto digital.
But I do agree there has to be separation between keeping records (ie receipts and invoices) digitally and reporting.
Using banks feeds is one thing but if every receipt also has to be captured that is quite a different matter.
Some potential problems with scanning each receipt. Will business owners do it when even keeping the receipt is a chore? Will they do it consistently? Will they do it before it's sat on the dash and bleached in the sun or been screwed up in their back pocket all day? Will they care how the software categorises it? How will the software label the scan so you're able to identify it easily? Will the bank feed tie the scan up with the bank entry and cross reference the two? Now that will be impressive, especially if the business owner has a mixture of debit, credit and cash receipts.
How will the bank feed tie up customer receipts with invoices? Is it capable of allocating monthly payments against multiple suppliers invoices?
I had a client once with a Mac. She decided to go digital and scanned her receipts as word docs as she couldn't create pdfs on her Mac. Not saying a Mac won't only she couldn't. She labelled them obscurely and didn't link them to her accounting records. When you opened them the formatting was a mess and they were editable so totally unacceptable. I refused to work with them and we parted company.
Having consulted with our clients by the completion of a survey, it has become quite clear that South West Wales hasn't adequate broadband facilities to allow our clients access to their tax accounts online. Our survey revealed that only 29% of those surveyed thought they had adequate internet connection.
Our survey also revealed other concerns as follows:
74% of clients had not heard about MTD;
92% of clients were not aware that businesses and landlords with income of over £10,000 would be required to keep digital records;
and 91% of clients did not know that they were expected to submit quarterly submission s to HMRC as from April 2018.
The above statistics are a major concern for us as accountants as it will not only mean a tremendous amount of extra work, where will we get the people to do all this additional work. There is no benefit to the tax payer.