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MTD for VAT: the software challenge

19th Mar 2019
Brought to you by
ICPA
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Ian Vickers explains some of the challenges facing software developers preparing for MTD for VAT.

This blog is taken from the ICPA website. Dedicated to supporting and promoting the needs of the general practitioner. You can find us at www.icpa.org.uk or email [email protected] or by phone on 0800-074-2896.

I’ve been asked by Accounting Practice to shed some light on how accounting software developers go about evolving their software to meet ever-changing demands of accountants, regulation and the specifications of HRMC, and there is no better time to do so with Making Tax Digital for VAT just around the corner.

There are several considerations for all software developers when designing a product for the first time or modifying an existing one. They are, chiefly:

• What need does the product meet?

• Does the demand for the product stem from regulation or the product?

• When does the product need to be ready?

• What is the cost of developing the product?

• How much is the customer willing to pay for the product?

• How are my competitors meeting or addressing this need?

In the case of MTD, it is the regulatory context that is driving the necessary modifications to existing software; the way people submit their accounts is changing, and the software needs to reflect that change.

Given this, it is evident that this change is not optional but mandatory for my business to remain not only competitive but compliant. The question then for all software developers is not if, but when to make the change and when to release those changes to the market.

Of course, changes to existing software and creating new software require development, which in turn requires resource, which in turn requires cost. The cost has to be absorbed somewhere along the line and the overarching product has to remain profitable for the business, as otherwise, what would be the point? This is why most accounting software is so expensive, as they have to recoup the costs of development and also make sure they make a margin on it.

For me, given that my software is a low-cost option that aims to provide accountants with what they need when they need it, I take my own approach. My resources are limited in comparison to the larger players in the market, and I have to think strategically as and when it is appropriate for me to both develop and launch the necessary modifications.

MTD for VAT comes into effect in April 2019, so as a software developer I am faced with a simple choice – do I develop and finalise the modification now so I can market a function that will not be used en masse until then, or do I invest in other modifications that improve my customers’ user experience with the existing software? I have chosen the latter option.

This is not to say that I am not developing the functionality for MTD (far from it), but I need to prioritise users’ immediate needs over something that will not be used until April 2019. There are risks associated with this – HMRC are advertising a list of software applications that are already compatible with MTD for VAT, and people may deem my software to be not up-to-date.

However, on past experience, I know that at this development stage (‘beta testing’), requirements and specifications are incredibly fluid, and there could still be the need for all software to undergo further revisions before April 2019. From my perspective, why should I waste time and money developing something for which the specifications have not been entirely finalised? It makes sense to finalise software nearer launch when things are clearer and less likely to be radically changed.

Of course, larger software developers absorb all this cost and effort, but there is a price to pay and you’ll know this if you pay for or subscribe to their software services. Ultimately, it is the end user who shoulders the cost for such intensive (and, in my opinion, wasteful) development cycles. My own software is free to use by ICPA members, and my business model is based on accountants charging their clients a cheap rate for its use, and I scale my business accordingly. I aim to make sure all my clients are happy and that the software is fully compliant at any given time – that is my priority as a software developer.

Making Tax Digital is an epoch for accountancy in the UK and commercial software is the only method through which accountants will realistically be able to remain relevant and effective from April 2019. This is at the forefront of software developers’ minds and it should be at the forefront of accountants’ minds too.

• Ian Vickers is Managing Director of Diamond Discovery Software. Email [email protected]ounts.com or call 01656 725800

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