Digital accounting records to be compulsory
The government expects every business to keep its accounting records in a digital form.
This key requirement will under-pin Making Tax Digital (MTD), as was made clear in the MTD for business event held on 3 March. What’s more “digital form” doesn’t mean an Excel spreadsheet. Each business and landlord will have to use some form of accounting software which has a capability to communicate with HMRC’s systems. We expect further details on this software requirement to be included in one of the five consultation documents on MTD to be released shortly after the Budget.
However, moving to a commercial software package will mean extra costs and data transfer problems for many businesses who have created their own bespoke accounting software, or who rely on Excel spreadsheets. Della Hudson of Hudson Accountants agreed that new businesses can keep adequate records on a simple spreadsheet. She said: “We run basic bookkeeping workshops based on Excel for about 40 businesses per year.”
Hudson added: “I’m a technophile and a big Xero fan, but I still have clients who have no internet connection or computer, but keep beautiful handwritten ledgers.”
Elaine Clark chartered accountant, is less sympathetic to Excel-fans and technophobes. She is not surprised that HMRC is pushing for the end of paper records. Clark predicted that it will be a huge step-change for the self-employed, small businesses and also for accountants who have yet to start using cloud-based accounting.
Without the use of internet-connected accounting software there will be no cost savings for businesses under the MTD project. HMRC has assumed that every business will seamlessly transfer a summary of accounting data from their accounting software to HMRC each quarter.
The end of the paper bag job may be welcomed by many accountants, but it’s going to be hard work to educate clients to use accounting software. Tony Magaritelli of the ICPA estimated that it will take three to four hours per client to ween them off their existing systems and bring them up to speed on new software. Where clients don’t want to (or can’t) use accounting software, an alternative may be to introduce them to Bankstream or similar products, which provide secure feeds of banking transactions directly into an accounting package on the accountant’s desk.
How are you gearing-up your clients for the end of paper? Do you see a bright digital future ahead or early retirement by 2018?