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Digital accounting records to be compulsory

9th Mar 2016
Tax Writer Taxwriter Ltd
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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?

Replies (180)

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jlsmith
By jlsmith
24th Mar 2016 12:05

Budget report 2.212
2.212 Making Tax Digital – From 2018 businesses, self-employed people and landlordswho are keeping records digitally and providing regular digital updates to HMRC will be ableto adopt pay-as-you-go tax payments. This will enable them to choose payment patterns thatsuit them and better manage their cash flow. The government will also explore options tosimplify the tax rules for these groups. The government will consult on these measures in 2016alongside publishing detailed proposals for other elements of the Making Tax Digital programmeannounced previously. (Finance Bill 2017)

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By petersaxton
24th Mar 2016 12:22

Budget report

The paragraph implies that things are going to be firmed up in the next year. I don't think people will have the choice to carry on as before.

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By The Black Knight
24th Mar 2016 12:45

anybody know

Anybody know how much it costs to join the plymouth brethren?

and what their fine structure is for defaulters?

if it's just eternal damnation that sounds like a deferral relief

 

 

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jlsmith
By jlsmith
24th Mar 2016 13:02

It refers to those who keep their tax records digitally - nothing about compulsion

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RLI
By lionofludesch
24th Mar 2016 13:19

Some

jlsmith wrote:

It refers to those who keep their tax records digitally - nothing about compulsion

Yes - some will be forced in from 2018, some will be forced in from 2019 and some will be forced in from 2020.

 

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jlsmith
By jlsmith
24th Mar 2016 13:32

Where does it say that though?  Given that things that were announced in the budget aren't going to be happening, surely less likely if it's *not* announced.  I would take the business event this was reported from with a pinch of salt.

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By The Black Knight
24th Mar 2016 13:50

yes

Where does it say compulsion?

This can only work for those capable surely? Some very good business people are not capable of even very simple stuff. Most will not manage this we all know.

Simplification often makes no difference to the level of complexity for these people.

We are merely reducing the common denominator to the most undereducated in europe or america. That is why accounts have had to go back a hundred years.

 

 

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By petersaxton
24th Mar 2016 13:52

It gets sillier and sillier

Do some people seriously think that these measures are not going to be compulsory?

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By Huw Williams
24th Mar 2016 18:02

Quarterly reports to be scrapped

I know this is a different sort of reporting, but I thought you might appreciate the suggestion  to big business that too much reporting means not enough time concentrating on the business:

http://economia.icaew.com/news/march-2016/productivity-action-plan-urges...

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By petersaxton
24th Mar 2016 19:09

Already pointed out

Huw Williams wrote:

I know this is a different sort of reporting, but I thought you might appreciate the suggestion  to big business that too much reporting means not enough time concentrating on the business:

http://economia.icaew.com/news/march-2016/productivity-action-plan-urges...

This was pointed out when the new quarterly reporting was first discussed. It seems strange that big companies are dropping it when smaller businesses have to do it albeit for different reasons - which haven't been made clear yet.

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By MartinLevin
04th Apr 2016 18:27

It should be as easy as ABC....

..Back in the early 1970s Sir Bernard Wetherall retired as Speaker of the House of Commons.  He was free to speak.  He said that 95% of businesses in the United Kingdom employs 5 or fewer employees, and yet (Her Majesty's) Government treats them the same as I.C.I. [Imperial Chemical Industries, who were, probably, the largest business in Britain at that time].  Later a "Small Business Minister" was founded.  And now?  With so many self-employed and small business people who are skilled in what they do (eg Builders, Carpenters, etc) are great "on the tools" but are not so good "in the office" are to be forced into an alien system of book-keeping. Plus using some form of computer (are they equipped to do so, as some of my clients can't operate one) to "upload" data to the Tax Authorities every quarter.   I can still assist my clients as I have done for a few decades as I provide them with a free [ABC] Accounts Book.  Processing of these records is swift as clients run their businesses, not us, as accountants.  We merely guide them in a positive way.  In return, Financial Accounts, which are needed for Management purposes (first), Finance assistance (second) and (lastly) for Tax.  Fees are economical.  Relationships are great.  Why re-invent a winning formula when there is no certainty as to how accurate, or useful, "Quarterly Filing" will be.  Her Majesty's Revenue & Customs will, doubtless, have its hands full with the Panama tax avoidance (published on 03.04.16).

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RLI
By lionofludesch
05th Apr 2016 07:53

Cost/Benefit

MartinLevin wrote:

..Back in the early 1970s Sir Bernard Wetherall retired as Speaker of the House of Commons.  He was free to speak.  He said that 95% of businesses in the United Kingdom employs 5 or fewer employees, and yet (Her Majesty's) Government treats them the same as I.C.I. [Imperial Chemical Industries, who were, probably, the largest business in Britain at that time].  Later a "Small Business Minister" was founded.  And now?  With so many self-employed and small business people who are skilled in what they do (eg Builders, Carpenters, etc) are great "on the tools" but are not so good "in the office" are to be forced into an alien system of book-keeping. Plus using some form of computer (are they equipped to do so, as some of my clients can't operate one) to "upload" data to the Tax Authorities every quarter.   I can still assist my clients as I have done for a few decades as I provide them with a free [ABC] Accounts Book.  Processing of these records is swift as clients run their businesses, not us, as accountants.  We merely guide them in a positive way.  In return, Financial Accounts, which are needed for Management purposes (first), Finance assistance (second) and (lastly) for Tax.  Fees are economical.  Relationships are great.  Why re-invent a winning formula when there is no certainty as to how accurate, or useful, "Quarterly Filing" will be.  Her Majesty's Revenue & Customs will, doubtless, have its hands full with the Panama tax avoidance (published on 03.04.16).

Quarterly Accounting helps 84 year old Aunt Ada, with her monthly rent cheque of £410, in what way ?

We're still not grasping this, are we ?  Some folk are at a point in their lives when they don't need or want to build a business empire.

I get it - perhaps because I'm approaching that point myself.

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By David Gordon FCCA
05th Apr 2016 10:50

Concentrate on basic acounting management.

 

 Most of my readers in this ongoing discussion will know:

 There are basic rules when moving a business's accounting from paper to digital. For the record I repeat them.

1) Garbage in equals Garbage out:

 2) Both systems must be run in parallel for a period in order to bed-in the new system

 3) Once the new digital system is up and running it is "Death" to allow or continue part of the accounting procedure to run alongside  "On paper".

 Here is not the place to discuss the whys and wherefores of these rules. I have to assume that the reader knows what I am talking about.

 In order for this step-change to work HMRC's software advisers have to assume that

a) will not apply. HMRC have no control over the input

b) HMRC has not the funds to permit this normal procedure

c) It follows that in order to work "Digital" reporting must eventually be made compulsory for all.

I do not believe any honest competent accountant would behave in this way with a client. Why should we be expected to accept HMRC treating its "Customers" this way?

It is constructively dishonest.

 

 

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RLI
By lionofludesch
07th Apr 2016 13:46

Australia

Does anyone know how (or if) it works in Australia ?

Or do we have to be satisfied with a vague statement that "the Aussies have had Quarterly Accounting for years?"

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By North East Accountant
08th Apr 2016 09:57

Real Time will come

1st stage: Digital Recording and "at least quarterly" updates.

2nd stage: Digital Recording plus "at least monthly" updates.

3rd stage: Digital Recording and real time updates.

Never mind quarterly it will be second by second once in real time. 

 

Of course, Government and HMRC have not mentioned 2 and 3 yet but it will be there in the background.

It is absolutely outrageous that this comes in less than 2 years from now and we have no idea what it will look like, what it is supposed to achieve, what the rules will be etc, etc.

 

And of course, WHY?

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By petersaxton
08th Apr 2016 19:27

"we still have the issue of

"we still have the issue of whether these submissions are to be cash or accruals based and, if cash, is that what the tax will be based on  ?"

Accruals

"Are we to have small traders robbed of Capital Allowances properly due to them ?"

No

"Or personal allowances wasted because a debtor didn't pay on time ?"

No

"Or unable to use losses except by carry forward ?"

No

Blatant scaremongering.

Accruals accounting will still be used. Capital allowances and losses can still be used. Why should "digital accounting" mean you can't do accounting as previously?

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RLI
By lionofludesch
09th Apr 2016 14:00

Dream On

petersaxton wrote:

"we still have the issue of whether these submissions are to be cash or accruals based and, if cash, is that what the tax will be based on  ?"

Accruals

So we need either to prepare a quarterly balance sheet or maintain daybooks - effectively full double entry accounts.

Yet we're told that all traders will be better off with the plethora of information at their finger tips.

This is just detail that taxpayers neither want nor need.

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By steve 12321
09th Apr 2016 14:04

4 tax returns a year it is then
As accruals accounting is the only way to get the tax right but it wil not allow for seasonable variations. The idea of quartly returns is not thought through as with other things. Eg AE. They are really trying to cause businesses a lot of problems. They are such arrogant people to do what they are doing. Not only that they don't consider in any way,
Shape or form the impact of that they do. Too detached from the business world is their problem. Is there not a business person in government who can fight our cause and stop the damage and worry now before it is too late? We as a whole together with business are doing very little that I can see to put a stop to this. I am sure it could be stopped, we just let them walk all over us

The software companies and app providers are loving it.

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RLI
By lionofludesch
09th Apr 2016 14:05

Aussies

Still wondering about the Aussie experience.

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By petersaxton
09th Apr 2016 15:28

Spreadsheets v bookkeeping software

Spreadsheets are more prone to errors than bookkeeping software.

Spreadsheets can be prepared easily but without being able to identify problems. Bookkeeping software needs an accountant to help the business owner to understand what they should be looking for but once the business owner understands what is needed they can usually do most of the work without the accountant needing to intervene. If the business owner is not wanting to do the bookkeeping then they can get the accountant to do the work.

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By MM Bookkeeping Services
10th Apr 2016 15:41

More dreaming! Or maybe Nightmare?

petersaxton wrote:

Spreadsheets are more prone to errors than bookkeeping software.

Spreadsheets can be prepared easily but without being able to identify problems. Bookkeeping software needs an accountant to help the business owner to understand what they should be looking for but once the business owner understands what is needed they can usually do most of the work without the accountant needing to intervene. If the business owner is not wanting to do the bookkeeping then they can get the accountant to do the work.

None of my clients do the 'bookkeeping' - they are too busy doing their own trade/work.

They neither have the inclination or the knowledge to do it and more  importantly - the time!

Would you like to work all day and then go home to spend time doing your accounts instead of spending time with your family?

Anybody can learn how to use bookkeeping software but unless they understand the accounting concept then as has been said before - Garbage In Garbage OUT.

So I don't agree with your statement 'Spreadsheets are more prone to errors than bookkeeping software' - it is down to the person inputting the information.

 

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RLI
By lionofludesch
10th Apr 2016 21:28

Exceptional

petersaxton wrote:

Spreadsheets are more prone to errors than bookkeeping software.

Spreadsheets can be prepared easily but without being able to identify problems. Bookkeeping software needs an accountant to help the business owner to understand what they should be looking for but once the business owner understands what is needed they can usually do most of the work without the accountant needing to intervene. If the business owner is not wanting to do the bookkeeping then they can get the accountant to do the work.

Your client base is different to mine, Peter.

And different to those of most people judging from this thread.

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By petersaxton
10th Apr 2016 16:54

Dreamer

Most of my clients spend time getting their data ready for me. That's either using spreadsheets or bookeeping software. Obviously, for you, if you are running a bookkeeping business, then your clients wont be doing the bookkeeping but for most accountants their clients will be doing some kind of bookkeeping.

"So I don't agree with your statement 'Spreadsheets are more prone to errors than bookkeeping software' - it is down to the person inputting the information."

Spreadsheets dont highlight problems but bookkeeping software does. For example, if a sales invoice for £1,000 is raised and only £900 is paid then it's obvious that there is a problem. With a spreadsheet - depending on the sophistication of the spreadsheet - it may not be obvious to a client.

 

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By The Black Knight
11th Apr 2016 11:51

just vote out of europe

Just vote out of europe that will give idle hands and minds something to do.

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By Ammie
11th Apr 2016 14:32

MOST PEOPLE CAN DO MOST THINGS BUT..............

how many will or can be bothered to, obliged to or not.

Hands up all those that

* cook from scratch, no ready meals.

* carry out all their own painting and decorating in the home.

* carry out their own plumbing, plastering, roofing, woodwork perhaps clean their own windows.

* Service their own car.

* Repair own clothing.

* Maintain a well stocked garden.

The list can go on.

Those that do, a big well done, but I suspect most do not.

We can all learn how to carry out such tasks. But how can all clients adapt to the changes demanded. Yes some already do, some will make the effort but there will be many many micro businesses that won't or can't, with or without help, even with the prospect of fines.

The changes will be made, we will all follow but there will be a trail of casualties, certainly for a few years until an easier way, probably short cut, is discovered to satisfy the requirements.

 

 

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By ringi
11th Apr 2016 15:04

Cash accounting….

Remember that by the time this all comes in most business will be allowed to use cash accounting, along with the Annual Investment Allowance.    Hence in a lot of case, it will just be “money into bank account” and “money out of bank account”.

Clients need to be trained to asked about transactions that are more complex then what they are doing ever day.

If you believe that “correct accounting”, “double entry”, “accrual accounting” or whatever else you training lead you to think is of value when the HMRC does not require it, then you need a good way to sell the costs to your clients.  E.g. promote management accounting as a service, rather than just being seen to be doing tax returns.

I expect it will become a lot more like vat, with the client doing their own returns, then the accountant checking the returns and correcting any errors as part of the process of producing formal accounts.    Most of the corrections will affect the timing of when tax is payable, not how much is paid.    Or clients will use a “cloud” based book keeping system with the accountant acting as a consultant year round, rather than just “doing the book” a long time after any “insights” are of no use to the client.

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RLI
By lionofludesch
11th Apr 2016 15:55

Articles

There were a couple of jolly interesting articles in Taxation Practitioner this month, which I'll comment on later.

Too busy just now ....

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By MartinLevin
11th Apr 2016 18:26

Surely Financial Accounts WILL still be needed....

....for the purposes of presentation for financial assistance?????

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By Huw Williams
12th Apr 2016 17:43

Is that legal?

Martin - I thought Financial assistance was illegal?

https://en.wikipedia.org/wiki/Financial_assistance_%28share_purchase%29

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By MartinLevin
13th Apr 2016 17:05

Huw Williams on "legal/illegal" financial assistance...

...if you watch the Keiser Report on RT.tv three times a week, the expression is "banksters"

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