In recent months accountants have been coming to terms with the potential demise of spreadsheet-based accounting tools as a result of HMRC’s digital revolution. But the Making Tax Digital consultation documents may have offered a lifeline for the professions favourite application.
A single sentence tucked away within the 78 pages of the Bringing business tax in the digital age consultation presented a glimmer of hope for spreadsheet enthusiasts.
Responding to the challenges businesses who keep their records on “paper or simple spreadsheets” face, HMRC revealed that it is “exploring, with specialists, the role of spreadsheets in business record keeping and their ability to meet the requirements and benefits of MTD compatible software”.
Businesses still rely on paper-based records
Research by the ICAEW IT Faculty back in March may have encouraged HMRC to reconsider its anti-spreadsheet stance. Three-quarters of businesses surveyed did not use accounting software, while 41% of the manufacturing and construction industries still rely on paper-based records.
This prevalence was echoed by AccountingWEB members whose clients exclusively use spreadsheets. DMBAcc reported: “I have 50 clients whom I can serve adequately at present. Not one of them has commercial software. Most use spreadsheets which they understand. I don't need commercial software for 50 clients nor do I want it when I see the confusion it causes.”
AccountingWEB’s consulting tax editor Rebecca Cave agreed that spreadsheets are an adequate record keeping tool. “I keep all my records from my company on a spreadsheet,” she said. “I understand my figures. I don't need some fancy software to tell me what a debit and a credit is. I am a trained accountant.”
I don't need some fancy software to tell me what a debit and a credit is. I am a trained accountant.
But, if spreadsheets are ruled out as part of MTD, businesses will face the extra costs of moving to commercial software - although HMRC has vowed that some free products will be available.
Despite the pause for thought and consultation, Rebecca Benneyworth, tax lecturer and head of an HMRC advisory group on Making Tax Digital, thinks spreadsheets are “going to have to fight their corner to remain in the picture”.
“While spreadsheets are a good way of managing data and have historically been very popular with accountants and some of their clients, I think the issue in Making Tax Digital is that HMRC is hoping that by using software (actual software packages and apps) this will eliminate a lot of errors that are made while the books are being written up.”
Spreadsheets still ubiquitous in business
The IT faculty’s David Lyford-Smith, who will also be assessing the future of spreadsheets in an upcoming ICAEW event, commented: “While [spreadsheets] have their reputational tarnishes – largely from improper use by poorly trained users – the spreadsheet is a big part of current business practice.”
While [spreadsheets] have their reputational tarnishes – largely from improper use by poorly trained users – the spreadsheet is a big part of current business practice.”
In order to filter out errors, Benneyworth said HMRC is hoping to use upstream compliance, where application programming interfaces (APIs) will be built into the software to pick up errors as they arrive.
To illustrate her point, Benneyworth cited the example of somebody entering a £720 taxi fare. She explained that the software would be intuitive enough to ask whether the right figure has been entered, because in this scenario, the taxi fare would be an unusually high amount.
As a solution, Rebecca Cave said spreadsheets can still have a role if software is developed which can convert the spreadsheet data to the standard required by HMRC. “My problem for my company is translating the figures from the spreadsheet and to get them into the format that can be submitted to HMRC using iXBRL. I need some software to do that”
Benneyworth agreed, explaining that spreadsheets can be resuscitated by a software provider who could create a spreadsheet add-on which incorporates upstream checking. “If somebody wrote that, it would be a really good way of going forward.”
Despite the uncertainties, Lyford-Smith remains positive for spreadsheets: “Going into the future, the ever-growing amount of data available may well outpace the spreadsheet format, but the accessibility of the medium is hard to beat and I suspect that, while their role may change, spreadsheets are here to stay in one form or another.
Spreadsheets will die out
Xero’s Gary Turner, meanwhile, is less optimistic about spreadsheets’ future. Turner said the ubiquity that accountants and Lyford-Smith highlighted will fall away in the medium “not least because of MTD”.
Spreadsheet dependent businesses will die out, and in turn help to end the market for spreadsheets.
Turner discussed the future of spreadsheets in a LinkedIn post written last year, where he declared that “our love affair with spreadsheet is finally coming to an end".
While MTD could speed up the digital natural selection, Turner lists the shift to mobile - “Have you ever tried to use a spreadsheet app on mobile or touch device?” he asks - better alternatives in cloud apps, and errors as reasons for the tool’s demise.
Calling spreadsheets in business “the new smoking”, Turner said: “In a world that’s becoming increasingly digital and therefore intolerant of human error it's reasonable to predict that eventually the incidence of spreadsheets constructed by feeble humans will become a negative flag or a signifier of loose management controls, or other corporate mortality heightening factors.”
He concluded: “Spreadsheet dependent businesses will die out, and in turn help to end the market for spreadsheets.”
What do you think? Will spreadsheets survive the digital transformation, or is this a tool that’s susceptible to error, and redundant in these modern times?
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About Richard Hattersley
Richard is AccountingWEB's Practice Editor. If you have any comments or suggestions for us get in touch.