If you weren’t already using online accounting software at the start of 2019, you’ve probably heard a lot about it since – especially if you’re running a VAT-registered business that was included in the introduction of Making Tax Digital (MTD).
The new rules, which came in on 1 April 2019 and made digital record-keeping and reporting compulsory for most businesses with a turnover above the £85,000 VAT-registration threshold, have got a lot of business owners to rethink the way they manage their accounts.
Various reports show that the accountancy software market expanded as a result, with online accounting platform Xero reporting a 51% hike in both UK revenues and customers in the six months to September 2019.
But that’s only the start of a wider change – a new way of thinking not only about your accounting system, but also about the role accounting has to play in your business.
For those businesses still considering whether to switch to cloud accounting software, now is the time to get on board.
What is cloud accounting?
Online accounting software works by storing your data on remote servers, rather than on your own computer. This is different to desktop accounting software, which is installed on your device and saves everything locally.
The chances are you’re already using cloud technology in some form, to back up your files or to share them with other people. Many email clients operate on the cloud, for example, allowing you to log in and check your emails within your browser.
Managing your accounting information like this makes it much more accessible than having it saved on your device. You can log in and see the data from your PC, phone or tablet, and so can any person you give access to, making it easier to collaborate with your colleagues or your adviser.
One of the main benefits of this system is that your information is updated in real-time – reflecting what’s happening in your business right now, not just what’s happened in the past.
The software links with your bank accounts, and with any other apps you use to manage your business, to update your information instantly, giving you a much more accurate picture of your business performance and helping to guide your decisions.
According to the Association of Chartered Certified Accountants, 70% of investors would be more likely to consider companies that reported in real-time. That’s based on a survey conducted back in 2013, so if anything, having immediate and up-to-date accounting information is likely to be even more important to investors now.
Digital tax legislation
At the moment, VAT is the only tax to have been made compulsory under MTD. But from the start, the aim of MTD has always been about digitising the whole tax system, for both businesses and individuals.
In an early plan for the scheme, which was published in 2015, HMRC made it really clear that MTD is “about much more than simply adding digital tools to the current system: it is about transforming the UK tax system into something that feels completely different”.
The timeline set out in that initial paper said the majority of businesses, self-employed people and landlords would be required to manage their tax affairs digitally by 2020.
A lot’s happened since 2015, and that timeline has been adjusted, but it’s still the Government’s aim to bring more businesses and individuals onto the scheme.
A pilot for income tax is already live, which allows small businesses and unincorporated landlords to send HMRC digital updates on their income tax status, instead of filing a self-assessment return.
It’s possible that this could be made a legal requirement, or other taxes such as corporation tax could be brought into the scheme, from as early as April 2021.
And it’s not just UK policy that’s encouraging people to manage their taxes digitally. Similar legislation has been put in place on a global scale, with governments in Poland, Spain, Italy, Mexico, Brazil, China, and the Czech Republic all among those to implement some kind of mandatory electronic tax reporting.
It’s clear that this is more than a short-term trend, or a project for the UK Government. It’s part of a worldwide shift to a system that’s more modern, accurate and efficient.
Looking beyond the accountancy world and at more general developments in technology, the move towards easily-accessible, online software seems inevitable.
In 2018, 42% of UK businesses said they were using the cloud in some way, up from 24% in 2014. The most popular uses for cloud computing included file storage (77%), office software (73%), and email (72%),.
Internet usage is more mobile, too, and with 83% of the UK population using smartphones according to market intelligence provider Newzoo, and the Office for National Statistics reporting that mobile phones are the most popular way for any age group to access the internet, it’s more important than ever for information to be accessible from any location.
As this trend continues, and as new technology allows for even more tasks to be automated and more pieces of software to be linked together, I expect to see software options for business owners get more and more sophisticated.
Just as the Open Banking regulations, which came into force in January 2018, have given consumers more power to process their financial information in different ways, the move to online accounting should give businesses better insights into their own performance, and allow them to eliminate more repetitive, manual tasks.
The spreadsheet isn’t coming back
With all the benefits online accounting has to offer, there’s no real reason to keep using spreadsheets to manage your accounts.
Even if you use bridging software with your spreadsheets to meet the requirements of MTD, you’re not only taking the slower, more fiddly option – you’re also leaving yourself open to a high risk of mistakes.
However careful you are when you’re manually entering data, there’s always a chance of getting it wrong. And one mistyped figure can make all the difference, sometimes with disastrous consequences.
In fact, the European Spreadsheet Risks Interest Group has a list of spreadsheet horror stories, with examples ranging from a company facing bankruptcy in 2018 after an arithmetic error left a £5.2 million gap in its forecasts, to alleged spreadsheet mistakes on a 3,800-year-old Babylonian tablet.
To get it right, you need rigorous information-checking processes and careful version control. But for most business owners, it just makes sense to use software that removes those risks.
Online accounting, the Alchemy way
We know that not every business needs the same from their accounting software, so the first step we take is to talk to you about the way your business works, and recommend the right software to suit your needs.
We can also advise on setting up the system and transferring your existing information to it, as well as offering training.
Find out more about our online accounting service.