The Ultimate Guide to Accounting Software and Digital Accounting

Using online accounting services and tax software can be a great way to keep track of your income, outgoings and tax owed each year, simplify returns and save you stress. However, if you’re new to running a business or haven’t had a great experience of accounting software in the past, it can be difficult to make the most of the opportunity. Here’s our ultimate guide to help you get started and master accounting software and Making Tax Digital.

Click the links to jump to your section of interest:

Part 1 – Implementing a business accounting system
Part 2 – The benefits and considerations of cloud accounting software
Part 3 – Getting the most from your accounting software
Part 4 – Online tax filing and Making Tax Digital

Part 1 – 3 Great Reasons to Implement a Business Accounting System from Day One

When you’re just setting up in business it can be tempting to ignore your accounting system until you’ve got a clear day to sort it out. New businesses demand huge amounts of time and effort and often the accounts fall very low in your list of priorities. Unfortunately finding that “clear day” becomes harder and harder and inevitably your business accounting system is neglected.

Naturally, as an accountant, I would advocate prioritising your business accounts from the start. There are obvious benefits such as avoiding a last minute panic when your end of year accounts is due. But I also believe that setting up your accounting systems from the beginning can be beneficial for your whole business; it’s not just about admin they can also influence your business strategy and success.

Here are three good reasons to implement an effective accounting system from day one:

1. An accounting system is a Legal Requirement
   If you file a tax return it’s a legal requirement to keep records and documents that support that tax return. Therefore it makes good sense to ensure these records are in order from the offset; thus avoiding paying penalties for doing so, or filing an inaccurate return because of poor record keeping.Similarly if you are VAT registered you will need to file quarterly returns, three months comes around very quickly! Poor record keeping can cost you money, not just in penalties but also if you don’t claim back what is owed to you because of mislaid receipts, invoices, expenses etc.
2. Managing your cashflow
   For most business owners the overriding priority when you set up a business is to turn a profit. Whatever the way you are financing your startup, and your financial projections for your first few years of trading, you’ll want to keep a close eye on your cashflow. Having a clear idea of what you owe others, what is owed to you and what is in the bank is crucial. Without this information how can you make any strategic decisions for your business, respond to market changes or cement plans for the future?A basic accounting system puts all this information at your fingertips, empowering you to run your business in a proactive rather than a reactive way.
3. Allows you to manage your time effectively
   Ultimately a good accounting system will allow you to manage your time effectively. It’s not just the late nights incurred getting your books in shape before HMRC deadlines, it’s also about having your financial information available should you need it for grant applications, business plans, loan agreements etc. I know of several business owners who have missed great opportunities because their accounts were not up-to-date when they needed vital information and didn’t have the time to do them before an important deadline.

Accounting Systems – How to Get Started

For a new business owner all you need for basic bookkeeping is a cash book; sales ledger; purchase ledger, and a wages book. Of course not many businesses have these components as physical books; instead they may take the form of an Excel spreadsheet, computer software or a Cloud Accounting System such as Xero or QuickBooks.

If you are using an accountant have a conversation about the system they use, it can save you money and time if everyone is familiar with the system. Black and White offer accounting software training as well as support choosing and using a package that’s right for you.

Part 2 – The benefits of Cloud Accounting

If you are already using something like Xero, Quickbooks or Sage for your bookkeeping and accounting requirements then you’ll understand why I think this is a great accounting software solution. Gone are the days of delivering shoeboxes full of receipts to your accountant once a year, with cloud accounting you can dispense with this and keep a real-time check on your business finances.

Key Benefits of Cloud Accounting

There are benefits for both the business owner and their accountant when you use cloud accounting. So if you haven’t already signed up for an account with cloud accounting services consider the following:

Reduced Cost

No small consideration when we’re talking about your business finances. For a nominal monthly payment you can forget about buying and installing expensive accounting software (and having the hardware to back it up). Plus you can eliminate system admin costs, maintenance, backups, security issues, and upgrades – all this is managed by the service provider.

An added bonus for the small business owner is that it can also reduce your overall accountancy costs, enabling you (or a member of your team) to do much of the day-to-day bookkeeping yourself.

Real-Time Reporting

Cloud accounting systems let you keep your accounts up-to-date with the minimum of effort. Invoicing, payments and expenses are all in one place giving you a complete overview of your business finances. Automatic bank feeds import transactions from your bank account, credit card and PayPal, so you always have real-time financial data to hand.

Ease of Access

Unlike with traditional accounting software you don’t need to be on your business’ computer network to access your records. Instead you can manage your cash flow wherever you have an internet connection. With mobile apps such the QuickBooks Mobile App, expense claims and reconciling your bank statements can be done wherever you happen to be. Great if you’re travelling for business or working away from your laptop.

Collaborative Environment

Cloud accounting allows you to invite other users to access your financial data. This means you can collaborate with your accountant, financial advisor, bookkeeper or other key members of your team online. Everyone has access to the latest version of your data without needing to visit your office, or for you to transfer data through conventional means.

Enhanced Business Performance

All the above benefits contribute to a smoother and more cost effective accounting system. But perhaps the most important benefit is the ability to manage your cash flow in real-time, allowing you to monitor your balance sheet, identify issues, respond to changes and take action quickly.

Some other advantages include:

• Much greater storage capacity.
• Instant access to financial information, anywhere with an internet connection.
• Software updates and back-ups done automatically by the provider.
• Protection from physical danger at your premises, such as fire or theft.
• Your accountant can see your data to support and advise you in real time.

Moving to cloud based accounting does come with a few areas to consider to make sure you mitigate any risks. Here are a few things to be aware of when choosing a vendor:

• Unauthorised access to your own accounts and customer information – are all of your staff using secure passwords and login details which aren’t used for other services? Are you making use of extra security measures such as multi factor authentication?
• Loss of control. Do you trust your online accounting service to have all necessary security and compliance measures in place? Speaking to other business owners about their experiences here can help identify compliant solutions for your sector.
• Multi-tenancy. Your data may be sharing space with information from other businesses, increasing the danger of getting hacked in the crossfire.
• Difficulty tracking data once it’s uploaded into the cloud – make sure you’ve had all of the software training you need to understand the full process.
• Are there sufficient back-up systems in place at your location and your provider’s location? What happens if you lose your internet service? Can you still access records and make offline changes or are you fully reliant on an internet connection?
• What are the upfront and ongoing costs? If you are subscribed to a particular provider, how difficult is it to change later on if a price hike occurs?

Part 3 – Getting more value from your bookkeeping software

As a busy owner/manager, book-keeping software could be the answer to your prayers, saving you time on those hated monthly chores such as entering the receipts or sending invoices.

However, if you’re thinking you don’t need your human accountant anymore, you could be missing out on the biggest benefit that accounting software can deliver.

No matter how good it is, accounting software can never replace the wealth of business experience, insight into your business and good advice that your own accountant can offer.

However, if you use your software package correctly, then you’ll be in a position to use your accountant more as a business advisor and financial partner. Challenge your accountant today to ensure you are getting value for money by using your book-keeping software to its full potential.

Real time information at your fingertips means more power to your elbow

What accounting software can offer you is a source of up-to-date information on all financial aspects of your business so that you, with support from your accountant, can make better decisions based on accurate data. Your decision making will also be faster and more agile because your accountant isn’t having to trawl through your records to produce an interim report on your financial state.

At Black and White Accounting we’ve broken away from the old-fashioned image of delivering a transactional service to their client. We build relationships in partnership with our customers so that they feel they can contact us whenever they need business advice.

If they have all their latest financial information to hand in an easy to read report, it makes our job so much easier to give them the right advice when they need it.

The traditional accountant still thinks that their job is to do the work of HMRC, figuring out how much tax you owe each year and collect their cheque. When they’ve done that, they’re completing a historical record of your business, always looking back to the years gone by.

Your accountant should be able to analyse today’s figures and give advice at a strategic level on where the business needs to go, whether now is the time to invest and expand or prepare for predicted problems.

An accountant will deal with many and varied businesses so they should be rich in experience and be willing to use it to your benefit. Some clients are still reluctant to call their accountant as they fear they will be charged for every 6 minutes that they talk, (as they do with their solicitors). However, not all accountants are the same here. We charge a fixed fee and will take the time to go through:

• Your profit and loss – which shows the difference between your business’s income and expenses during a given period.
• Your cash flow statement – this can help you predict shortfalls when covering day-to-day operating costs. It can influence when you buy or sell an asset, lend or borrow money, or make a capital investment, including hiring employees.

Your balance sheet which shows how your profit and loss has translated into assets and liabilities at a given point in time. It shows how liquid your assets are or whether your money is too tied up in equipment. You need this information to decide whether you can afford to invest using your own assets or whether you need to take on additional debt.

Tips and Apps to reach your full potential

In order to help you get the most from your accounting software, we offer you some tips on how to realise the full potential of your accounting software and to avoid some common mistakes. There is also often integration with other great apps to ensure you get even more from your book-keeping software.

Keep it separate

Keep your business and private finances separate. No software is clever enough to recognise whether a trip abroad is a legitimate business expense or a family treat. Why not run an accounting programme at home if you need to keep track of your domestic and business spending?

Separate your spending and ensure you still stick to your private budget. You can set up different ‘departments’ with your software to easily show different breakdowns, e.g. by store, by format, by branch etc. Some bank account providers like Monzo and Starling will even provide this for you through an app linked to your debit card.

Data Inputting (Stay on top of the receipts!)

With bank feeds and data apps such as Auto Entry, Data Mining or Receipt Bank your software can literally do the hard work for you. It will also segment, based on how you historically categorise things, how it should be accounted for. Never has it been easier to keep your records up to date.

Don’t like numbers?

We all have different strengths and weaknesses and whilst we love everything numbers related, we appreciate not everyone does! Therefore if you need a more visual way to see your performance, you can get custom reports and visuals to ‘see’ your success.

You can also use great apps like Futrli or Spotlight Reporting for even better visualisations.

Mileage

It is essential that 40% of businesses under account for their business mileage over the year. Why not use an app such as MileIQ, MileCatcher or Triplog to log and track your business miles, quickly and easily when you’re on the go?

Delegate

Are you a start-up entrepreneur who wants to keep a tight grip on costs? Or are you running an established business and want to let your staff know you still have your finger on the pulse? Maybe it’s time to let go and delegate responsibility for running your accounting software so that you can get on with running your business.

However, choose someone who’s diligent, accurate and understands what needs to be recorded. This could be someone inside or outside your current organisation and you can give them different access depending on the role you want them to fulfil.

Consider a new cloud-based accounting software solution

If you use a Cloud-based accounting package, you can enjoy additional advantages:

• You can share your data with your book-keeper, accountant or other team members more easily;
• You can access information anywhere and anytime in the world;
• The price can be cheaper than desktop-based packages and you can pay monthly to ease cash flow.

Modern accounting software like Xero, QuickBooks or SageOne are powerful tools in the right hands, not just spreadsheets to keep HMRC happy!

Ready to get more from your accounting software?

If you’d like to learn more about how software accounting can help take your relationship with your accountant to the next level, Black and White Accounting can help.

We have extensive experience in helping small and medium sized businesses adopt the right package. We also help you to install it and we can train your key staff to use it to its full potential. We are happy to provide you with on-going support but can also do it all for you, if your business reaches a stage where you can no longer do it for yourself.

Call one of our software experts on 0800 140 4644 for a free initial consultation. We always make sure our clients get the most from their accounting software package.

Part 4 – Online Tax Filing and Making Tax Digital

Making Tax Digital is HMRC’s attempt to transform our tax system for the 21st Century by forcing businesses and self-assessing individuals such as landlords to embrace the internet.

The idea is for every business to have a one-stop Digital Tax Account which is more accessible, simpler to maintain and more regularly updated. More frequent tax returns and payments will do away with end-of-year form filling and lump-sum tax bills.
HMRC wants us all to embrace the inevitability of cloud technology and the advance of online services.

Whilst it was first announced in the Autumn statement of 2015, in the face of political and some business opposition, the measure was quietly dropped from this spring’s Finance Bill to ensure an easier passage through Parliament. However, this was just a stay of execution.

Making Tax Digital is now continuing to be rolled out more gradually, which started with VAT-registered business from 2019 and incorporating smaller businesses and individuals from 2020.

HMRC hopes to make the whole tax system more efficient, lower costs and reduce lost revenue through errors, but what’s in it for us?

The benefits of Making Tax Digital

We’re all rightly suspicious that any idea coming out of HMRC will mean more administrative burden or costs, higher taxes and on the face of it, this one looks like more work for us. However, at Black and White Accounting, we take a more optimistic view and think that going online could benefit our start up and established SME clients:

• An end to that dreaded year-end rush to dig out old receipts and form filling.
• No more repeating personal information that HMRC should already have.
• Keeping all information in one place should simplify communications with HMRC.
• A better idea of how much money you will owe, easing budget planning.
• An opportunity to modernise your accounting practices and switch to software that can give you better financial information in real time.

Software is a major investment and choosing the right bookkeeping package will be important if you want to take advantage of Making Tax Digital. We do a lot of work for our clients, implementing software and training staff on the most popular packages, including Xero, Sage and Quickbooks.

Even if you don’t use this kind of software yourself, we will be using it on your behalf.

The disadvantages of making tax digital

The transition for VAT business in particular will not be as game changing. Whilst there are some potential advantages to Making Tax Digital, its success or failure will be down to the design of the software interface between HMRC and your business.

Unfortunately, central government doesn’t have a great track record in this area. Here are some of the things that could go wrong:

• Over-reliance on computers means cyber security is an issue.
• The cost of buying new software and upgrading hardware to cope with it.
• Not all individuals or businesses have the capacity to switch easily to digital book keeping. Small businesses and the self employed must learn more complex accounting procedures.
• Life could be harder for businesses with fluctuating cash flow.

This is why we work very closely with our software partners to ensure you are in the safest hands.

What preparations do you need for Making Tax Digital?

Talk to your accountant

Every business will face its own individual challenge to HMRC going online, so the best advice we can give is to talk to your accountant about how you can overcome your particular challenges with Making Tax Digital, and if they’re not interested, find a new one. This is now an annual occurrence so the sooner you’re confident and competent with the system, the less of a worry it becomes.

Think Positive

Ten years from now we’ll look at the annual ritual of submitting paper returns like something from the era of Dickensian clerks at high desks. Remember what it was like applying for house insurance or hiring a car before 1990?

Transformation will be a pain we need to get over if we’re to enjoy the benefits of doing business in the modern world.

A lot of people are still resistant to using their online account with HMRC and, no doubt, they have their reasons. Some people may feel daunted by the technology, others don’t like the idea of giving their data directly to HMRC, and sometimes we just feel nostalgic to the paper returns of the past.

Relax – Everyone makes mistakes

One concern we come across is people afraid of hitting the “send” button and then realising they’ve made a mistake, but even that’s not the end of the world.

You can make changes and correct mistakes to your tax return up to a year after the online deadline for filing, currently standing at the following dates but likely to change due to Covid-19:

• 31 January 2021 for the 2018 to 2019 tax year
• 31 January 2022 for the 2019 to 2020 tax year

Even if you miss these deadlines, or you need to amend your return for any other tax year, you can still write to HMRC and your tax bill will be updated based on what you report. You may have to pay more tax or even claim a refund. Keep an eye on the latest dates at https://www.gov.uk/self-assessment-tax-returns/corrections

Common errors when filing self-assessment tax returns

Here are some of the worst offenders which we hope you’ll avoid when filing, either online or off:

• Filing late. There should be no excuse but still people are hit by late filing penalty payments.
• Forgetting to enclose or complete supplementary pages.
• Forgetting to declare all forms of income, including dividends, interest or capital gains.
• Writing “information to follow”, “as per accounts” or “ditto” instead of the actual figures. Always fill out required boxes in full.
• Forgetting to sign and date your paper copy. Something you needn’t worry about online.

Some advantages of online tax filing

HMRC has invested a significant amount of resources into online tax filing because it offers advantages both to them and to us.

The online tax filing service offers a number of advantages to registering for an online account with HMRC:

• It’s convenient. It’s much more user friendly to go through the step-by-step process online than wading through piles of paper and accounting software and you can do your self-assessment tax return, Corporation Tax, PAYE for employers and VAT with one online login.
• It’s secure. No need to rely on the post to send sensitive financial material or have forms lying about on your desk (or getting lost by the time you get around to filling them in).
• You can tailor the online form to your circumstances and don’t have to wait for supplementary pages to arrive through the post, especially when you’re close to deadline.
• On the subject of deadlines, those people still filing paper SA100 forms will be sweating right now as the 31 October deadline looms. But the more tech-savvy online filers still have until 31 January – though don’t leave things until the last minute!
• It’s easier to keep and review records in your personal account on the HMRC website.
• You can work on your online return as and when you have time, saving figures as you go.

Accounting Software help is at hand

For more information about how cloud-based accounting software could make your life easier, and how to get your team up and running with digital accounting solutions, contact Black and White Accounting on 0800 140 4644. To maximise the benefits of accounting software and navigate the complexities of Making Tax Digital, consider consulting with a professional self-assessment accountant.