Cloud-based accounting: Time for all accounts to go digital?

Not a lot seems to be left that hasn’t gone digital yet: shopping, working, dating… Now finally, more businesses are moving their accounts over to digital.

But how does this all work? What does this mean for HMRC? Will it speed things up?

Howards Sears, Partner at Price Bailey spoke to Steve Elsom from Lloyds Bank on The Business Hub podcast to explain. You can listen to the full podcast here.

Alternatively, the below is a transcript of some of the key highlights:

Steve: Are you finding that there is a real appetite amongst SME’s to take on cloud based accounting solutions?

Howard: Yes and no. The demand for Cloud based solutions is coming from clients who are the latest generation Z, the younger people; the older generation are still sticking to traditional methods – we’ve got clients still writing up ledgers that I remember back in the 80’s when I first started out.

But now we’ve got a swing between the normal desktop solution through to a cloud-based one, which is a paperless accounting system – which cuts down the time it takes to process a set of accounts.

Are HMRC totally in step with this?

HMRC are on the case, but there is nothing concrete yet. However the people I’ve spoken to say HMRC are going to start issuing digital tax accounts.

So the need to do a tax return in the current way we know and love will change and instead each tax payer is going to have a digital tax account. That digital tax account will contain all of your income and expenses you claim, but it will be populated digitally through technology.

Is there a hidden agenda there, that some of the data is shareable with some of the other agencies?

I suspect that will probably be the case – almost certainly that information will be spread widely between a lot of the institutions. I think the hidden agenda is more about collecting tax more efficiently.

So if you’re self-employed at the moment you pay tax in January and July, and if you’re a start-up business you probably don’t pay tax for 18 months.

With digital tax accounts, what they’re suggesting is going to happen is that you’re going to be paying tax quarterly. So they will be expecting you to file in your digital tax accounts into your quarter’s accounts, a bit like you do with VAT at the moment and then pay your income tax 14 days after the end of the month end.

So is that to swell the coppers of the treasury or is it to help cash flow for underlying business?

Probably the former. So there’s no doubt that the budget deficit still exists and its huge, it’s probably growing, and the answer is that they want to get tax in faster.

So if you imagine they are allowing up to 18 months in some circumstances before a self-employed person pays tax; that self-employed person is able to use that money for investment within the business to buy whatever resources it needs. And now the taxman’s going to want that much sooner. And this is really the government’s way of reducing the deficit.

I’m told that they are putting a huge amount of investment into the digital tax account such that we will probably see that coming out sooner rather than later.

But are you having to invest huge amounts of money in cloud platforms for the respective accountancy firms?

Yes. What we are tending to find is that we’ve got to offer a cloud-based solution to our clients because generally the generation Z are coming in and asking for it but that’s not always the case.

“They can get their KPI’s, all their reporting on profit and loss, turnover and cash much, much faster”

We need to provide a cloud-based solution that fits with the digital tax accounts that we know are coming. But it also enables businesses to receive information faster – they can get their KPI’s, all their reporting on profit and loss, turnover and cash much, much faster. And the cloud based solution is great because what it does is it delivers it through an application, an app, into your iPhone, your smartphone, or your iPad, and that’s what a generation Z business owner wants. To a certain extent we are seeing the banks also wanting it.

So the interesting thing I think is, instead of processing payments and receipts and instead of processing invoices and issuing sales invoices, technology is doing all of that, so obviously transactions go through a bank account but that bank account will have a feed into a cloud-based bit of software and the ledgers will be automatically populated by that bank transaction. So instead of having to reconcile a bank in a ledger, the ledger will be pre-populated because it’s directly spoken to the bank through the bank statements.

So this looks like a far more structured, accurate way of assessing the tax that’s due to be paid. Do you think some SME’s will want to shy away from that, because a paper based system gives them a chance to be a little bit more “creative”?

Yes, people don’t like change and they’ll want to avoid change and I think a lot will do it for many of the right reasons. I think even if you keep a manual set of books and records you’re still going to need to populate your digital tax account and therefore you might pitch up at a firm like Price Bailey or any other chartered accountants and they’ll have to put your manual records onto the digital platform cloud platform, so that it then populates your digital tax account.

Do generation Z say “yes, just get on with it and I’ll pay what I’ll need to pay” because they are less into the detail maybe?

I think it’s interesting, there’s an opportunity that for people in generation Z that want to properly understand business and want to properly understand what’s going on, to actually make a difference within their contemporaries. I think a lot will just look at what’s going on and just accept what’s coming through the system. They’ve been used to technology from a very young age, everything they buy, they buy on the internet.

I think one of the things we do which is different is still meet with businesses. We still want to have face to face meetings, because the accounts are still going to be the accounts, the reporting is still going to look the same, it’s just the speed and how it’s done.

Where does your digital get cut across great advisory? There could be a tendency if I’m totally digital and in the cloud, that I don’t need to speak to you and you won’t have an opportunity to speak with me about where my business is going.

I think that’s absolutely right. I think that’s why accountancy firms have got to become much more advisory in a way that they never have had before. We’re going to be paid to add value to clients not for processing and producing clients’ accounts for them.

So we can support by getting information from the cloud based system about what they are doing within their business. So they may have drafted 20 invoices to send to customers that they need to approve and we will be able to look on their system and see that they have been stuck there for maybe a week and will they know that that impacts on cash flow down the line? And that’s where we can proactively pick the phone up and speak to them and say we can see you haven’t approved fees in the last week.

But will that be a certain level of service they opt for? It’s almost like forensically accounting through their numbers to say, “do you realise someone hasn’t paid you in 72 days and last year it was 32 days”?

Absolutely, and I think that’s where client will choose what they want and they’ll want a straight forward service which just provides them with the compliance that they need. There’ll be others where they want us to prepare management accounts and key information for them to run their business but in addition to that is the kind of gold service where they’ll want you to advise them.

So what’s the big difference between audit and advisory?

Well audit is compliance, that’s something you’ve got to have and you’ve got to pay for it therefore its questionable as to whether it adds value.

Related reading: “Why do I need an audit?”

Advisory is all about your business advisor giving you advice that adds benefit to your business and enables you to gain strategic or commercial advantage above your competitors.

Are you finding that across your client base, you can get an advisory role with your clients or is it a certain type of client that seeks advisory and a certain client just wants audit?

Almost all our clients seek that audit and compliance work, broadly because they have to. We plan that we will give that to them digitally through a cloud based solution. Not all businesses want advisory because they don’t always see the benefit of that and the key for us is to make sure that we can communicate with our clients the benefits that we can add with advisory work.

A lot of businesses will want to know how well they’re doing by comparison to their competitors and the way that can be done is through benchmarking and interpretation of the benchmarking. So it’s all about the interpretation of the numbers and comparisons as to how well they’re doing in their market.

At the moment we’ve been providing cloud-bases solutions to our clients for 2-3 years but what we haven’t been doing is marketing our cloud based solution to our clients because we’re seeing how it evolves – because technology is moving at such a pace we’ve been kind of working out what our service line is so we’ve now got lots of clever software that our clients can take advantage of.

And we’re getting all this information from ICAEW, who we work with, from reading the accounting press and just from listening to what’s going on out in the world through business news.

In terms of cyber security, what protection does the client have in terms of an attack?

Cyber security is the thing that is holding a lot of people back from going into the cloud because frankly they fear that their data is no longer secure on a desktop or a server in their own office or location, it’s in a data park through somewhere else and it can be attacked through cybercrime.

I have a number of clients who have been affected through cybercrime and what we’re tending to find is that the key thing is the division of duties so that no one person can make a payment and that there’s a very good processes in place and strong communication that goes on from a corporate governance point of view throughout the business.

“One of the things that businesses can do is is take out some insurance so that you’re protected from cybercrime.”

But one of the things that businesses can do is is take out some insurance so that you’re protected from cybercrime, because it’s amazing how easily you can be caught and end up losing 10, 20 30 thousand pounds and for some business that may be a small amount they can easily recover from but for some that could make such a big difference.

And how often would cyber security come up in your conversation with clients?

It’s coming up more and more. Probably a couple of years ago it was rare for this conversation to occur but what we’re tending to find is that, years ago, people carrying cash to go and pay builders on a building site in wages they would probably be attacked for the cash that was sitting there, these days people don’t pay cash so it’s all about finding a way of getting hold of the money in a different way. And we’re finding that clients get spurious emails all the time about making payments to businesses that don’t exist.

Do you find that the level of awareness across businesses is improving or do you think there is a huge blind spot when it comes to cyber security?

It’s definitely improving, people are coming much, much more aware of it, but I think it needs promoting still a lot more – it is one of the things on the checklist that we talk to our clients about in a way that it probably wasn’t a couple of years ago.

If you would like more information on taking your accounting digital, then feel free to speak to Howard 


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