due diligence

Cloud Accounting Software

Over the last few years, the way businesses record their data and keep their books has changed considerably. In the good old days they would have a server in a dedicated room with AC and miles of cables, with computer screens taking up half your desk, but no more. In a relatively short time, the accounting software houses have gone virtual. All the software packages still have desktop versions, but frankly why bother? You can be on the beach drinking pina coladas and still keep your finger on the pulse running the business. Better still, with cloud software if there’s a problem your accountant or IT person can go straight in and have a poke around.

But with loads of solutions out there (most of which I’ve used), how do you make a decision?

Taking the top sellers in the UK market, I have broken down their main attributes based on functionality, feel and price. I’ve also tried not to be biased. A lot of the software is you will see does the same thing. Which software to choose comes down to personal preference and the needs of the business at the time. Luckily the software is generally quite portable, so if a solution is no longer adequate you can easily move on.

Industry / Sector

All the software I’ve reviewed will work across most sectors from retail to the service industry. I have a couple of online retailers who obviously use various versions. They wouldn’t be suitable though for construction, manufacturing or tourism and hotel businesses.

Modules

So what can they do?

On a first view they all pretty much do the same thing. To try and find some differences one has to look at the GUI.  They all say they are intuitive, but my view is that some are more so than others.

FreeAgent, Freshbooks, Kashflow and Xero all look the same; they have very similar colour schemes (what’s the thing about the blue?) and layouts. It can be confusing switching between them. Quickfile uses a white background. Both Quickbooks and Sage 50 have the traditional look you find on the desktop versions which unless you’re an accountant is awful to navigate.

Quickfile

FreeAgent

Freshbooks

Kashflow

Xero

Quickbooks

Sage 50 Professional

Sales

Y

Y

Y

Y

Y

Y

Y

Sales Order processing

Y

N

N

Y

Y

Y

Y

Quotes

Y

Y

Y

Y

Y

Y

Y

Purchases

Y

Y

Y

Y

Y

Y

Y

Purchase Order Processing

N

Y

N

Y

Y

Y

Y

Stock

N

N

Y

from AUS$10

Y

Y

Y

Payroll

N

N

N

+ £420 p.a

Y

£42 p.m package

N

VAT returns

Y

Y

Y

Y

Y

Y

Y

Reporting

Y

Y

Y

Y

Y

Y

Y

Annual accounts

Y

N

N

Y

Y

Y

N

Platforms

Interestingly, they all have versions for iPhones and iPads as well as android except Quickfile and FreeAgent.

Interfacing

They all have interfaces with banks allowing CSV files to be downloaded and by tagging can allocate to invoices, be that customers or suppliers. In fact if there isn’t a matching invoice they will set it up, brilliant!

Another handy function is the customer receipts. They all will allow you to take payments from PayPal and often other platforms including Sagepay. Just like the bank download these can be tagged.

What I really like is that you can file returns with HMRC. Why is that great? Audit trails: you can download or refer back later.

Dashboards

This for me is the best reporting tool. It’s the home screen when you go into the software, so sometime needs to ensure that only the pertinent information is shown. I like to see bank balances, debtors and creditors, and key dates for tax returns. Most will do this to a greater or less extent but my least favourite has to be Sage.

Pricing

I know that’s what it’s about but don’t be fooled. Are you’re getting what you pay? Watch the cost of add-ons these can be expensive.

Quickfile Freeagent Freshbooks Kashflow Xero Quickbooks Sage 50 Professional
Customer Free £15-£25 $0 to $39.95 p.m. £18 p.m. + VAT £12, £19 or £24 p.m. +VAT £9 -£29 pm £1,400 p.a
(£117 p.m.)
Accountant "Affinity" dashboard  £94.90 p.a. per client +VAT (from 10% to 40% volume discount, if you register 80 clients) Has to log on as user Has to log on as user "Orbit" client manager - free "Practice Studio" - free "QuickBooks Online Accountant" - free N

I really like Quickfile for its simplicity but have a problem with their pricing module, why charge the accountant for passing business their way. The competition often pay us accountants to introduce, oops, did I let that slip.

From FreeAgent to Quickbooks, there’s not much in it. Although FreeAgent, Freshbooks and Sage don’t have Accountants’ portals.

The drumroll goes to Sage: it’s not even web based, it’s a hosted service.

Payroll costs seem to be wildly different. Some providers have in-house solutions others have partnerships.

Finally

We’ve helped loads of businesses migrate to the cloud. It’s not just about price but what is right for the business.

When making the move, don’t try doing it without professional assistance. If you mess it up it can be extremely costly to fix.

Testimonial from one of our clients, Carl Hughes of IT Hound

ODFS really has the knowledge in the cloud accountancy sector. I manage my business completely online and I wanted a product that could compliment this so I could do all my invoicing, sales and accounting in a browser and not have to install a program on my computer.

ODFS recommended Quickfile and helped me setup invoicing templates and a way of working so that I could manage outstanding invoices, use reports to give me a picture of how my business was doing and at the same time understand the various accountancy terms with ease.

I don’t feel the above could have been done as quickly using a traditional desktop accountancy program and the fact that ODFS could log in to my online account saved the endless emailing of reports and spreadsheets.

Its unusual to find an accountant who has such a vast knowledge of how to do finances in the cloud; so if you are looking for an efficient company to help you manage your accounts I highly recommend ODFS.

xerosageQuickFile-invoicingquickbookskashflowdownload

10 questions answering everything you want to know about transfer pricing

1. What is it? Transfer pricing is the charges made by one enterprise to another within the same group, (they don’t need to be legal entities)

2. Why is it important?

It is often used by businesses (enterprises) to move profits to low tax jurisdictions

3. What does it cover?

Sale of goods

Provision of services, including management fees

License of intangibles, patents

Use of money, interest rates and thin capitalised businesses

Use of tangible property

Or the non-charge for these

4. How does HMRC confirm the pricing is correct?

By using an “at arms lengths” test know as Comparable Uncontrolled Price (CUP). Of course this isn’t always available so the HMRC can also use

Resale price

Cost plus

Profit split

Residual profit split

Transactional net margin

5. Burden of proof

Is with HMRC, although governed by the OECD. Article 9 of the Model Tax Convention

forms the basis of bilateral tax treaties involving OECD member countries

Taxpayers are only expected to provide documentation which would be reasonable for them to have in their possession.

From the taxpayer’s point of view, the OECD guidance only requires documentation to be kept which would be consistent with the evaluation of any other business decision.

6. What records need to be kept?

Only the records that would normally be expected to be kept by a business. HMRC can’t ask for anything else.

Documentation must exist at latest by the time the Corporation Tax return is filed.

7.  What can be done to mitigate?

Entering into an Advance Pricing Agreement (APA) with HMRC, it’s preferable to a retrospective examination of the enterprise’s transfer pricing policies

It is binding on HMRC and the company over an agreed period, usually 3 to 5 years

8. Who needs to be worried?

Obviously all large organisations, medium enterprises are subject to power of direction, which means they don’t have to self-assess. The HM Revenue and Customs would only make a power of direction against one of these companies in exceptional circumstances.

A small enterprise is completely exempt from the transfer pricing rules, unless the other party is a related party in a country without a non-discrimination clause typically, a tax haven.

9.  So what’s the definition?

Enterprise Category

Headcount

Turnover

Balance Sheet Value

Medium

<250

Not to exceeding €50m

Not exceeding €43m

Small

<50

Not to exceeding €10m

Not exceeding €10m

Macro

<50

Not to exceeding €2m

Not exceeding €2m

10. To encourage UK businesses to not park their patents overseas HMRC introduced the Patent Box 10% CT rule.

The Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions and certain other innovations. The relief will be phased in from 1 April 2013 and the lower rate of Corporation Tax to be applied will be 10 per cent.

Life after submitting a tax return

You’ve completed your tax returns, you think you can now breathe a sigh of relief, but can you? HMRC can inspect any taxpayer’s records under Schedule 36 by FA08, FA09 and FA10. They can check the tax records for:-

Pay as You Earn (PAYE)

Value Added Tax (VAT)

Income Tax (IT)

Capital Gains Tax (CGT)

Corporation Tax (CT)

Insurance Premium Tax (IPT)

Inheritance Tax (IHT)

Stamp Duty Land Tax (SDLT)

Stamp Duty Reserve Tax (SDRT)

Petroleum Revenue Tax (PRT)

Aggregates Levy (AGL)

Climate Change Levy (CCL)

Landfill Tax (LFT) and

Bank Payroll Tax (BPT)

 

The technical term for the inspection is a Compliance Check. They will check that the tax payer has:-

  1. Complied with their obligations
  2. Paid the correct amount of tax and at the right time
  3. Claimed the correct reliefs and allowances

 

 

 

The inspection

This can be completed by anything from a short telephone call to confirm a single fact, to a detailed investigation of a person's entire financial affairs over a period of years.

HMRC may undertake checks by either asking for information or documents or by arranging a meeting or visit.

They may:

  • Require taxpayers by notice in writing to provide information and produce documents (a “taxpayer notice”)
  • Require third parties by notice in writing (for example a supplier or bank) to provide information and produce documents (a “third party notice”)

 

The caveat being that these requirements are reasonable for the purpose of checking a tax position. The generic term for these types of notice is information notice.

 

The recipient has the protection of a right of appeal to, or prior approval by, an independent tribunal. There is no right of appeal however where the notice only refers to information or documents that form part of a taxpayer's statutory records, or any person's records that relate to:

  • The supply of goods and services
  • The acquisition of goods from another member state, or
  • The importation of goods from outside the European Union (EU) by a business

 

If the taxpayer is not forthcoming with the information, HMRC may invoke their statutory powers to obtain them.

 

They may also request assistance with aspects of a tax check from other government departments.

 

This could include a situation where there is reason to believe that a taxpayer:

  1. did not notify chargeability to tax
  2. did not register for VAT if required, or
  3. is operating in the informal economy

Restrictions on Information Powers

The taxman is not all-powerful; some safeguards have been installed, set out in the law and with guidance so that in carrying out compliance checks

  • HMRC's powers are used reasonably and proportionately
  • Taxpayers are clear about when a compliance check begins and ends
  • Officers have no right to enter any parts of premises that are used solely as a dwelling, whether to carry out an inspection or to examine documents produced under an information notice. They can, however, enter if invited
  • FA09 adds to Sch 36 FA08 a power to inspect all property for the purpose of valuation (for direct taxes purposes). This requires either the taxpayer's agreement or Tribunal approval
  • Unannounced visits will only be made where agreement has been given by an authorised officer

Other safeguards include the fact that officers can’t require certain things to be provided:

  1. Information relating to the conduct of appeals against HMRC decisions
  2. Legally privileged information
  3. Auditors or tax advisers advice to a client about their tax affairs
  4. Information about a person's medical or spiritual welfare
  5. Journalistic material

Time constraints

  • Information over six years old can only be included in a notice issued by or with the approval of an authorised officer
  • HMRC cannot give a notice in respect of the tax position of a dead person more than four years after the person's death

 

The Power to Visit Business Premises and Check Assets and Records

Inspection powers allow an officer of HMRC to enter business premises and inspect the premises, business assets and statutory records.

 

If an information notice has been issued earlier, the documents required in that notice could be inspected at the same time.

 

FA09 incorporates into Schedule 36 inspection powers in respect of the:

  • business premises of Involved third parties
  • valuation of premises for Income Tax or Corporation Tax

These inspections:

  • must only be undertaken where it is reasonably required to establish the tax position and
  • will normally be by prior arrangement, the date and time being convenient to the taxpayer

The Power to Visit Business Premises and Check Assets and Records

Inspection powers also allow any officer to enter any premises when they believe the premises are to be used in connection with taxable supplies of goods or taxable acquisition of goods from Member States, and such goods or documents relating to such goods are on the premises.

There is no right of appeal against an inspection but the occupier can refuse entry and prevent the inspection from being completed.

The occupier can be penalised for such obstruction, where the inspection has been approved by a Tribunal.

There may be occasions when a pre-arranged visit will be inappropriate, for example where there is a strong risk that the taxpayer would move the business or remove stock or other assets. In such cases, an unannounced visit may be undertaken subject to prior agreement by an authorised officer.

If a formal statutory approach is needed, and it has not been possible to agree the time of inspection and give written confirmation, the inspection must be approved by a Tribunal and 7 days written notice of the time of the inspection given. The application for approval must be made by, or with the approval of, an authorised officer.

When a Penalty can be charged where a person:

  • Fails to comply with an information notice
  • Conceals, destroys or otherwise disposes of documents required by an information notice
  • Conceals, destroys or otherwise disposes of documents that they have been notified are, or are likely to be, required by an information notice
  • Deliberately obstructs an inspection that has been approved by the Tribunal.
  • In complying with an information notice provides inaccurate information or produces a document that contains an inaccuracy,
  • Fails to comply with a notice requiring contact details of a tax/duty debtor to HMRC.

These rights are covered in sections 38 FA 08 and 09

 

Types of Penalties

There are four types and amounts of penalty:

  • An initial penalty of £300
  • A daily penalty of up to £60 for every day that the failure or obstruction continues after the date the initial penalty is assessed
  • A tax-related penalty
  • A penalty not exceeding £3000 for providing inaccurate information or documents in response to an information notice

A tax-related penalty is in addition to the initial penalty and any daily penalties. The amount of the penalty is decided by the Upper Tribunal having regard to the amount of tax which either has not, or is unlikely to be, paid by that person.

 

A person is not liable to a penalty if they have a reasonable excuse for:

  • Failing to comply with an information notice, or
  • Providing inaccurate details or documents, or
  • Deliberately obstructing a tribunal approved inspection

If they correct their failure as soon as the excuse ends, the excuse will then be treated as continuing until the correction is made.

Normally, daily penalties will not be assessed after the failure has been remedied.

Record Keeping

Schedule 37 of FA08 amended existing record keeping legislation in respect of PAYE, VAT, IT, CGT and CT, whilst Schedule 50 to FA2009 extends this approach to IPT, SDLT, AGL, CCL, and LFT with BPT being included from 8 April 2010. Following consultation it was accepted that SDRT and PRT did not require separate statutory provisions, whilst IHT will be addressed through guidance.

These provisions are aimed at alignment and clarification.

This approach is designed to be flexible across a range of business and non-business taxpayers.

There are penalties for failure to keep adequate records.

The basic requirements in relation to record keeping have not changed but rules have been aligned on how long records are kept.