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How are you getting on with Making Tax Digital (MTD) for VAT? If your business is required to adhere to MTD, you’ll most likely understand what’s required of you.
Still getting your head around HMRC’s new digital VAT filing service? Don’t despair.
Put simply, VAT-registered businesses with a taxable turnover that’s over the VAT threshold of £85,000 now need to use software to submit their VAT returns, and also keep VAT records digitally for the mandated period (typically six years, or 10 years if you use the Mini One Stop Shop scheme (MOSS)). That’s discounting deferred businesses – they need to comply from 1 October 2019.
Accountants have a duty of care to ensure their clients comply.
As part of Sage’s effort to educate businesses and accountants about Making Tax Digital (MTD), I’ve been out on the road answering questions about VAT, most recently at Accountex 2019, where I was joined by a representative from HMRC.
Does MTD mean HMRC will need all my company’s VAT accounting records?
At the current time, HMRC requires just the usual “nine boxes” of data submitted via the same VAT return we’ve used for years.
The difference introduced by Making Tax Digital in this regard is that this must now be submitted via software by most businesses, rather than through the VAT portal website (or by post).
Not unsurprisingly, many people have asked if there’s a chance HMRC might use MTD for VAT as an opportunity to make businesses submit all their VAT-related accounting records, known technically as transactional data.
After all, it’s right there in the software and it wouldn’t be difficult to simply send that too.
I heard HMRC say this is a possibility but that it would ask permission to receive the data – so it wouldn’t just download it when you submitted your VAT return. I suspect the reality is that, in all likelihood, it hasn’t yet decided.
As for why HMRC would want this data, remember that MTD for business in all its forms (VAT, corporation tax and income tax) is about correcting mistakes and inaccuracies, and clawing back some of the £9.2bn tax gap.
If viewing a company’s entire VAT record can help HMRC with this goal then it makes sense from its perspective.
Making Tax Digital
HMRC’s Making Tax Digital has changed how businesses submit VAT returns – we’ll help you with it via a free telephone consultation.
You can use our MTD timeline calculator but generally speaking, you’ll need to do so at least seven days before you’re due to make your first MTD for VAT submission, assuming you pay by direct debit.
Do not sign up until after you’ve filed your final non-MTD return, and you should wait until five days have passed after the deadline has passed for that return.
There are different timelines for those who don’t pay their VAT by direct debit—again, see the MTD calculator.
Why can’t I sign up to MTD for VAT and make file my first return immediately?
It takes up to seven days for HMRC to transfer your VAT payment direct debit with your bank. There’s nothing it can do about this.
Do my VAT payment deadlines change with MTD for VAT?
No. Your VAT return dates and payment frequency remains the same. In other words, if you submit quarterly or monthly then this will not change.
Will I need to set up a new direct debit with HMRC for MTD for VAT?
No. The existing one should be fine. However, it will be automatically moved from the old VAT portal to HMRC’s new Enterprise Tax Management Portal. It’s possible your bank might notify you of this and it’s possible that the entry within your bank statement might have a different reference.
I use spreadsheets for my VAT accounting. How do I switch to MTD for VAT?
If you haven’t already, you should switch to MTD-compatible software-based accounting at some point, ideally following your year-end, because making the transition before then might be near-impossible from an administrative standpoint.
Until you make the switch to full accounting software, you can use something called bridging software. This hooks the spreadsheet into HMRC’s computers so you can submit the VAT return in the correct way.
A variety of bridging solutions are available, which cater to differing requirements.
Few people believe bridging software should be used as a permanent solution, including HMRC. It’s just a temporary fix until the business concerned can make the switch to accounting software.
If nothing else, using spreadsheets for VAT records is risky because it makes it difficult to maintain the necessary digital records for six years.
How do I submit VAT for a group of companies, each using differing accounts software/spreadsheets?
As you might know, groups set up under one VAT registration need to follow the same MTD for VAT rules as any single business.
It’s therefore a matter of mechanics – getting all the data into one system via what HMRC refer to as digital links, so you can submit the return and also store the data digitally for the necessary six years.
Section eight of the VAT Notice 700/22 has some very useful explanations and diagrams that might help you figure it out – in particular, look at example six.
Notably, you might find your software vendor offers adaptor software to help unify the data that’s able to “plug in” to your various accounting solutions to consolidate the necessary data.
As an accountant, do my clients have to register for MTD, or can I do it for them?
If you’re an accountant or bookkeeper who has an existing client who completed a form 64-8 authorising you, and you previously submitted VAT returns for them via the old Government Gateway VAT portal, then the client will be automatically migrated across when you sign up to your practice’s Agent Services Account (ASA). The client doesn’t need to do anything.
However, a new client to your practice will need to sign up for MTD and then, after around 72 hours, you can send through an authorisation request for them via your ASA. They will need to confirm this authorisation.
Can businesses still submit via the old VAT portal once they’ve signed up to MTD?
No. The details will have been migrated across to the new system (known as the Enterprise Tax Management Platform). The details will no longer exist within the old VAT portal.
Why do businesses need to provide and subsequently authorise an email address when signing up to MTD?
This is a banking requirement relating to the direct debit system. Put simply, HMRC has to be able to email the business to inform them about their payment schedule.
I’m an accountant and I can’t create an Agent Services Account. What’s gone wrong?
According to HMRC, the most common reason the creation process doesn’t work is because the accountant (or agent) in question has already created an Agent Services Account (ASA) in the past but has forgotten about it, or doesn’t realise it can now be used for Making Tax Digital.
For example, you might have created an ASA to register a trust online.
ASAs aren’t limited to MTD and HMRC uses them for several different tasks (with more likely to be added as time goes on).
Try looking through your emails to see if you can find information about a previous sign up for an ASA.
Why is the VAT gateway website still online if we now have to use software to file VAT returns as part of MTD for VAT?
A minority of businesses don’t need to follow the MTD for VAT rules. Examples might include companies that are registered for VAT but whose turnover is below the VAT threshold.
Some types of businesses have a deferred start date and don’t need to use MTD for VAT until 1 October 2019.
Do I have to send my invoices digitally with MTD for VAT?
Sending digitally has many benefits but there’s nothing in the MTD for VAT rules that says you must do so.
However, if you print invoices via something like Microsoft Word, or even handwrite them, you must transfer the data to your digital VAT accounting as soon as possible. If you don’t, you’re breaking the law.
You need to transfer the tax point date, the value of the sale, the VAT rate applied, and the VAT element.
If you use spreadsheets, this means inputting that data and then keeping that data unchanged for a minimum of six years as per the existing VAT accounting retention requirements.
Of course, by using accounting software you not only get to issue invoices however you wish – electronically or printing them off – but it ensures the vital data is kept digitally without you even having to think about it. This is why digital accounting software is simply hard to ignore in a modern business.
I keep handwritten sales records. Am I breaking the law now MTD for VAT is here?
See the answer above. There’s nothing wrong with keeping handwritten sales records. That’s provided you transfer that data into your digital accounting solution as soon as possible.
You must do this in order to comply with the requirement of MTD for VAT that says not only should VAT records be kept for at least six years, as per existing rules, they must now be kept digitally.
Again, while there are a handful of solutions around that help with this – such as document scanning software – the additional admin work it generates really does suggest that moving to an accounting software solution is a very good idea.
How do I handle partial exemptions or adjustments and stay compliant with MTD for VAT?
Ideally, these should be done in your accounting software but if the software can’t handle it for whatever reason then you can do export the data and undertake the calculations outside of the software, for example in a spreadsheet.
You then must journal the resulting figure back into the accounting software. In the accounting software, you can indicate this using T codes, or an extended nominal ledger structure.
However, you will need to keep a copy of whatever you used to make the adjustment calculation (for example, the spreadsheet) for at least six years in case it’s required during a VAT audit in the future.
Notably, you can’t simply print off this spreadsheet because a key part of MTD for VAT is that VAT accounting records must be kept digitally.
A useful tip is to attach the spreadsheet to your ledger as a note, if your accounting software has that feature. You might find that it does.
I’m an accountant and can’t see a list of my clients in my Agent Services Account
This is correct and by design. Unlike with the old system, this data isn’t shown on the website. You can only see a list of clients in the accounting software you use to connect to the Agent Services Account.
Conclusion on Making Tax Digital
Making Tax Digital for VAT might seem simple in principle but, as I’ve found from speaking to businesses and accountants, a surprising number of issues arise when it’s comes to real world implementation.
I hope some of the answers above are able to solve any issues you might have had. Don’t forget that it’s not hard to get help for MTD.
You can call HMRC direct with any questions you have, while if your problem relates to the software you’re using then you should speak to the vendor.
You can always call your accountant (if you have one), who will be happy to help. And check out our MTD hub for support and top tips.
The best advice is to start thinking about Making Tax Digital for VAT now, even if your initial filing deadline has yet to come. There can be some substantial bumps in the road – and just a small sample have been outlined above.
Making Tax Digital: A guide for businesses
Not sure what Making Tax Digital is and how it impacts your business? Download this free guide to find out what you need to do.
Our report found that 90% of the 3,000 accountants we surveyed believe there’s a cultural or evolutionary change happening right now within their profession.
In this article, I’ll share three things that I believe will give you a chance to prepare. All of them come from the report findings, so we’re limiting our crystal ball gazing and working from real-world feedback from accountants.
The first thing I’ll share is what’s happening with the businesses of tomorrow. Where they are heading and what impact that has on the overall business landscape and environment.
Secondly, I’ll share some information about the workforce of tomorrow, and how the speed at which it is changing is having a huge impact on the accounting profession overall.
And finally, given the rapidly changing landscape, I’ll give my perspective on what this means for you as an accounting professional.
First, it might be useful to get a sense of perspective. I speak to many accountants around the world and often I hear this feedback: “Things are moving too fast.”
But are they really? As AICPA President and CEO Barry Melancon recently told me: “This is the slowest pace of change that we will see for the rest of our lives.”
The leader of one of the biggest accountancy certification bodies in the world says the pace of change right now is actually the slowest it’s likely to be.
But what about all that new technology beating at the door? Artificial intelligence. Cloud computing. Well, is it so new? Why are we calling it “emerging technology” when some of it’s been around since the 1950s?
For so many decades, all of this technology was only available to large corporations. It wasn’t necessarily available to small or mid-size businesses.
But now it’s available to even the smallest startup business. Perhaps the reason we still talk about this technology as “emerging” is because, as a profession, we’re behind the times. We’re not where we need to be.
In fact, according to the Practice of Now report, 85% of accountants stated: “We need to pick up the pace of technology adoption in order to be competitive in the international landscape.”
Technology is one of the drivers behind the 90% of accountants who believe the profession is undergoing a cultural change.
Other reasons cited include market demands, changing regulations, generational changes and client demands.
What I think is really fascinating is that these are all external forces.
As a profession we’re being forced to change, and that can be really hard for any profession, not just accounting.
But keeping this sense of perspective will help.
The business of tomorrow
We need to plan for what our clients will look like tomorrow and in the future, not just for today.
Some of your clients today will go out of business. Some of them will retire. But these aren’t the only threats to your client list.
According to a study by Salesforce, 64% of businesses are willing to leave the brands they work with if that brand doesn’t anticipate their needs.
The same study reported that 70% of consumers agree that technology has made it easier than ever to take their business elsewhere.
There are two key takeaways. Firstly, what businesses expect is changing. But secondly, notice the phrasing: “If the brand doesn’t anticipate their needs.”
It’s not just about meeting their needs today. It’s about anticipating what they will need tomorrow.
Read more about modernising your accountancy practice
Do you anticipate where your clients are going – and what they’re going to need in five or 10 years? How is your firm’s business model and the services you provide changing to meet those needs?
Technology will be one of those drivers in the wider business world, of course, just like it is in our own profession. This should feature in what you anticipate clients needing.
But don’t make the mistake of believing that technological innovation in itself will define the business of tomorrow.
Andy Grove, the founder of the computer chip maker Intel, said the following: “Disruptive threats came inherently not from new technology but from new business models.”
Have you heard about Flippy, the burger-flipping robot used in a California burger chain? Surely automating the creation of burgers can only be successful. You reduce staff costs. You standardise food production.
What’s the biggest age demographic in western countries right now? Baby boomers? Gen-Xers?
It turns out that it’s millennials – often cited as those born after 1981, but with a particular focus on those born in the 21st century – a group sometimes hived off into their own age demographic called Gen-Z.
Did you know that 2018 was the first time that those born after the millennium came of age?
Of course, arguably this age group began entering the workforce from their teenage years onwards, so we’re aware of them already.
The workforce of tomorrow will increasingly consist of millennials and Gen-Zers. In fact, by 2020 more than half the entire workforce population will be made up of them.
It’s critically important that you think about a strategy for handling millennials/Gen-Zers and what they anticipate. I’ve spent many hours in focus groups with them talking about what it is they want when working at an accountancy firm.
They don’t feel like they have a voice. Senior accountants have been heard saying things like: “I started in the mail room – they’ve got to start at the bottom and work their way up just like I did.”
This just doesn’t wash with the millennial generation. They won’t stay.
This doesn’t mean they need to start at the top but it does mean they need to have a voice. Yet when you think about how diversity can lead to a much richer business model and business plan for you, giving a voice to this group is actually to your advantage.
Here are a few stories to illustrate the nature of the challenge.
My friend’s father Ken is 88 years old and wanted to finally get himself online, so after much thinking about his needs, Ken was given an iPad.
Obviously, my friend acted as a makeshift tech support line for his father and one of the first calls was asking how to email some pictures to his daughter.
His daughter had emailed Ken already a few times, so her contact details were right there.
It’s easy, right?
But Ken didn’t know this. Why would he make such an assumption?
This really shows the fundamental barriers presented by modern technology for the older generation.
Molly grabs her father’s tablet and makes a video call to her mother to tell her that Daddy is sick. She turns the tablet around so mum can see.
As it happens, mum is a nurse so immediately calls an ambulance. Unfortunately, Molly’s father had a stroke but the great news is that he is now recovering.
Molly was never taught how to make a video call. She had never made one before. But she just knew what to do. She either learned it by watching others, or she figured it out for herself.
Can there be a starker demonstration of the technical divide? Ken is perplexed by the basic stuff, which is literally second nature for Molly.
Molly is your customer of tomorrow.
When they come into your firm and they want a job, the millennial/Gen-Zers expect the latest technology.
It’s not optional. It’s part of how they exist.
It’ll require a very different workforce than has been in existence up until now.
IBM’s Institute for Business Value surveyed millennials. It found people in that demographic want to:
Make a positive impact on their organisation
Work with a diverse group of people
Do work they’re passionate about
Become an expert in their field.
Millennials won’t give up. They won’t settle for less than this.
What all of this means
What are the additional skills that accountants are going to need going forward?
Obviously, technological literacy is important. But what I hear from accountants is: “I can’t keep up. There are so many new apps coming on to the market every single day.”
One way to make this seemingly complex challenge simpler is the following:
Focus on an industry or vertical. Your chances of keeping up with the technology will be a million times greater.
In other words, if you’re trying to be all things to all business types, you’re not going to be able to make it work. This is a key difference when it comes to technology literacy, compared with five or 10 years ago.
Business advisory services remain incredibly important – anticipating the needs of your customers and talking to them about where they are going.
Business don’t want financial work alone, which looks back and tells them what they did last month, last quarter or last year.
In the Practice of Now report, we make some predictions about what a practice will look like around 2030. Here they are:
No manual data entry: Data will flow automatically from clients and their bank accounts into accountants’ systems. Manually keying data will become rare, with legislation such as the digitisation of tax and payroll, forcing businesses to change.
Real-time relationships: The relationship between an accountant and their client will be near-instant. The accountant will have a real-time view of their client’s business and will be able to interact with that client in real-time. The accountant will be a trusted partner or even a constantly present companion.
Proactive alerts and notifications: Accountants will know instantly when things change for a client. For example, the accountant will be alerted when their client suddenly incurs a lot of bad debt resulting from a big order placed by the client’s customer whose credit rating is low.
Pre-emptive problem solving: Accountants’ time will be spent proactively looking at business problems and seeing errors before they manifest themselves into year-end error corrections.
Higher fees –but better value: Accountants will charge more to clients than they do today because of their increased value due to their advisory services. Fees might not grow by that much, of course, but accountants will be able to monetise better.
When do you think you’ll be putting any of them into practice?
The Practice of Now
We surveyed 3,000 accountants worldwide to reveal how the accounting landscape is changing. Discover how your fellow accountants are preparing for the next decade and learn what you can do now to keep your practice successful.
Have you received a letter from HMRC regarding Making Tax Digital (MTD) for VAT? If your business has a deferred start date of 1 October 2019 to comply with MTD, then HMRC will be getting in touch with you soon via post (if it hasn’t already).
Read this article for more details on the letter from HMRC and what it means for deferred businesses, alongside a refresher on Making Tax Digital (and answers to MTD questions you may have) and how it will benefit your business in the long run.
Plus there’s advice on what you need to do to sign up for MTD.
Remind me, what is Making Tax Digital?
Making Tax Digital is new legislation from HMRC and it means that if your business is VAT registered and has a taxable turnover above the current VAT threshold of £85,000, you need to submit your VAT returns using software. You also need to make sure VAT records are kept digitally.
Making Tax Digital started with the VAT element on 1 April 2019.
However, as a deferred business, MTD for VAT won’t apply to you just yet (your business would have received a letter from HMRC earlier in the year to let you know your company is on the deferred list).
However, this will change on 1 October 2019, when MTD will apply to your business.
Making Tax Digital
HMRC’s Making Tax Digital has changed how businesses submit VAT returns – we’ll help you with it via a free telephone consultation.
The following business types were deferred from the 1 April start date for MTD for VAT:
Businesses required to make payments on account
Annual accounting scheme users
Not-for-profit organisations that are not set up as a company
Public sector entities that are required to provide additional information on their VAT return
Traders based overseas
Deferred businesses comprise approximately 3.5% of the total number of companies that have to comply with Making Tax Digital (which is roughly 1.1 million).
What does Making Tax Digital mean for my business?
As of 1 October 2019, your current processes for keeping records and submitting VAT returns will change, no matter whether you send them monthly, quarterly or annually.
From that point, you’ll need to keep your records digitally. The way you submit your VAT data to HMRC will have to be done using functional compatible software.
There are also numerous benefits to Making Tax Digital. While the need to change your processes might appear frustrating at first glance, as you’ll probably need to dedicate time and money to it, the benefits will truly shine through.
When it comes to dealing with your business admin, utilising Making Tax Digital and submitting VAT returns digitally will help to reduce errors (both for your business and for HMRC) and make your business more productive.
Meanwhile, a move to digital accounting can see businesses save an average of £17,000 – or 27.6 days per year – due to spending less time on admin tasks. Sounds like a winner, eh?
What does the letter from HMRC say?
HMRC’s letter provides an introduction to Making Tax Digital and highlights the fact that the way businesses keep VAT records and submit VAT returns to HMRC is changing.
It points out that your business will need to start using the HMRC service for your first VAT return period that starts on, or after, 1 October 2019.
It mentions that you can join MTD for VAT early so your business is ready on 1 October – a useful tip, as it gives your company time to deal with any issues ahead of MTD being mandatory for you.
The letter recommends you speak to your accountant (if you have one) about MTD and check in with your software provider so you can determine when is best for your business to sign up for the MTD service.
If a letter from HMRC doesn’t arrive, and you’ve received one from HMRC previously to let you know your business is on the deferred list, get in touch with them sooner rather than later.
Can I go back to the way I previously submitted returns?
Unfortunately not, no. It’s also worth realising that if you join the MTD service early, so you can get used to the new processes, you can’t go back to using the existing VAT system before the mandatory date of 1 October to submit your returns.
Therefore, you should do the following before you make the move to MTD:
Check you have software that works with MTD
If you haven’t got functional compatible software yet, now is a good time to invest in it
Get in touch with your software provider so they can confirm whether their software has been updated for MTD (and when this will happen if it hasn’t already)
Authorise your software for MTD once you’ve signed up to the scheme.
How does my business sign up for Making Tax Digital?
Businesses around the world report that 71% of the time they dedicated to admin is taken up with accounting and payments processing tasks, including issuing invoices and chasing payments, according to research from Sage.
Freeing up just a little of that time could be game-changing. Finance professionals could be liberated to take on an advisory and proactive role within the business, for example, creating a more challenging and satisfying work experience. Here are 15 ways you can get started:
1. Save time by not invoicing
OK, so perhaps I’m exaggerating a little. Issuing invoices is unavoidable. But there’s no reason why you or your team have to issue the invoice. Get back valuable time by having the sales or field staff do it via your accounting app. Most accounting software packages offer this feature.
Ensure this requirement is built into the sales or field staff’s processes. Most accounting apps work on mobile devices such as phones and tablets.
So issuing an electronic invoice can take minutes and can even be done on site, in front of the client or customer, so there can be no haggling later about whether the invoice was received.
This also means there’s absolutely no delay in billing. Delays in receiving an invoice can create confusion with the client and cause delays. After all, if you don’t care about payment enough to promptly issue an invoice then surely you don’t care about prompt payment?
2. Outsource to your own business
A fundamental time and labour-saving trick for any service-oriented function, such as finance, is to delegate as many tasks as possible that don’t require the expertise or experience of the professionals in that department.
Here’s another example. Chasing outstanding payments can be done by just about anybody. So, why not get the invoice issuer—such as the salesperson—to do it as part of their regular routine?
After all, the sales person won’t get the commission until the payment has cleared, so it’s in their interest to get that payment quickly.
You should lead on any discussion by mentioning this fact. Again, your accounting software should offer the feature for them to be able to get notified when an invoice is due.
3. Good estimates = less time spent invoicing
You and your team can save huge amounts of time when it comes to creating invoices by ensuring your company’s field staff put in the work up front to create correct and detailed estimates.
All you will have to do is switch them over from estimate to invoice in your accounting software or, at the very most, copy and paste details from the estimate to the invoice form.
Of course, as mentioned earlier, the gold standard here would be for the field staff themselves to convert the estimate to an invoice themselves, avoiding any work for the finance department.
The term “firefighting” is sometimes used to describe admin work consisting of issues that arise quickly and must be dealt with immediately—rather like a firefighter called out to deal with a house fire.
This might sound very familiar for those working in a finance department. Often enquiries aren’t really urgent, of course, in that no damage will be caused if they aren’t resolved. It’s more that the requester would like a response now, rather than waiting.
Indeed, it’s easy to fall into the trap of building your daily schedule around being a firefighter. But to get free time to be more productive, you must take control of your working schedule.
A key yet easy-to-implement technique when taking control of your schedule is to bunch identical tasks together on a daily or weekly basis.
For example, you might want to spend several hours each day chasing payments, say from 1pm to 3pm.
If anybody contacts you urgently needing to know if a payment has arrived, you can tell them that you’ll try to have an answer by the end of the day—and just add it to the list for your payment-chasing part of your day.
For all but the most urgent enquiries, this response to the urgent query should be enough or certainly considered reasonable by most people.
5. Time yourself – and then beat the clock
When bunching tasks together, you’ll start to realise how long certain tasks take you. For example, you might notice you can review and sign off five business proposals across the space of an hour.
So why not see if you can increase your rate to six? Be competitive with yourself. See how much further you can push your productivity and reward yourself if you “win” in the race against your own work rate.
This technique won’t always be feasible, of course, because your workload will vary. But what we’re actually talking about here is the importance of self-measurement, and this is valuable in and of itself.
Keeping an eye on your own efficiency levels is a healthy thing to do, because it lets you see the patterns in your workflow that might inspire you to do things differently.
6. Chunk your time
As part of creating your schedule you might choose to chunk your working time into smaller units. This isn’t a new idea, of course. You might recall at school or college how your day was split into a timetable, so you could learn all the things you needed to.
It worked pretty well back then, so why not use that principle now?
However, you’re no longer at school. You are in control of your own schedule. So, you can define the individual “lessons”. For example, you could chunk your day into a series of 30-minute periods, and assign tasks to them.
Longer tasks can take up double or even triple time periods. Don’t forget to add a lunch break, and a break in the morning and afternoon, just as they did at school and college.
This ties into the earlier trick of bunching tasks, of course, and formalises it so it becomes a more rigid procedure.
You can use any calendar to write down your timetable, including computer calendars such as those in Microsoft Outlook or Google Calendar. Just create individual appointments of 30 minutes for each period.
7. It’ll only take a couple of minutes…
The two-minute rule simply says that if a task can be done in two minutes or less, you should do it immediately.
For example, let’s say a senior manager phones, demanding a debtor’s report. Ordinarily you wouldn’t do this until the time of the day or week dedicated to such admin tasks, but you also know that it’ll involve merely clicking an option within your accounting software and then emailing the PDF that’s outputted.
It takes less than two minutes, so you do so.
The result? One less task on your to do list, and one happy co-worker.
By spending that time now on the task, you’re actually saving time overall. How? Well, you would have to respond to the query in some way no matter what, even if that’s to tell the senior manager you will get around to his request in the future.
So why not spend that time actually completing the task? And undoubtedly the manager would chase you for the report at some point, eating up even more of your time.
The fact is all tasks have time overheads like this, and the two-minute rule can help avoid some of it—gifting valuable time back to you.
“Do all the tasks you undertake each day actually require you to do them? How many of them can you hand off to your team or colleagues and give yourself more time for other tasks?”
It’s very likely your accounting software will have automation features built in, and these can save incredible amounts of time by taking away some of the more basic tasks you perform daily.
For example, you can automate payments so invoices are routed directly to the correct approver within your organisation. You can automate bank reconciliation so payments are automatically connected with their entry on the statement.
A little time spent up front investigating and learning how to use automation really can pay dividends with huge time savings for yourself and your team.
Do all the tasks you undertake each day actually require you to do them? Do they need your experience, or skills, or knowledge? How many of them can you hand off to your team or colleagues and give yourself more time for other tasks?
It can be challenging delegating in this way, because it can feel like relinquishing control of things that matter.
Additionally, there might need to be an initial time investment up front where you teach the colleague concerned how to deal with that particular task or issue.
But successful executives repeatedly state that delegation is one of the core skills they use every day—and ultimately, it’s one of the best methods of freeing up your admin hours for tasks that matter.
10. Take advantage of new software features
Software nowadays is keen to tell us each time it’s updated, typically via a pop-up window explaining new features. It’s easy to become cynical and ignore these notifications, especially if you’re in a hurry, but that would be foolish.
New features are typically added to help you save time and resources. A moment spent seeing what’s new could save hours of work down the line.
11. Shift your working hours
This trick isn’t possible for everybody, of course, but shifting your working hours can be hugely beneficial.
If you find yourself pestered by emails, messages and phone calls during the working day then starting work at 8am, or even earlier, can give you a handful of productive hours before the chaos begins.
Following your early start you might choose to finish earlier in the day, or take a longer lunch break, or even trade the hours you accrue via the early start to work only a half-day on Friday.
Much of his will depend on the flexibility offered by your employer, of course, but simply thinking in this way can be useful.
One way you could do this is to shift your lunch hour to 2pm and work across the traditional lunch period, thereby enjoying a relatively quieter hour in which you can motor through tasks.
12. Limit email
It’s slowly becoming apparent to many of us how invasive emails have become in our working life. They’re a randomly occurring annoyance that can be very hard to ignore.
One technique is simply to close your email program, except for perhaps an hour a day.
That’s right. Just ignore email for most of the day.
I’ve even known colleagues to take this to extremes and even remove email programs from their computers and phones, and only use the website interface to handle their email. This really does avoid the possibility of things such as notifications popping up to distract you.
Email programs nowadays include features such as Focused Inbox too, which attempt to sort email into the messages you should respond to, and those that you can read when you have time (such as group emails providing general information).
Learning how to make use of these features can be well worth it.
13. Crowdsource it
Basic tasks are the bane of any business. They eat time, often for little reward (or certainly for less compared to other tasks). So, why not just get rid of them by crowdsourcing them?
Crowdsourcing isn’t for everybody and every business, but it’s certainly worthy of investigation.
Tasks that require human intelligence in a repetitive way are ideal for crowdsourcing. Amazon’s Mechanical Turk, for example, pioneered crowdsourcing and lists millions of people worldwide eager to take on tasks, or a small part of a larger task.
It’s built around Human Intelligence Tasks (HITs). A finance department’s HITs might be having printed documents typed up, for example, or to translate reports into local languages.
To create your own HIT you need only provide the data, specify the pay rate (usually in pounds per task completed), specify the type of task (i.e. data sorting) and specify the experience level of the workers (that is, how much of that task they’ve done before—a useful way of weeding out time wasters).
“Emails taking over? One technique is simply to close your email program, except for perhaps an hour a day.”
14. Review contacts frequently
As you know, finance tasks can be dependent on third-party input. For example, an invoice issued to a customer may need to be signed off within that business before it can be paid.
All of this can eat up time and thereby erode your own administrative efficiency because it means the invoice is paid late, and you therefore are prompted to chase it.
Periodically reviewing who’s who at a business can be very beneficial. Say you’re sending an invoice to somebody who left the company years ago. This means it arrives in an inbox that’s only checked periodically by somebody else, who then forwards the email to the relevant parties.
As such, a long delay is introduced.
However, if you frequently check to ensure you’re sending invoices to the right people then this won’t happen. There’s no need to make reviewing your contacts a separate task.
Just remember to tag it on to any existing communications you might have.
If speaking to your sales staff about a routine matter, for example, remember to ask at the end whether the person you invoice is still the right person for you to deal with.
15. Try “stand up” meetings
Meetings are a vital part of the business world, especially for a service-oriented department such as finance. But they can also eat up incredible amounts of time, often for little reward.
A stand-up meeting is one where people are up on their feet while it takes place. The concept is that few people like standing for long periods, so attendees are inherently encouraged to cover topics efficiently, so the meeting can conclude quickly.
Although online meetings are now increasingly common, the same essential technique can be applied in principle. Just make the meeting 15 or 30 minutes long.
Some of my colleagues choose to call the meeting “stand up” in the title to remind people of the intention, and remind them in the body of the invitation email that they’ve only got a short amount of time to cover everything.
Conclusion on admin hacks for finance managers
Taking control of your time requires effort but the rewards will be felt on a daily basis. No aspect of your processes should be left unexamined to see what can be improved and made more efficient.
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Working parents make an important contribution to the UK labour force and they can benefit from a number of different government initiatives that help them to cover their childcare costs, including Tax-Free Childcare.
As an employer, Tax-Free Childcare has implications for your payroll, particularly if your employees who are parents choose to switch to the arrangement from the previous childcare voucher scheme.
You are also likely to face questions from employees about the pros and cons of each scheme.
This article looks at the questions that are likely to arise and will equip you with the answers to advise your employees on the different childcare schemes and how they work.
What is Tax-Free Childcare?
Tax-Free Childcare, which is administered by HMRC, is a government initiative that’s intended to support working parents with the cost of childcare.
First introduced in 2017, it’s a replacement for the existing childcare voucher scheme, which closed to new entrants on 4 October 2018.
How does Tax-Free Childcare work?
The HMRC Tax-Free Childcare scheme is based on the principle that for every 80p a working parent puts into a designated online account, the state will add an extra 20p.
Effectively, the scheme is refunding the parent’s basic-rate tax on his or her childcare contribution – which is how the scheme gets its name.
The tax relief is only available on the first £10,000 of childcare costs per child.
With Tax-Free Childcare, working parents can get up to £500 per child from the UK government every three months – up to a maximum of £2,000 per year – to help cover the cost of approved childcare.
Approved childcare includes au pairs, breakfast clubs, childminders, nannies, nurseries and playgroups.
Who is eligible for Tax-Free Childcare?
In order to qualify, a parent must be in work and have a child aged 11 or under who is usually living with them.
If there are two parents in the household, they both must be in work. The parent or parents must also earn at least £125.28 per week and cannot receive any tax credits, Universal Credit or employer-supported childcare such as childcare vouchers.
Parents aren’t eligible to claim Tax-Free Childcare if either partner has a taxable income above £100,000.
The childcare voucher scheme is the predecessor arrangement to Tax-Free Childcare. It’s a salary sacrifice scheme offered voluntarily by employers.
With this scheme, parents sacrifice part of their salary in exchange for childcare vouchers of an equal amount in value. The scheme affects payroll because parents who participate in it don’t pay tax or National Insurance on the amount that they sacrifice for childcare vouchers, up to a certain limit.
The vouchers they earn through the scheme can be used to cover the costs of registered childcare providers.
Although the scheme is now closed to new entrants, employers are still able to provide childcare vouchers to employees who were registered before the scheme’s cut-off date of 4 October 2018.
The childcare voucher arrangement operates on a per-employee basis, rather than a per-child basis. So, a working parent who is a basic-rate taxpayer can buy £243 worth of childcare vouchers per month. Between them, two working parents could therefore buy £486 worth of childcare vouchers per month.
Each parent benefits from an annual tax and National Insurance saving of up to £933. Higher-rate taxpayers can spend up to £124 per month each on childcare vouchers and benefit from an annual tax and National Insurance saving of up to £625.
Additional-rate taxpayers can spend £110 per month on childcare vouchers, and benefit from an annual tax and National Insurance saving of up to £623.
If you have employees who already use the childcare voucher arrangement, this is a question you’re likely to be asked. It’s not necessarily an easy question to answer, however, since each option inevitably has its own pros and cons.
One advantage of Tax-Free Childcare is that it’s open to all qualifying parents, including the self-employed. This is in contrast to childcare vouchers, which are only available to employees who work for an employer that has voluntarily chosen to operate the arrangement.
Another advantage of Tax-Free Childcare is that grandparents, family members and friends can put cash into the Tax-Free Childcare account to enable the working parent(s) to benefit from the government’s top-up.
Tax-Free Childcare operates on a per-child basis rather than a per-employee basis, which means it could be a lot more valuable than childcare vouchers for parents with large families.
One potential disadvantage of the Tax-Free Childcare scheme in comparison with the childcare voucher scheme is that it is limited to parents of children aged 11 or under (or under 17 if children have disabilities). This is lower than the higher age limit of 15 years for the childcare voucher scheme.
A further disadvantage of Tax-Free Childcare is that it cannot be used by couples where one parent doesn’t work, or doesn’t earn the minimum amount to be eligible. The exception is that if the non-working parent receives a qualifying benefit such as incapacity benefit. Childcare vouchers, however, can be claimed if there is only one working parent in a couple.
Higher-rate taxpayers who earn more than £100,000 and additional rate taxpayers (who, by definition, earn more than £150,000) are able to participate in the childcare voucher scheme but are not eligible for Tax-Free Childcare.
The childcare voucher scheme can prove to be the better financial option for parents who have comparatively low childcare costs – less than £470 per month where both parents are eligible for childcare vouchers, or less than £240 per month when one or both parents are eligible.
Where employees already participate in the childcare voucher scheme, they should carefully assess whether it is better for them to stay with that arrangement or to move to Tax-Free Childcare.
Their considerations should include the number of qualifying children in the family, and the number of parents who can buy the vouchers, as well as the amount of tax and National Insurance relief offered by those vouchers.
What does Tax-Free Childcare mean for your business?
In theory, the government’s Tax-Free Childcare scheme reduces the administrative burden on businesses since the arrangement is made directly between the government and the individual.
This is in contrast to the childcare voucher scheme, which is effectively an arrangement between the employer and the employee.
In practice, however, businesses that employ parents are likely to face questions from their employees about the differences between the two schemes while both run concurrently.
The most common question will probably relate to whether an employee who is currently using childcare vouchers should switch to Tax-Free Childcare.
This is no one-size-fits-all answer to this question, however, since it will depend on the individual circumstances of the employee.
“Compared with the childcare voucher scheme, the Tax-Free Childcare arrangement takes away the employer’s compliance responsibilities and associated administration costs,” says Vaneeta Khurana, partner and national head of employment tax at accountancy firm Mazars.
“It does leave the employee with more choices to make on their own, however.”
What does Tax-Free Childcare mean for your payroll?
Employees who currently receive childcare vouchers are obliged to tell you if they have decided to participate in Tax-Free Childcare. They have 90 days in which to do this.
Once you have been notified, your team will need to adjust its payroll accordingly.
If an employee has told you that they have elected to join Tax-Free Childcare scheme, they can’t opt back into the childcare voucher scheme. The employee is still able to use any remaining childcare vouchers after joining Tax-Free Childcare.
Another potential payroll impact of Tax-Free Childcare is that you can choose to pay into an employee’s childcare account on behalf of the employee.
“With this option, the employer makes the payment into the childcare account directly from the employee’s net pay – after tax and National Insurance have been calculated – via the payroll system,” says Vaneeta.
She adds: “Alternatively, employers may choose to make additional payments into childcare accounts without reducing an employee’s net pay.
“In this case, the additional payment made by the employer will be classed as earnings and subject to the appropriate tax and National Insurance deductions.”
Chelsea Connolly, a tax senior at Surrey accountancy firm RJP, says: “Overall, employers are unlikely to have many payroll considerations in relation to employees wishing to move from using childcare vouchers to the Tax-Free Childcare system.
“As childcare vouchers are currently dealt with in line with the payroll and Real Time Information requirements, if an employee wants to swap to the new scheme, it is likely to be as simple as not processing the childcare vouchers for that employee going forward.”
What does Tax-Free Childcare mean for your employees?
Until the childcare voucher scheme was closed to new entrants on 4 October 2018, employees could choose whether to stay in that scheme or participate in the new Tax-Free Childcare scheme.
This choice still exists for employees who continue to participate in an employer-supported childcare voucher scheme.
Employees who became parents after 4 October 2018, or who did not join the childcare voucher scheme by that date, do not have this choice, though. They can only participate in Tax-Free Childcare, provided they are eligible to so.
For employees who are trying to decide whether to stick with the childcare voucher scheme or switch to Tax-Free Childcare, there is a lot to weigh up.
“Employees who are currently on the childcare voucher scheme now have the opportunity to review the benefits and drawbacks of making the switch to the Tax-Free Childcare scheme,” says James Thurlow-Craig, founder of Surrey-based website design and software development company Create Design.
“This is an important decision that shouldn’t be taken lightly. As a business, we’ve made the decision to provide factual, impartial advice, based on each employee’s current and potential future situation.
“By taking an active approach, we hope to reduce employees’ stress levels, allowing them to make an informed decision.”
How parents can apply for Tax-Free Childcare
So, what is the Tax-Free Childcare sign-up process? To register and create a login, one parent needs to set up an online childcare account through Childcare Choices, which links to the Government Gateway.
Parents who want to pay money into their account, pay their Tax-Free Childcare providers, or apply for Tax-Free Childcare for a new child, can sign in to their account to do so.
Either one or both parents can transfer money into the account. The money from the parents is topped up with extra cash by the government on the same day it is put into the account.
To keep receiving the benefit, parents must reconfirm their eligibility every three months using their Tax-Free Childcare sign-in.
Whenever they log in to their account, parents will need the Government Gateway user ID and password that they used when they originally applied for Tax-Free Childcare.
In theory, the Tax-Free Childcare scheme is more easily accessible to a larger number of working parents than the childcare voucher arrangement.
It’s also arguably a fairer way of providing childcare support to working parents in the UK. Nevertheless, there will be individual winners and losers with both schemes.
So, parents need to weigh up their choices carefully when it comes to deciding how they want to cover their childcare costs – and they are likely to need the support of you, as their employer, to do this.
The ultimate guide to payroll compliance
Facing the challenge of keeping up with payroll compliance? Read this guide for essential tips to make sure your business complies with the relevant payroll legislation.
Using data to drive efficiencies, save costs and generate growth has become an integral part of the role of today’s CFO. However, with more data available to businesses than ever before, finding the most valuable insights to achieve strong, data-driven growth is rarely quick or easy.
In this article, I’ll explore the challenges CFOs can face when harnessing financial data. I’ll look at how using software automation can build a better data culture within finance teams and how it can drive growth, minimise risk and identify new opportunities.
Don’t let your financial data cause staff burnout
It may sound like a bold warning but, after a recent workshop with our partners and customers, the impact of inefficient and complex financial data processes on IT staff became clear.
Everyone laid the IT department’s pain points in financial reporting on the table and I gathered them into these five key hurdles:
1: The raw data
It all starts with the data, of course, stored in enterprise resource planning (ERP) systems, accounts and finance software and – for almost every organisation, no matter what they might claim – a ton of Excel spreadsheets.
For many IT teams delivering reports to a CFO, what should be a straightforward act of connecting to and accessing these systems is often a major challenge.
2: Complexity and mismatches
There are so many layers of complexity in financial reporting to wrestle with. Not least currencies, countries and differing terminology/semantics.
In terms of mismatches, it’s fair to say that integrating, consolidating and understanding the relationships between and data and databases is a job in itself.
3: Timings and adjustments
Deadlines, chase-ups and late submissions… According to Companies House, there’s been a 10% increase in late submissions of accounts in recent years, despite continued investment in ERP, accounts and finance systems.
Fast reporting is clearly a struggle that’s on the increase and adjustments, reviews and redrafts remaining a lengthy, manual and labour-intensive task.
4: Error correction
Detecting and correcting errors in financial reports is the next major hurdle and one that can also be quantified.
Looking at just one example, 176,000 companies in the UK were fined in 2018 for errors in their financial reporting (again, according to Companies House), with the total fines amounting to £89m.
Above all of these hurdles, there’s the overarching work in security and data governance that’s a vital part of every organisation. Compliance to GDPR and numerous financial and auditing standards – which, of course, vary from territory to territory – all need to be considered.
Again, another manual task that has traditionally been very time-consuming.
While there’s never going to be a magic wand solution, software automation of business-critical, time-consuming aspects of financial reporting are emerging, which I think are well worth a discussion.
They’re worth considering in the IT department and they’re something the CFO (and the CIO and CEO) of an organisation should also be cognisant of.
The past few years have seen the arrival of software automation into the world of finance and data processing, designed to tackle all the hurdles above. To my mind, there are four key ways that automating data management with software can relieve the “data headaches” that surround financial reporting.
Firstly, being able to automate data integration is a major step forward. Software can consolidate all your data automatically, so nothing is missed. As a result, tasks that might have taken your finance team weeks or months can be turned into quick, app-based clicks.
For reporting itself, it’s possible to put software in place to that can deliver a central, consolidated “data hub” from which efficient and accurate analysis can be pulled at any given time.
Also data modelling, with software, can become a fast, intuitive – rather than manual, laborious – process. Certain variants of data management software will come with a user interface that makes it easy to prepare complex financial data for reporting at the user-/IT-level, without the need for technical experts.
Finally, security and governance. If all data management is automated, a very useful result is that you then have an overarching system in place that will control, audit and log all activity. From password and access control to reconfiguring mismatched data.
What do the analysts think?
For a second opinion on all of this, I’d recommend Helena Schwenk’s white papers. She’s a chief analyst at IDC, an organisation that looks at both the underlying technology (in this case ELT “or extract, load, transform” processes) and the bigger picture. Helena explains:
“ELT routines (in data management software) provide automated profiling and transformations for data sources, including the ability to identify and manage custom aspects of deployments, alongside prepackaged data warehouse models for specific business applications.”
On that data security/data governance angle, data management automation software can, IDC explains: “Provide configurable administration and security capabilities – with additional support for extracting security from ERP systems – to help ensure access and compliance requirements are upheld.
“In addition, auditing modules provide IT administrators with data on user activity, resources usage, and system monitoring to help fine-tune performance.”
Financial reporting without the headaches
As for my take on the bigger picture, with data management automation software, CFOs and IT teams get – at the basic level – faster reporting without the data headaches.
They also become able to better manage their data, by removing the hindrances of accessing legacy systems, while still tapping into its legacy data.
Their ability to navigate through periods of growth – and downturns – are less obstructed by data trapped in silos. Instead, they have increased confidence in the financial intelligence readily available to them, regardless of whether it’s in the cloud, on-premise or a combination of both.
Utilising software automation solutions that improve the accessibility and manageability of data across the financial arm of a business enables CFOs to identify trends and issues before they make an impact (rather than after).
It also improves processes and drives efficiencies.
Fast reporting – and gaining insight quickly and easily – allows the CFO to stay ahead of the curve, by anticipating the next question before it’s even asked.
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Every business owner or manager knows relationships with customers and/or clients are central to what they do. A happy customer or client is the most valuable asset.
But I’d like to suggest there’s another kind of relationship that business owners should cultivate and that can pay huge dividends if handled correctly. I’m talking about the people or organisations to which you owe money, such as your suppliers or creditors.
This might sound counter-intuitive. Why invest effort?
But there’s some solid wisdom and it goes far beyond simply managing your cash flow and balance sheet, or keeping your credit rating healthy.
Working to create a good relationship with those to whom you owe money can bring substantial intangible benefits that nonetheless have a real impact on the performance of your business.
By being a good debtor, you can also become a trusted customer or client, and receive the benefits therein. In this article, I will reveal why.
Think about it. Don’t you have your own natural bias towards the customers or clients of your business who pay regularly, and within the terms, without fail?
Aren’t they the customers for whom you’ve always got time when they call or email? And, of course, aren’t they the ones with whom you’re happy to do further business—perhaps even at a preferential rate just because they’re reliable and hassle-free?
Customers or clients who are tardy in their payments and demand constant attention are expensive to a business in terms of resources.
Why spend your valuable time chasing payments, or the time for your staff, when you could be focusing on your core tasks that you enjoy and build the business in the process?
So, why wouldn’t your own suppliers or other creditors view you preferentially if you not just stick to the rules agreed, such as terms of payment, but also actively seek the smoothest relationship?
Here are some benefits to being a good customer:
Superior negotiating power: Creditors measure good customers through credit ratings and businesses use this to their advantage to negotiate the best interest rates on financing. However, a good customer is also best placed to negotiate the very best prices from suppliers—not just when placing that initial order but renegotiating at any time to take advantage of this “good customer collateral” that’s been built up.
Better terms: If you can demonstrate that you stick to the terms agreed during each payment cycle then you’re much more likely to be able to negotiate more favourable terms moving forward. Think about the benefits to your cash flow if you could switch from 30-day terms to 60 or even 90 days. The cash could be freed up for that important equipment investment, for example, or even to fund expansion plans.
It’s not even as if you have to try hard to stand out against the competition when it comes to being a good customer. Late payments are depressingly common.
According to research by Sage, more than a third of businesses have no reason for late payments. Meanwhile, 22% of respondents in the survey said they only pay invoices at certain times of the year.
Ok, so I admit all this talk of becoming a trusted customer is all well and good, but how do you go about doing it?
You need to have full visibility into your business finances. More than this, you need to transition your processes and methodologies so you’re always prepared to take advantage of this visibility, because it really is one of the key lesser-known weapons in today’s competitive business world.
Again, this is more than merely monitoring your balance sheet every day, or knowing your cash flow situation. It’s about having fine-grained insight into just about every aspect of your accounts payable and receivable, whenever you need it.
It’s about seeing this data presented in a way that’s accessible and easy for you to understand and digest within seconds.
If you’re looking to get better rates from one of your suppliers, for example, wouldn’t it be great to see instantly the dates and amounts paid to that supplier over the past year?
Wouldn’t it be useful to contrast those figures against your total outgoings or other suppliers to see what kind of benefits could be had from renegotiated prices and terms?
Once the preserve of large businesses, nowadays even the smallest company can take advantage of BI within their accounting software. And considering that doing so can be revolutionary, there’s really no excuse not to.
Digging into an example
Below you can see an example of an accounts payable dashboard and information for a fictional bicycle retailer. Of importance is the number at the top left. This is the Creditors Days figure, and it shows as 181.44. It’s in the red.
This means that on average, the company is paying its creditors every 181.44 days compared to the average credit terms of 32.59 (listed beneath in the goals figures).
Clearly this isn’t healthy, and not conducive to becoming a trusted customer. More information is needed. The business owner needs urgently to know the who, where, what and when about these payments.
If we move across to the Due By Age Summary graph, we see the total amount outstanding to creditors, as well as for how long it’s been outstanding.
In this example, we’re able to see straight away there’s $251k sitting in the Older Than 120 Days column. By clicking this, the owner can drill down into this summary and view how much is owed, and to whom, as well as the number of days the amounts have been outstanding.
The owner will see that most of the outstanding amount in Older Than 120 Days is split between two companies: CycleGo and MountainPro.
If they then right-click on the specific supplier and click on Drill Through, they’re able to immediately drill down to the specific supplier information.
For example, they’re able to determine who the contact person for CycleGo is, and what invoices are due and overdue.
Looking at this dashboard, they may realise there was a whole lot of stock that was sent back, which hasn’t been adjusted yet by the supplier. This explains the massive amount sitting in the Older Than 120 Days column.
Conclusion on being a good debtor
Good business advice for business owners or managers has always been to keep on top of the balance/profit and loss sheet, and to know the cash flow position at all times.
But this advice is out of date in our modern world.
Businesses generate data on a minute-by-minute basis and this should be exploited to provide insights that bring real business benefits in terms of improved customer and client relationships. That in turn brings better negotiation potential.
As we’ve shown, it would be a mistake to believe this is about delving into arcane terminology or technologies.
With business intelligence reports and dashboards, the information is right there and is easy to understand by just about anybody. Digging down into the data is as simple as clicking or tapping on graphs or tables.
With this kind of power on offer, why wouldn’t you take advantage of it—and revolutionise the way you do business?
A basic guide to interactive dashboards for small business
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How long does it take for your customers to process your invoices and pay for your goods or services? And how many awkward conversations do you have to have along the way?
The average waiting time in the UK for invoices of £1m or less to be paid is 71 days, according to UK Finance (formerly known as the Asset Based Finance Association). That’s substantially longer than the standard 30 or even 60-day terms most businesses rely upon to keep their cash flow healthy.
Sage’s own research reports that more than 1 in 10 are paid late. The research also found that across the world, the most common excuse given for late payments is… no reason at all.
That’s right. As incredible as it sounds, businesses simply have no excuse. They simply don’t bother paying on time.
As any business owner or finance professional knows, this can lead to tricky and often awkward phone calls or emails when a payment is overdue. According to the same Sage research, for most businesses the biggest barrier to chasing payments is protecting the relationship with the customer or client.
Here are five ways to sail the choppy waters of invoice payments that should make those awkward conversations easier to navigate—or possibly remove the possibility of them ever arising in the first place.
1. Invoice immediately
If you take your time issuing an invoice then you send an implicit message to the customer or client that you don’t consider timely payment to be important either.
Sending a late invoice certainly won’t give you the strongest position should there be a requirement to contact the customer or client and chase the payment.
Issuing an invoice later rather than earlier can also create confusion for the customer or client, in that the time that’s elapsed might mean it’s not obvious what the invoice relates to. The person controlling the purse strings may have to investigate, which adds yet more potential for delay until the payment is issued.
How soon should you send an invoice? Well, how about immediately?
If you use a modern accounting solution complete with a mobile app, you can even do this in front of the client.
Just completed a job or handed over some stock? Create and send the invoice there and then using a phone or tablet, and make sure the customer or client knows you’ve done so.
Following this, there can be no ambiguity about whether they received the invoice should you need to chase it up.
How to process an invoice - Sage Business Startup Essentials - YouTube
2. Offer many ways to pay
This point is a total no-brainer in the modern day and age. Any invoice your business issues must offer as many payment options as possible.
Credit card, debit card, bank transfer, PayPal, or even technologies such as Apple Pay or Google Pay. All should be offered in addition to the age-old methods of posting a cheque or arranging a bank transfer.
If you use modern accounting methods, your accounting software should let you include a “Pay Now” button in the email invoice that lets the recipient settle the invoice with just a few clicks.
This makes it as convenient as possible for your client or customer to settle the invoice, thereby eradicating the potential for procrastination.
Should you find yourself having to chase the payment, any awkward conversations are lessened if you can demonstrate how you’ve tried hard to make it as easy as possible for your client or customer to make their payment.
Even business-to-business (B2B) companies, some of which still rely largely on cheques or BACS, are coming around to the idea of paying electronically via more contemporary methods. Always ensuring your invoices offer this option is surely a step in the right direction.
Depending on the amount of the invoice, offering a variety of payment methods means it might even be possible for the person who authorised the purchase to pay it as an expenses claim.
This removes the need for the finance department to get immediately involved, which therefore removes further potential delays.
A cutting-edge feature in accounting software shows a document timeline for invoices. As well as showing exactly when you sent the invoice, it lets you know when invoices have been viewed by the recipient.
This works in a similar fashion to the way some email applications let you know when an email has been opened by the recipient. You’re even informed of the time and date the invoice was viewed.
As such, you have some ammunition during the awkward conversation if the invoice requires chasing. If the client or customer says they didn’t receive it—perhaps the most common excuse—you can explain not only that they did indeed receive it, but even tell them exactly when they did.
That you can demonstrate the length of time since they became aware of the invoice means they are subsequently under pressure to settle it sooner rather than later because both you and they are aware the clock started ticking at that point, rather than at some nebulous point since then.
Additionally, now they know your invoices can be tracked in this way, they’re less likely to delay paying them in the future.
4. Make invoices clear, accurate and attractive
There’s a handful of details that must be included on an invoice but, beyond this, a clear and presentable invoice is something that demands action on behalf of the recipient.
The more professional the invoice looks, the more professional a response it’s likely to engender in the recipient—and this means the invoice is more likely to be paid on time.
All of us are unaware of subconscious cues that dictate our actions and in our professional lives, we tend to respond to professionalism with our own level of professionalism.
Ensure you provide the information you have to on the invoice, but also ensure any information the customer or client requires is also included, such as:
The purchase order number
The name of the individual or department that placed the order
A concise description of what’s being invoiced for.
This will help avoid delays when they’re processing it.
However, don’t include too much information because you want the key information to be visible immediately.
Many accounting packages include a variety of invoice template designs that you can choose from. You might even choose to experiment with using each temporarily, to see which of them gets the best responses from businesses in terms of timely payments.
If your business provides regular goods or services to a business on a repeatable basis, why not set up regular payments with the customer or client? Then you can be sure the money will be collected on the invoice due date.
It’s good for the customer or client, too, because they don’t have the administrative overhead each time of having to raise the payment.
Even the smallest businesses can create direct debits for their customers or clients using their accounting software and a provider such as GoCardless, Stripe or PayPal.
The charges are comparable with other forms of electronic payments but the benefits go way beyond just receiving regular payments without having to chase them. Payments are automatically reconciled when received into your accounting software, so the background processing work requirement is also reduced.
A direct debit setup for a client or customer doesn’t just need to be used for regular payments, of course. You can set one up and use it to claim payments as and when required on a semi-regular basis.
Again, the reduction of administrative overhead for both you and the client compared to traditional invoicing and payment collection can be very attractive.
Conclusion on getting invoices paid
Conversations with your customers or clients should be productive and proactive, rather than awkward and strained.
By using the techniques highlighted here, you should be able to turn around your invoice payments processes so awkward conversations to chase up money become a thing of the past, or at least less of a strain on your time and emotions.
The Art of Being Paid
Chasing invoice payments doesn’t have to be painful. Use this kit to answer a few questions about your customers so you understand their payment drivers, then read our advice on how to flex your style for each, calling techniques and much more.
Accountex 2019 is now over and, in addition to the free stickers, USB sticks and fluffy toys, there was a huge amount of information at the London event for accountants to take home with them.
How will your practice evolve and adapt given what was said? There were some very strong themes evident at the show. Here they are.
1. Making Tax Digital has landed
It should hopefully come as no surprise to accountants across the UK that Making Tax Digital (MTD) is now a big part of their professional lives. Since 1 April 2019, it’s been mandated by law for businesses above the VAT threshold when they commence their VAT period that follows that date.
Needless to say, the topic dominated Accountex keynotes and seminars. HMRC put in an appearance to both provide some fascinating updates and also offer some welcome technical support sessions. It even had its own modest booth at the show.
HMRC’s director of MTD for business, Theresa Middleton, gave an opening keynote speech where she shared a progress report and took questions from the floor. Some highlights included the following:
170,000 businesses have signed up for MTD for VAT, although this number is increasing all the time as new VAT periods start for the more than 1,000,000 businesses registered for VAT.
At the time of publication of this article, the first big crunch time has just passed, when the first tranche of monthly filers submitted via software in early May 2019. HMRC reported its systems would be ready and it’s confident everything will run smoothly.
Theresa confirmed the statement made by the Chancellor of the Exchequer that there would be a “light touch approach to penalties in the first year”. HMRC has no interest, she said, of penalising companies who have “tried their best to get it right but haven’t done so”.
MTD for income tax and corporation tax
Theresa also discussed Making Tax Digital for income tax service accounts (ITSA), which is the next frontier for MTD.
Although technically still a pilot programme for limited types of income tax, and not mandated until 2021 at the earliest, she indicated it’s a very real option for the majority of relevant traders (and she also indicated that the types of businesses that are included will be expanding soon to increase numbers).
The chief holdback, she said, was a lack of support within accounting apps. MTD for corporation tax still hasn’t gone through the consultation phase, she added, essentially confirming that it’s a ball that’s been punted into the longest of the long grass.
Mandation in 2021 is essentially impossible but its success will “will depend on how well the VAT service lands and how well we’re able to stimulate the income tax market”.
A useful nugget of technical help from HMRC concerned problems encountered by accountants signing up for an ASA. In most of these cases, a HMRC rep reported, it’s because the accountant has already created an ASA account in order to undertake a task such as registering a trust online.
Remember that an ASA isn’t limited to MTD, and is a key plank of HMRC’s online services moving forward. All the affected accountant needs to do is dig out their older government gateway account details, or perform a password reset.
What’s the takeaway for you from all the talk and advice around MTD? Well, you need to start your clients on a digital accounting path right now.
This isn’t just about VAT. You need to start preparing for MTD for both income tax and corporation tax. 2021 is only two years away and if you start your clients on the journey today, you could save yourself a lot of pain in the coming months and years.
For example, many at Accountex complained that HMRC’s phone lines were jammed, making it hard to get vital help when they needed it.
This is undoubtedly because of the majority of the UK’s accountants raising queries. Why not get your own process completed earlier than the absolute deadline, so you avoid the crush on resources such as support lines?
Starting the journey with your clients can be as simple as opening a discussion around accounting technologies, and choosing a suitable platform for your practice.
But it could also mean investigating the partner programmes that software companies offer so you can become a vendor and create a new revenue stream from the work you do converting clients to up-to-date digital accounting technologies.
Several seminars discussed accountant training. For example, Ian Selby of CIMA discussed how their latest research had led them to overhaul their training and certification offerings. The world of accountancy is changing, he said, and certification bodies have to evolve to ensure the skills needed are present in future candidates.
This mirrors the finding in Sage’s own Practice of Now 2019 report, which was launched at Accountex with the opening keynote from Jennifer Warawa, who is the Executive Vice President – Partners, Accountants and Alliances at Sage.
Surveying more than 3,000 accountants worldwide to get a view of the accounting landscape, we found 62% of accountants agree that today’s accountancy training programmes will not be enough to run a successful practice by 2030.
It’s a looming crisis but there are signs the chartered bodies are responding.
In addition to CIMA’s work above, the ACCA in the UK has already said it is evolving its qualification to take into account “technical and ethical abilities, intelligence, creativity, digital skills, emotional intelligence, vision and experience”.
The AICPA in North America has also said it’s consulting on revising its certification because of changing client expectations and technical innovations.
Within the Practice of Now survey, we asked accountants what additional skills they believe those joining the industry needed. The results are in the graph below.
Topping the list by a large margin is technological literary, as we might expect, but listed beneath that are relationship building skills, and the old stalwart of business advisory skills. All of this again indicates a subtle shift within the industry, in which accountants are simpler closer to businesses they work for.
What does this mean for you or your practice? It could be as simple as asking some fundamental questions, and seeking the training or certification necessary to fill in the gaps. This is the advice Michael Office, Global VP of Accountants at Sage, offers in the Practice of Now report:
“[Ask yourself] how do I engage with my clients more deeply, and in a real-time way? How do I provide advisory services? How do I become their success coach?
“As a profession, we need to either think about how we evolve the way we train accountants to address the gaps made by the development of technology, or we complement traditionally trained accountants with skills that address the gaps within your practice.”
3. Technology, technology, technology
When walking around the Accountex show floor, or attending the keynotes and seminars, there can be no doubt about the importance of technology within the field of accounting.
The majority of the booths were technology vendors of some kind, and from fintech and blockchain to encryption and the cloud, many of the keynotes and seminars were dedicated to discussing digital transformation.
With the implementation of Making Tax Digital for VAT there was a sense this year that technology once considered exotic had ceased to be an option for practices and had become simply a fact of life.
After all, MTD for VAT means that no business registered for VAT can avoiding using a computer for their accounting. No accountant can feasibly avoid a cloud-connected practice either.
Emily Smith of Finlayson & Co talked about how she not only undertook her practice and her client list on a digital journey, kick-started by MTD for VAT’s requirements, but how the practice took a zero-tolerance approach with its VAT clients.
If any business simply refused to make the move to digital accounting then they were dropped from her practice’s list (albeit after much discussion and attempted coercion):
“One hundred percent digital is our dream,” said Emily. “We’ve seen what it can do. We’ve seen how efficient we’ve all become. We’ve seen how MTD digitalisation is just the start and we know somewhere in the future accounting going to be a 100% digital anyway. So, why not try and do it now?
“When income tax and corporation tax admissions come in, we’ve got nothing to worry about because all of our clients will be on software.”
Watch out for Emily’s story in a separate article, but ultimately you should be asking yourself if your practice is positioned correct for the digital future—not only for the benefit of your own business, but also your clients.
A handful of keynotes and seminars this year discussed diversity within the profession.
Helen Thornley of the Association of Taxation Technicians discussed how it’s been 100 years since the profession was finally opened to women upon the passing of the Sex Disqualification (Removal) Act in 1919, and mentioned some pioneers such as Ethel Ayres Purdie, the first woman to join a professional accountancy body.
Claire Harvey from Reed discussed gender diversity in accounting and finance, providing helpful advice to women looking to break through the glass ceiling.
Once again, diversity is something that the Practice of Now report also reported upon based on our survey data.
Just 30% of firms told us they’re actively seeking to diversify their workforce. Only 28% of the respondents had a written policy on, or written commitment to, diversity and inclusion.
While matching your practice’s workforce to the diverse clients it represents can only be strengthening, the Practice of Now research also found that the reputation of the firm was the key reason why recruits join it over its competitors.
And the way your firm will get a better reputation in future is by having a diverse workforce that appeals to the new generation of millennial recruits and business owners.
There are obvious and basic ways forward if you want to increase diversity within your practice; here are a few examples:
You might create a written policy on diversity and inclusion.
You might start offering training.
You may examine existing policies and procedures to see how they can further diversity, and take a look at your recruitment practices too.
Just like all the other issues mentioned here, a progressive approach diversity demonstrates how accountancy is undergoing an evolutionary change as it prepares for the coming decade.
5. Advisory services
There’s little doubt that advisory services have been topmost in the minds of accountants for the past few years but this year saw an evolutionary leap to actually discussing how this can be achieved.
Various keynotes and round-table discussions shared ideas and ways forward that have been tried and applied to existing practices.
Again, this is more evidence that the profession of accountancy is moving and preparing for the years to come in a world where client relationships have also evolved due to smarter use of technology.
There’s no turning back from the sea change that is Making Tax Digital, so this is also not a time to be a stick in the mud in not adding to core compliance work. Clients simply expect more.
Speaking in the Practice of Now report, Michael Office hit the nail on the head: “Accountants are starting to understand that a successful firm is actually a relationship management business.
“Engaging with clients, managing the relationship, making sure that accountants contribute towards their clients’ success—this requires firms to have different skill sets within their practice.”
The Practice of Now
We surveyed 3,000 accountants worldwide to reveal how the accounting landscape is changing. Discover how your fellow accountants are preparing for the next decade and learn what you can do now to keep your practice successful.
Brexit is one of the biggest challenges that businesses are facing – both now and in the future when the UK leaves the European Union (EU).
But there is a lot of uncertainty around Brexit, making it difficult for businesses to take action and put the plans in place that will help them during what for most is a tricky period.
However, rather than simply focusing on the challenges around Brexit, your business should be exploring ways to thrive post-Brexit. Technology and innovation are two areas where your business can step up and see positive outcomes.
To help you along the way, we have created a guide on doing business in a post-Brexit world, which highlights how technologies such as Industry 4.0 and the Internet of Things can keep your company moving in the right direction.
For example, when it comes to customs, scalable technology could interconnect the EU and the UK efficiently. This could make a positive impact for your business when dealing with border control. The guide goes into more depth on this topic and others too.
Doing business in a post-Brexit future covers the following topics (and more):
Uncertainty is one of the biggest complaints that businesses have had around Brexit. Companies can adapt and prepare, but as negotiations on possible deals have been drawn out for more than two years, it has been difficult for businesses to be prepared as they haven’t been exactly sure what to prepare for.
The fact, though, is that the world is uncertain.
If it isn’t Brexit, it could be fallout in the trade disputes between the US and China. It could be over-regulation. It could even be a need for new skills, tax burdens, climate change or exchange rate volatility.
It is why business leaders should be creative and look upon uncertainty less as a risk, and more as an opportunity to win a competitive advantage.
Instead of simply reacting to Brexit, businesses should look at how they can thrive after Brexit. And the opportunities lie in technology and innovation.
With Industry 4.0, major innovations in technology are coming into maturity at the same time – embedded by companies around the world that are integrating the virtual and physical worlds to bring forth powerful new ways of working.
Businesses in all industries have an opportunity to use digital tools to their advantage, increasing productivity and efficiency to win a competitive advantage.
Brexit must be considered a red line where British businesses look to push heavily towards reinventing business models, products and services.
For context, we’ll look at some of the more important long-term technology goals for the public sector post-Brexit.
This will help answer questions on how private businesses can use fourth industrial revolution technology to stay at the forefront of the digital revolution.
Download your copy of Doing business in a post-Brexit future for more insights and advice.
Doing business in a post-Brexit future
Don't just focus on a short-term plan for Brexit. This guide will help you prepare for the long term post-Brexit, with tech and innovation playing key roles.