Legislative and standards changes due to come into force during 2007 are likely to cause a headache for any organisation that relies on business software – and could force many to upgrade or even replace their existing systems.

From vertical legislation and tax rules for specific types of goods, to the introduction of a BSI kitemark for VAT software that could mean less frequent HM Revenue & Customs inspections – the changes will have a dramatic impact on the processing capability of software applications.

Even if changes don’t affect you, increased online filing opportunities and the desire to take advantage of initiatives to save time and money in the production and filing of results will be a driving force behind many new investments in software over the coming year.

But the impact of some of the changes should not be underestimated – the new reverse charge VAT rules, for example, arguably represent the most significant change to accounting and IT systems in 14 years. And the new construction industry scheme requirements are not just relevant to the companies in the construction industry, but for any organisation employing sub-contractors on projects of more than £1m.

Even if just one of these new laws or standards affects your organisation, then you need to consider whether your accounting software can handle the new rules, or whether you will need to upgrade or replace your systems.

BASDA represents accounting and business software developers at policy making level. Our relationships with organisations such as HMRC helps our members incorporate legislation and standards changes into their software as soon as possible. If you are unsure if your software will manage any new requirements, you should contact your supplier.

But future-proofing your accounting systems is not simply about what is happening in 2007. The uncertainties of tax law mean it is important to consider the upgrade paths and agreements you have with your current software provider, bearing in mind that sticking with the same version or system may become either less sensible, problematic or, in the worst case, even impossible.

The same is true of industry-specific or bespoke financial applications. Most bespoke applications and software adapted for specific vertical markets can be updated and then upgraded easily. Check with your supplier to make sure it is able to meet any changes to legislation or standards.

The uncertainties of the business world mean it has never been more important to have flexible software that will meet your needs in 2007 and beyond – if your current system isn’t able to adapt to change, or doesn’t fit this description then now is the time to upgrade or change it.

So what exactly is happening in 2007 and how will it affect your IT systems?

The reverse charge

The introduction of reverse charge means business software users will need to upgrade to the latest version of their financial software and this may mean replacing legacy systems.

HMRC’s proposal relates to a specific range of goods including mobile phones, computer chips, memory sticks and MP3 players – i.e. high value/low weight and size items. When these are sold between businesses then VAT will be subject to reverse charge.

HMRC understands that business software developers cannot deliver these changes immediately and businesses themselves will not be able to easily implement the changes.

So HMRC has discussed with the software industry manual work-arounds that will allow customers to implement reverse charge in the short-term.

In the long term, business software providers will be incorporating the requirement into their software so that users will be able to manage reverse charge automatically.

If your organisation deals with any of the goods that reverse charge applies to, it would make sense to upgrade your accounting software accordingly, or switch to a supplier than includes the reverse charge functionality. In some instances, this will mean replacing legacy systems.

Construction Industry Scheme

The construction industry scheme actually applies not only to contractors in the construction industry, but any other organisation that employs sub-contractors that have contracts for more than £1m.

There are more than 250,000 registered contractors and over 2,000,000 sub-contractors on HMRC records that will be affected by reforms that come into force in April.

Historically, CIS has been associated with payroll systems, but the new requirements relate more to an accounts payable function than payroll.

Consideration needs to be made by any organisation that deals with sub-contractors to ensure their accounting system can handle the new CIS.

Online filing

VAT, PAYE and Companies House all now offer online filing. Some e-filing is mandatory and other schemes are optional, but offer incentives for those that file electronically.

Regardless of incentives, there are other reasons why it might make sense to go down the e-filing route.

Not only does online filing typically offer a simplified and more secure way to submit necessary financial information, but it is increasingly becoming the only way certain information can be supplied to authorities.

This trend is set to continue and organisations need to make sure their software can handle the requirements for online filing to save time now, and comply later.

Software VAT ‘kitemark’

The PAS 76 ‘kitemark’ was officially launched by BSI in July 2006, as a means to harmonise VAT reporting. Full details are available on the BSI website at www.bsi-global.com.

HMRC plans to extend the current PAS 76 to include reverse charge and eVAT filing, as these are policies that will need to be included in business software development anyway.

PAS 76 will have real value in the form of benefits such as fewer HMRC inspections, in addition to knowing you have business software that provides for new policy requirements in the future.

Dennis Keeling will be presenting a masterclass on software selection and implementation at Softworld Accounting and Finance on 6-7 March in London.
For full details and to register online go to www.softworld.co.uk/af