Softworld preview: it is all in the preparation

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

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

Related reading