Business software

Legislation and standards changes that are being enforced during 2007 will be the main challenges facing organisations that rely on their business software in the coming year. Over the last three years there has been a raft of new legislation that affects businesses and the systems that they use. At the same time the Government is supposed to be ‘Reducing the Burden on Business’ and undertaking its own internal restructuring and ‘efficiency drive’. The net effect however, is a huge burden on everyone. By Dennis Keeling of BASDA.

HOW GOVERNMENT BURDENED BUSINESS
The last few years have seen the following important legislation impact on the way we run our businesses:

In 2005
• IFRS was required for all public companies
• HMRC Payroll eFiling using XML (for large organisations with at least 250 employees)

In 2006
• Sarbanes Oxley meant regulatory filing for all external US listed public companies
• OGC eProcurement – for all suppliers via XML
• Companies House Annual Accounts eFiling using XBRL
• HMRC introduced:
• PAYE e-Filing via XML (for medium companies with 50+ employees)
• Corporation Tax CT 600 eFiling using XBRL
• VAT 100 / ESL / Intrastat eFiling using XML
• BSI Kitemark – a VAT Standard Audit File for Tax purposes using XML
• NCTS (National Computerised Transit System) with XML/EDIFACT
• BASEL ll – Financial Services risk management introduced

The flood has not ceased: far from it. The menu for 2007 contains the HMRC’s move to reform the Construction Industry Scheme (CIS); introduction of Reverse Charge VAT on selected electronic goods; the WEEE Directive for Electrical goods (from the DTI); the advent of the MiFID (Markets in Financial Instruments Directive). In the March 2007 Budget, the Chancellor legalised Lord Carter’s recommendations for mandatory e-Filing of returns to HMRC which will fan out over the next few years.

All of these changes will affect Financial Systems, Order Processing Systems, Tax Systems, and Payroll Systems in some way or another. In the main these systems will need to be upgraded or in some cases replaced. Taxpayers will have the option of providing this information on-line by re-keying the data into the Government’s websites – but that will only be practical for the smallest of companies.

The software industry has proved that submitting electronic returns automatically can be as simple as hitting the right menu option. It has been very effective with Payroll year-end e-filing where over 500,000 companies now use business software to automate their e-filing.

Some of the legislation being introduced is vertical, or tax related to specific types of goods, while another introduction is a BSI Kite mark for VAT software that can mean less frequent HMRC inspections. Added to more online filing opportunities, there is a lot to consider for organisations in 2007 in terms of accounts and financial processing that can be handled by the right accounting and business software.

It may be that many organisations will need to upgrade or even change their accounting software to meet with the demands of new legislation or to take advantage of new initiatives to save time and money in the production of, or submission of, their financial activities. Some of the changes in 2007 should not be underestimated in their impact – the new Reverse Charge VAT rules, for example, are arguably the most significant changes in 14 years, while the new Construction Industry Scheme requirements are not just relevant to that industry but for any organisation employing sub-contractors on projects worth more than £1m.

Then, the introduction of Reverse Charge for VAT means that business software users will need to upgrade to the latest version of their financial software and this in some instances will mean replacing legacy systems. HMRC’s current proposal for Reverse Charge 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 now 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 (represented by BASDA) manual work-arounds for customers to enable them to implement Reverse Charge in the short-term.

In the long term business software providers will be incorporating the requirement into their accounting software, so that users will be able to manage Reverse Charge automatically. If your organisation deals with any of the goods to which Reverse Charge applies, it would make sense to upgrade your accounting software accordingly or switch to a supplier that includes the functionality.

The new HMRC 'Construction Industry Scheme' (CIS) actually applies not only to contractors in the construction industry but any other organisation that employs sub-contractors - for example local councils, corporations, etc. that have contracts for more than £1m. There are over 250,000 registered Contractors and over 2 million sub-contractors on HMRC records which will be affected by reforms to the CIS.

The reform of CIS began in April 2007. Historically CIS has been associated with payroll systems, but the new requirements are more related to an accounts payable function than to payroll; so consideration needs to be made by any organisation that deals with subcontractors to ensure that their accounting system can handle the new CIS.

VAT, PAYE, and Companies House all now offer online filing, some mandatory and others optional (but with incentives). 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 in which certain information can be supplied to authorities. This trend is going to continue and so organisations need to make sure that their accounting and business software can handle these requirements for online filing to save time now - and then comply later.

The PAS 76 – the Accounting Software VAT ‘kite mark’ - was officially launched in July 2006. HMRC now plans to extend the current PAS 76 to include Reverse Charge and eVAT filing, as these policies will need to be included in business software development anyway. With these additions, PAS 76 will have real value for end-users in the form of benefits such as HMRC-related perks of fewer inspections, in addition to knowing they have business software that provides for new policy requirements.

Even if just one of these legislative changes or standards affects your organisation (and it’s likely that at least one of them will impact or could benefit every organisation), then you need to consider whether your current accounting software can handle them, needs to be upgraded, or replaced.

BASDA represents accounting and business software developers at policy-making level – for example by having a very close relationship with HMRC – which means that accounting software provided by BASDA members can incorporate legislation and standard changes in advance (where allowed), since they will have known about the changes. If you are unsure whether your accounting software will manage these new requirements, contact your supplier.

But it’s not enough just to look at what is happening in 2007 – you need to make sure your accounting software is more future-proof than that. HMRC, as an example, is looking to make ongoing changes that will need to be accommodated in business software – so it’s important to consider the upgrade paths and agreements that you have (and how easily these are implemented) with your current accounting and business software provider; remaining on the same version or system may become increasingly less sensible or possible.

If you currently run industry-specific, vertical or bespoke accounting and finance software you need to make sure that it can accommodate all the legislation and regulation changes. Today most modern business software is flexible and easily adapted across verticals, which typically means that it can therefore be updated and then upgraded easily by all types of user organisations using it, as it is not bespoke for each business situation.

It will be more important than ever to have modern, flexible accounting software in 2007 and beyond. If your current system doesn’t fit this description, then now is the time to upgrade or change it.

There is no doubt that there will be even more regulation affecting business systems coming from the Government over the next few years which will affect all organisations. Rather than spend an inordinate amount of time trying to understand the implications of how this legislation will affect your business systems, it’s far easier to update them as this will automatically implement all the legal challenges. Most HR departments realise that they have to update their Payroll Systems each year to keep up to date with legislative changes, and the same will happen to Financial Systems.

Unfortunately many businesses have not updated their financial systems for several years. Some may have had specialist software and interfaces written that preclude upgrading their business systems. Some scrooges are so mean that they still see no need to replace their old twin-floppy PC that has worked tirelessly for over 15 years! They also still use a modem dial-up to send their e-mails - true!

Dennis Keeling is the Chief Executive of BASDA, the Business Application Software Developer’s Association, which represents 200 leading business software developers. For more information about any of the legislation and standards mentioned please visit the BASDA website where there are articles, news, white papers and reports available to read and download. BASDA also publishes an independent guide to ‘Selecting a Business System – Selecting a Reseller’ available to download from the website. http://www.basda.org

The articles published here in the Thinking CEO are internet updates of the latest management knowledge and practice, which have been commissioned by Sovereign Publications for their bi-annual magazine, CEO Today, and will appear later in the first 2007 issue of this publication. To contact Sovereign and CEO Today, go to:

http://www.sovereign-publications.com/ceo-art.htm