Cloud Accounting - What is it and why do we need it?

Introduction

You’d have had to have been living on a different planet to not have heard of the ubiquitous “Cloud”, a system mysteriously operating somewhere out there in the ether.

The first thing to understand about the cloud is that it’s a network of servers, rather like electricity, with each server performing a different function.

Several software providers (i.e. Adobe) have moved their creative services to the cloud meaning that you can no longer buy their product in a box set. Instead, you must pay a monthly subscription fee to download and use each individual service. In Adobe’s case, it’s now called the “Adobe Creative Cloud”.

On a personal level, you are probably already using the Cloud even though you may not know so. When you take a picture on your smartphone, it’s stored on your phone’s internal memory drive but…when you upload the photos to Instagram, FaceBook, Twitter or LinkedIn, you are actually uploading them to the Cloud.

A business’s decision to "move to the cloud" is most often financially driven. Whereas companies historically had to buy their own depreciating hardware, now with the cloud, companies only pay for what they use – on demand – and pay only for specific resources and workloads. This makes it easy to quickly scale use up or down. That's why the Cloud is such a big deal; it doesn't just let you upload that delicious looking #foodporn, but it also helps company efficiency and long term money saving. Additionally, Cloud providers backup data to different locations, offering an additional layer of disaster recovery and greater resilience to malware attacks such as those which affected the NHS (and others
globally) this May.

Over the past few years, Cloud Accounting hasbeen introduced to the marketplace and, as you might expect, we’ve been keeping a watchful eye on developments. With several specialists now in the firm, we asked them a number of questions about the benefits, limitations, the changing role of accountants, staffing and the effect this may have on HMRC’s new digital initiative “Making tax digital”.

1. What are the main benefits of cloud accounting?

Neil Williams, technology partner
Cloud accounting reduces processing by automating certain tasks such as banking and
learning from previous (human) inputs to create rules for automatic future postings. It also allows remote working for multiple users in different locations without having to expensively host data on your own servers. There are other and additional benefits such as saving documents to each individual transaction which aids future retrieval and reduces the need to keep hard copies.

James Gilliland, business services assistant manager
Cloud platforms allow suppliers to concentratetheir core skill sets by creating specific and tailored “add on” packages. As an example, there are applications that can be linked to the core accounting package for employee expenses allowing employees to use mobile devices to record and allocate receipts in real time, which are then uploaded to the accounts resulting in transactional data only being entered once.

The online application market constantly evolves, grows and expands with applications including EPOS, job costing, time tracking, advanced reporting, cashflow projections and budget control, meaning that finance teams can concentrate on analytically reviewing the output rather than compiling reports.

2. Will cloud accounting replace my accountant and what are its limitations?

Kate Hughes, business services assistant manager
Whilst cloud accounting automates certain bookkeeping process, it doesn’t replace
controls. The misconception is that it can do everything which can lead to over reliance on its functionality. Users without relevant experience are likely to need additional support with auto features such as bank reconciliations and VAT control as the packages cannot achieve 100% completeness without experienced user input. We haven’t quite reached the point of no longer needing the human touch – yet!

Neil Williams, technology partner
Statutory accounts are still required and with increasingly demanding accounting standards, certain processes and additional compliance needs to be completed at the year end. So, professional advice is still always recommended to ensure tax and structural planning is considered and compliance adhered to. Due to this, some Cloud solutions that offered year end accounts are withdrawing the functionality to prepare year end accounts due to the ever increasing compliance burden.

3. How has cloud accounting changed the role of professional accountants?

Alex Fish, tax senior
Having access to up-to-date information enables us to review the profit levels earlier, assess tax liabilities and consequently implement more taxefficient structures. It can also help us to spot any issues arising in the year and correct these before any undesirable tax consequences occur.

James Gilliand, business services assistant manager
Using technology enables us to spend less time on admin/processing core transactions and more time on providing value added reporting. We can review information remotely in order to assist clients with accounting issues without (as in the past) the need for expensive specialist IT solutions or passing information via email/post which results in wasted time.

4. “Making tax digital” (MTD) is a new Government initiative. How will this affect me?

Alex Fish, tax senior
In the March 2015 budget, HMRC announced its ambitious plans to bring tax compliance fully online with the proposal that from April 2018 every person will have a Personal Tax Account and every unincorporated business (including individuals with a rental business) a Business Tax Account. This implementation will see the replacement of the tax return as we know it, with a requirement for businesses and landlords to file quarterly reports of income and expenses. Legislation to implement the initiative was removed from the Finance Bill 2017 to enable the remaining legislation to pass before the general election on 8 June. Since then, and partly due to lack of enthusiasm from the opposition, plans have been somewhat watered down. VAT returns now will need to be submitted digitally from 2019 as originally planned.

All other taxes will be required to be submitted in digital format from 2020 at the earliest (two years later than envisaged), that is to say: income tax for all businesses, partnerships, self employed people and landlords.  Corporation tax submissions kick in at this time too.  On the positive side, this gives businesses and individuals longer than they had thought to get ready for the change.

Kate Hughes, business services assistant manager
Making Tax Digital quarterly filing requirements will be time consuming for clients and accountants/tax advisors. The ability to log in at any point to access necessary data will save hugeamounts of time and clients won’t have to worry about remembering to send us the information separately, as long as their bookkeeping is kept up to date. In addition, packages will no doubt have the facility to directly upload to HMRC’s site, saving duplication of data entry. With automatic processing and remote working, clients and advisors will be able to process their transactions faster, allowing clients to spend more time running their business.

Conclusion

In today's developing technological marketplace, there are numerous accounting packages available. Before implementing any of these, it is important to consider the size and growth potential of your company and the quantity of your transactions to ensure the package is synergistic with your business.

We have conducted a thorough in-house review of the available productsand can help you to review and select the right solution. For further help and advice on cloud accounting, please speak to your contact partner or directly to Neil Williams, technology partner neilwilliams@lubbockfine.co.uk 020 7490 7766.

 

    Quickbooks  
Highlights/Main features Xero Online Sage one
Standout Features  App connectivity Time tracking Ease of use
Monthly price range £10-£28 £6-£25 £3-20
Main books of prime entry Y Y Y
Bank feeds and reconciliation Y Y Y
Document management Y Y N
Payroll Y Y N
Multi currency Y N N
Telephone support N Y N

 

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