New electronic reporting requirements imposed bu the government will force many small businesses to upgrade their IT, says Dennis Keeling
The chancellor has a predilection for change in his budget each year. Small employers already have to administer tax credits, stakeholder pensions and a whole range of extra deductions through the payroll.
Soon it will become compulsory for them to file their end-of-year payroll returns online. Large companies must start filing online in 2005 and firms with fewer than 50 employees must file online by 19 May 2010.
On the plus side, it is possible to claim £825 over five years by filing online early. However, to do this, SMEs will need to make sure that the payroll software they use to file online is capable of sending the data electronically, and that, from April 2005, it meets the Inland Revenue quality standard. A list of approved payroll packages is available on the Inland Revenue website.
The Inland Revenue website says, "End-of-year returns filed online that do not meet the quality standard will be rejected by the computer (you will get an error message telling you why). You will need to put the error right before trying to file again. Otherwise your return will still get rejected and you will run the risk of missing the filing deadline. If you miss it, you may be charged a penalty. So the earlier you file online, the better." Sound advice, you might think, as these things never seem to work first time.
New regulations from the Financial Services Authority will come into force next year for thousands of small financial advisers. The regulatory information they must supply is based on the FSA's new taxonomy, which covers every aspect of their business, requiring many hours of work collating the data. As this data will be derived from many different sources there is no single software application (other than a spreadsheet) that can help.
Like many other government bodies, the FSA wants to impose the highly complex electronic standard for transmitting financial data called Extensible Business Reporting Language (XBRL).
This standard was designed for use by large multinational companies and its complexity has so far meant it has been adopted by just a handful of determined organisations. Unlike standard XML, which can be embedded into business applications, XBRL needs to be configured by the company sending the data transmission, making it very difficult for novice users.
The government has mandated the use of XBRL for all financial reporting irrespective of the hardship it will create for smaller businesses. We can expect to see XBRL being used for filing corporation tax returns to the Inland Revenue, annual returns to Companies House, and VAT returns to Customs & Excise - this is sheer madness.
All these plans will have an impact on the IT systems being used by SMEs but there has been very little consultation with the software industry to find out if the changes are practical. Hundreds of companies which are quite happy with the systems they have used for years will find they need to upgrade to comply with new rules. Many will have to replace their business systems because the suppliers no longer support legacy systems. Ten years ago there were 700 accounting packages in the UK - today there are fewer than 100.
According to an online accountant's newsletter, AccountingWeb, the Treasury has refused to consult the Institute of Chartered Accountants in England and Wales' tax faculty before its review of the small company tax regime.
So, once again, new rules and regulations will be imposed on SMEs by people who have no practical experience of the problems they create. The All-Party Parliamentary small business group has also complained that the Treasury is failing to meet its own guidelines for consultation.
And all the time the new regulations covering every aspect of the business keep coming - waste handling, stamp duty, disability discrimination rules starting in October and so on. Last month, the Finance Act became law and imposed penalties should any company fail to notify the Inland Revenue when it starts to trade. Fines will be imposed of £300 plus £60 per day if the failure continues.
Last year saw the number of business insolvencies in England and Wales increase to more than 50,000 - the highest for almost a decade. But that was a boom year with interest rates at an all-time low. I wonder how many of those companies were beaten by red tape and uncomprehending bureaucracy?
Dennis Keeling is chief executive of the Business Application Software Developers Association