VAT: some late nights ahead for software vendors

by admin on November 25, 2008

in General,Tax and Ethics

Yesterday was a long day and as it came to a close, Chris from Pearl Software Skyped me:

Busy week ahead with the VAT changes hey…

After many years of stability, software vendors have 6 days to instantiate changes to VAT charges generated on invoices. The good news is that this seems to be the only change to impact software.

This will be a test for both the on demand players and the on-premise providers. Users of on-demand software should see the change appear magically on 1st December. On-premise vendors may need to issue patches. Both will need to issue clear and explicit instructions on how to make the changes.

My concern is the lack of immediate advice coming from the vendors. Sage for instant is silent on the topic. At least on the available public web sites or in press releases. I sincerely hope they don’t use it as an excuse to gouge support fees out of businesses that use their products.

UPDATE: Xero’s ready.

UPDATE 2: CODA warns of POS chaos, pricing and returns issues.

UPDATE 3: PearlSoftWare has a comprehensive help section – FreeAgent will update on Sunday

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David Turner November 25, 2008 at 12:01 pm

??? Dennis, I think you misunderstand how VAT and other tax rates work in accounting software. Systems like CODA (and I think most others on the market) allow the user the set up any number of tax rates, since clearly they differ from country to cuuntry, or even by state in the US.

It's not for us as a software provider (on premise or on-demand) to change the VAT rates for a user – that would be completely out of order. They simply have to add a new rate in the tax master and it should automatically associate to the correct products. THE SAME IS TRUE OF ON DEMAND. Please don't tell me vendors are going in and changing people's tax set up without them knowing – that would spell the end of the on-demand market overnight…

I can't believe any solutions from ' traditional vendors' don't allow you to add multiple tax codes either. To talk about the need to 'download patches' is ridiculous…

You know CODA is excited by the on-demand model, but please don't oversell it's virtues…

David Turner November 25, 2008 at 12:05 pm

…the bigger story, by the way, is for the retailers – see our release today : Our retail customers (we have 25% of the UK high street as you know) have just had to implement the change for Ireland (from 20 to 20.5%) for next week, and now have to do another. In a period when they normally lock down systems to avoid chaos in the Xmas trading period.

It's not the accounting system changes that are hard for them – it's the merchandising and POS systems, and the practicalities of re-pricing goods.

A true Nightmare before Xmas!

Dennis Howlett November 25, 2008 at 12:09 pm

@david – that's not what I am saying. What I SHOULD have made clearer is that the vendors could do a fair amount to help business understand how they will need to make this work. Right now, there's (almost) nothing out there.

I am particularly thinking about the smaller business where experience tells me that ANY change of this kind creates all sorts of problems. Do they add a new field? Replace the existing 17.5% field?

Larger vendors (and customers) will unlikely have the problem – hopefully.

Dennis Howlett November 25, 2008 at 12:12 pm

@david – wow – you're quick this morning!!

Yes – but I guess you've also seen the news in the Guardian, SkyNews etc where the small retailers are saying the cost and effort of dealing with this is a royal PITA and will unlikely make the change at POS.

alastair November 25, 2008 at 1:15 pm

Give us a chance to draw breath! this was announced yesterday afternoon!! Don't think this is a software issue – more concerned to understand the legal position – particularly as I work for a business that makes exempt supplies.

Chris Tanner November 25, 2008 at 2:34 pm

It's up to us, the software vendors, to make life easy. There are going to be enough other things for business owners to get their head around over the next few weeks… The main software issues are going to be in ecommerce packages rather than accounting systems. Ecommerce packages are two-a-penny, and many don't have powerful price changing capability – expect to see a lot of nice friendly 99p prices disappearing when the site manager just decides to change the inbuilt tax rate and leave it at that.

For information on the Pearl system, see here

Mark Davies November 25, 2008 at 11:17 pm

This is another nail in the coffin for traditional software! It must be causing a nightmare for accountants and bookkeepers who can't be 100% certain of what their clients are doing without a visit. I spoke to a business advisor this morning who was fretting about his clients and had been emailing them all with instructions to help them set up their accounting software. He didn't know much about online accounting until we spoke, and was enthralled by the prospect of being able to log on and check that clients have changed their VAT rate setting or do it for them.

(Small trumpet blow…) We’ve already told all of our users what to do via the in-built messaging system in e-conomic and we'll have an announcement on the web site news page tomorrow – it's pretty simple: They just change the global rate settings for sales and purchases from 17.5 to 15. Which takes less than 30 secs.

I expect more confusion as people fully realise the implications of producing a VAT return based on a mix of invoices at two different rates of VAT. Maybe not an issue in some cases, but if companies are using the Flat Rate Scheme, and even more so if they are using the Cash-based method, they need to be certain that they use the appropriate flat rate according to the rate of VAT on the invoice. Payments received in Dec/Jan/Feb (etc.) will almost certainly cover invoices at both rates. Unless their accounting system helps them (and, yes, I’m saying this safe in the knowledge that ours does), businesses are going to incur hundreds of pounds in additional administration time, IT consultancy and accountancy fees making sure that they get it right.

Andrew Mulvenna November 26, 2008 at 12:28 am

We are running an on-line survey to ask all our clients, accountant partners and contacts what do they really want to do about the new VAT rate…

Results will be published Friday 10am GMT on our VAT rate information page.


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