Tax accounting software has its basics in each of the three elements of the title. Accounting being the production of the financial accounts in a template format suitable for the tax system. Tax and tax software denotes the inclusion of the tax rules with software being a description of the fact that the process is automated.
Self employed accounting
To be most effective the self employed accounts should be in a format that can eventually be used by the accounts program to produce the financial information required to complete the tax returns. Since in the UK as in many countries there are several types of tax returns then the accounting software should cope with all variations.
Database accounting software is frequently based upon a chart of accounts which is not necessarily tax return friendly. An accounting spreadsheet being more fixed in nature do offer an opportunity to be tax friendly.
Facility should be available to distinguish between revenue transactions and the purchase of fixed assets as fixed assets are treated differently for tax purposes being subject to capital allowances which are tax allowances written off against the net taxable profit according to the tax rules as opposed to being able to deduct the whole cost of that asset in the one financial year.
Income Tax and Vat Tax Return Software
In the UK the self employed accounts need to supply the numbers for up to three different variations of the self employed tax return. One of two tax returns has to be completed each financial year, those returns being known as the short tax return and the full tax return which have replaced the self assessment tax return.
The short tax return is completed according to the sales turnover of the business. Less detail then the full return is required with only totals required for businesses with a sales turnover under 30,000 pounds.
In addition to the financial year end tax return self employed business whose sales are above the vat threshold must also complete a quarterly vat return. With various types of vat schemes available the accounts package and tax software should be capable of dealing with different vat schemes.
Database accounting packages invariably have the facility to deal with value added tax and various schemes where other types of accounting software may be limited. It is important that tax accounting software provides the user with the specific tax accounting requirements.
Tax Software
To be effective in satisfying the description of tax accounting software the system should also include the tax rates and rules applicable. The tax accounting can then take those tax rates and produce an estimate of the potential tax liability which is a principal concern of all self employed business when the time for filing taxes approaches.
The term software indicates automation based upon data input which the computer package then processes to produce the desired output. Tax software produces the tax requirements of the user.
A tax accounting software package takes the prime financial transactions, converts those numbers to the format required to produce the year end self employed tax returns and quarterly vat returns as required. In addition the tax software function would also use the tax rates to automatically calculate the income tax and national insurance liability
Terry Cartwright qualified as a Chartered Management Accountant and Chartered Company Secretary in 1971. A successful business career followed as Head of Finance for major companies in the UK and several consultancy appointments. In 2006 he created DIY Accounting producing Accounting Software for self employed and small companies that use simple accounts spreadsheets to automate tax returns.
Tag: accounting software
Accounting Software Strengths
Easy to use by non accountants requiring no previous Accounting knowledge and is basically a list of sales and a list of purchases on preset excel spreadsheets. Each workbook is arranged as 12 monthly spreadsheets with preset columns and uses an entry code letter to analyse both sales and expenditure.
Cash and bank spreadsheets are included as optional extras for those businesses that require them with a built in automated bank reconciliation. The sheet is designed to be completed by copying the figures from the bank statement into the bank spreadsheet and the bank reconciliation is achieved by also entering the statement total which is automatically checked against the entries made.
Monthly profit and loss account also includes a financial health check based upon an automated tax forecast to enable businesses to monitor their financial performance. By entering drawings the package then compares the net profit made with the likely tax liability plus the drawings.
Quarterly vat returns are generated for vat registered business and is also suitable for non vat registered business. To produce a vat return clients simply go to the vat file and select the quarter end date from a drop down menu and the figures for the vat return are automatically generated.
The vat calculations can be disabled by non vat registered small businesses by simply changing the standard vat rate from 17.5 to zero making the accounting software suitable for both vat registered and non vat registered businesses.
The accounting package includes a stand alone sales invoice generator which requires invoices generated to be manually input into the sales sheet.
The fixed asset schedule is preset with the capital allowance tax rates to automatically calculate capital allowances when fixed assets are entered. Depreciation is also automatically calculated with preset percentages that can be changed as required.
A major benefit of using this small business bookkeeping software is the templates are arranged in such a way to automatically generate an excel copy of the self assessment tax return. The excel self assessment tax return is arranged in the same layout as the official inland revenue form with the same box numbers making it easy to copy the figures from one to the other for submission.
Accounting Software Weaknesses
The Self-employed Accounting Software UK is based upon single entry of transactions and does not produce a balance sheet which is an optional requirement for self employed and therefore not a problem for the vast majority of businesses. DIY Accounting actually recommend clients who are self employed and wish to produce a balance sheet to use their Limited Company accounts package which does produce a balance sheet being based not on single entry but on double entry principles. The small business accounting software is suitable for a single tax year, the latest being 2007-08 and does not cater for accounting periods other than April to April. There are benefits in anyone self employed adopting the standard April to April financial year as this avoids tax allowances from two separate years being a feature of the accounts. When used by small businesses using the cash accounting system the bookkeeping entries to the sales and purchase sheets must be entered according to the dates money is paid or received rather than the dates invoices were issued. At the end of the financial year any invoices not yet entered require to be listed to adjust the final profit and loss account figures. This a major disadvantage if using the vat cash accounting scheme rather than the Accounting Software being reviewed.
Very Low Priced
At £12.99 the accounting software is basically available for loose change and will save many businesses the need to employ an accountant potentially saving hundreds of pounds in professional fees. For the financial year 2008-09 the basic package for non vat registered business is available at just £11.99 and the standard accounting software for vat registered small business is £12.99.
Other Features
The product has a stock control feature to monitor any stock losses. The small business accounting software contains a wages interface that fully integrates the DIY Accounting Payroll Software when those files are saved into the same folder as the accounting software files. Being written on excel spreadsheets all transactions are visible and capable of being changed by for example overwriting any errors as opposed to a database system that requires new transactions to be entered to reverse previous entries. The sales and purchase spreadsheets include columns for entering CIS tax deductions and payments and the certificate numbers. The CIS tax being then automatically entered on the self assessment tax return. As the small business accounting software is written on excel spreadsheets then it is essential that users have a version of excel from 1998 onwards installed to use the program. The accounting software also works fine with an Open Source spreadsheet package.
Conclusion: to Buy or not to Buy
Exceptionally good value, very easy to use and produces exactly what every small business requires, automated accounts requiring no bookkeeping skills and no previous accounting experience with the valuable end product of a fully automated self assessment tax return.
Terry Cartwright qualified as a Chartered Management Accountant and Chartered Company Secretary in 1971. A successful business career followed as Head of Finance for major companies in the UK and several consultancy appointments. In 2006 he created DIY Accounting producing Accounting Software for self employed and small companies that use simple accounts spreadsheets to automate tax returns.
Accounting software records the financial transactions of a business and provides financial control to achieve the profit and loss performance required. The correct choice is dependent upon the size of the business and degree of sophistication and financial control required.
Accounting software is a system of recording financial transactions on a computer across a full range of accounting options almost invariably dependent upon the size of business being catered for. Accounting software can vary from multi million pound solutions for major public companies to simple managed lists of income and expenses.
The requirements from accounting software are diverse with the most complex and comprehensive financial accounting packages incorporating financial reporting information and managed by teams of qualified accountants supported by accounts clerks, bookkeepers and substantial input from automated data sources. At the other end of the scale a self employed sole trader might use accounting software themselves and produce a set of financial accounts for the year in an afternoon.
Different accounting standards are required from accounting software dependent upon the fitness for purpose and client needs. Double entry bookkeeping automated through a database system and probably arranged in financial modules would normally be the choice of the majority of public companies. Single entry bookkeeping would not be an acceptable accounting solution for a limited company due to audit requirements and statutory obligations.
Single entry bookkeeping does however have its place in the market place for the smaller less complex businesses who maintain financial control through a close intimate knowledge of every financial transaction. The main objective of a sole trader is more likely to be the production of the tax accounts and complete the periodic and annual tax return forms.
The most sophisticated level of accounting software in the largest companies mirrors the accounting functions in those organisations with various financial modules for accounts receivable, accounts payable, stock control, general ledger and fixed assets. These accounting modules may also be integrated with non accounting functions such as production and dispatch functions and also divided into separate modules within the accounting function.
In larger companies the sales daybook and data entry of sales turnover would often be the responsibility of one department while the accounts receivable function might be split with a specialist credit control function within that accounting module. A further division may also include sales administration and customer records. Similarly the accounts payable function might be split between the purchasing department, accounts purchase invoice department and a legal function for overdue payments.
Accounting software for smaller companies and organisations is commonly a system of data entry of prime transactions which include sales income, purchase expenses and cash and bank transactions. The prime entry of these documents being to a database which automates the double entry accounting principles and produces both accounts receivable, accounts payable and general ledger databases.
Some accounting knowledge is usually required tom operate a database accounting software system and that financial knowledge is usually available within the company as most companies that use database accounting software also employ a bookkeeper or accounts clerks to input data and in slightly larger small companies also qualified accountants to manage the accounting function.
The need for accounting knowledge in a database system is partially to understand the data entry principles and the relevancy of the rules that need to be followed but essentially understanding of accounting principles is required to understand what is happening ton the information after input. And most important, a qualified accountant has the financial knowledge, training and experience to know what the system should be producing and how to query the database to retrieve that information.
In addition to inputting the prime income and expenditure details the most benefit of a database accounting system is the level of financial control the information it contains can provide the company management and financial directorship. The accounting function also has the security of producing trial balances, periodic profit and loss accounts, balance sheets and other financial and statements for tax and control purposes.
Accounting software packages requiring little or no accounting knowledge are available.
Small limited companies must obtain accounting software based upon double entry accounting principles as in addition to producing a profit and loss account and a trial balance to demonstrate accuracy and integrity of the financial records plus a balance sheet is required for reporting purposes. Accounting standards require the limited company to have a system of financial control and accounting software is an essential tool in achieving this.
Some accounting knowledge either from the management or outsourcing the bookkeeping services is usually required with even the simplest database accounting solutions eve3n if this requires the understanding of what accounts receivable ledgers, accounts payable ledger and control accounts mean.
There are other possibilities and those businesses with a minimum of accounting knowledge can consider spreadsheet based accounting software. Accounting software compiled from spreadsheets is less flexible and often does not have the range of options a database system has due to the lack of database queries available. These disadvantages of flexibility being compensated by the fact that all entries are visible, transparent and changes can be made more easily.
Financially at the sole trader and self employed end of the business spectrum then the requirements from accounting software may be completely different. Gone are the sophistications of control accounts, trial balances and many aspects of financial control. The most important aspect of self employed accounting software is often to produce a set of accounts for tax purposes.
Self employed small business that do not require a balance sheet can use accounting software based upon single entry bookkeeping rather than double entry and with the reduced requirement for financial control then less financial queries to the system are required. In these respects the simpler an accounting solution the better and in this market an accounting solution written on spreadsheets that can produce the net taxable profit would meet the requirements.
Terry Cartwright qualified as a Chartered Management Accountant and Chartered Company Secretary in 1971. A successful business career followed as Head of Finance for major companies in the UK and several consultancy appointments. In 2006 he created DIY Accounting producing Accounting Software for self employed and small companies that use simple accounts spreadsheets to automate tax returns.