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Our financial management software experts gave a talk at Hotel 360, discussing Making tax digital across the industry and how our hotel finance software can help you do just that.
For a more in-depth insight into the content covered in the talk, please don’t hesitate to get in touch with a member of our expert hotel finance software team, or get a quote here.
Good morning. My name is Ian Robinson from TVision Technology, and this morning I’m speaking to you about making tax digital and the digital transformation and how they fit together.
So let’s get straight into it and you’re probably looking at the screen behind me and wondering what does a 1960’s television show have to do with making tax digital? If you would humor me, jump into my Tardis and let’s go for a journey and we’ll find out. So this morning I’m going to speak about what is making tax digital, and what is the digital transformation?
Then I’m going to speak about how to do making tax digital properly, which is probably what you’re very interested in, and then we’re going to ask the question why you should worry about the digital transformation and making tax digital? So, first topic what is making tax digital and what is the digital transformation. Now, perhaps if you were at a conference listening to someone from Microsoft or Google, Amazon, they start talking about artificial intelligence, the cloud, neural networks, deep learning algorithms and things like this which sound fascinating but really hard to understand, so I thought it would be much easier if I give an example of digital transformation that we have probably seen in our lifetimes.
So traveling back in time. Let’s go to the 1960s and imagine I want to book a hotel room. What do I do? I probably start by looking in my local newspaper and the classified ads for accommodation offered or holiday accommodation, until I find something that I like. And this is an ad that the hotel owner or manager probably placed weeks ago.
When I find one that I like. I want to book a room. What do I do? I write a letter, put it in an envelope and post it. Now back in those days, the postal service was very efficient. So the next day or the day after that hotel would receive my request, somebody there would open the letter read it type up a reply. Send it back to me. Maybe they’d ask me for a confirmation or a deposit check which I’d again send to them.
This process could take days or even weeks to complete before I’ve got my hotel booking, and remembering this is the 60s. Not even everybody had a telephone. So if you wanted to telephone you would phone directly to the hotel. Hopefully you didn’t get through to this fella, to make your booking, but they’d still expect a confirmation in writing to come through the post. And this whole process from start to end probably took weeks.
If you then jump in our time machine and travel forwards to today, if you want to book a hotel room, what do you do? You get on your tablet or your laptop and you start searching, or even on your mobile phone. You go to a website or you launch an app – something like can booking.com more wheretostay.com something like that. You give it some perimeters, you tell it where do I want to go? How much am I prepared to spend? What facilities am I looking for?
It gives me a list of what’s available and the prices. I can choose one. I click the book button, answer a few simple questions and within minutes, I’ve got a confirmation of my reservation and I’ve got the ability to book a car while I’m busy doing this, and book tickets to local events at the same time. It’s really simple really easy really quick. If I do have a problem and I want to speak to a human being. I’ve got my mobile phone in my hand. I just press the dial button.
And I get through to a professional call center where somebody deals with my problem very quickly and efficiently. So you can see in the space of 50 or 60 years how booking a hotel room has changed, what will happen in the next 50 or 60 years? I cannot predict how it’s going to work.
Perhaps you tell your friendly household Android to book you a hotel, pack your bags, get out the car and take you to the station – whatever it might be. But this is an example of the digital transformation, how it has changed our lives immensely. But this change that we’ve seen here. This is unlike the customer facing side of your business, where you’ve done this to make it easier for your customers, quicker for your customers, so that you can fill your rooms quicker.
Perhaps you’ve done this to keep up with the competition or to stay ahead with the competition. But you be motivated to do this because you can see the benefit. But what’s happened in your back office during this time? So where your bookkeeping is done for instance. And let’s have a look at a VAT return, which we now call making tax digital.
If we travel back to the 60s, how did we do a VAT return? HMRC would send you a form to fill in through the post. You would have to manually write in the numbers in those fields. If you really posh you get someone to type those numbers in for you, but how did you figure out what numbers go in those fields? You looked at your bookkeeping system, which was either a paper ledger, cash book or pieces of paper filed in a shoebox. You manually start adding and subtracting multiplying and dividing numbers until you figure out what numbers should go in those boxes.
You’d fill it in put it in the post and send it back to HMRC. Again, this was a process that could take hours or even days to complete. And it stayed like this for decades, not just for a few years for many many years, this is what we did. And then a few years ago that changed, now instead of the whole physical piece of paper, you logged on to HMRC’s website. You were presented with a screen where you saw those same nine boxes where you could type in the numbers.
Much quicker, but how did you figure out what to put in those nine boxes? You probably use the same system. You went to your accounting system, might now be on Excel spreadsheets, it might be an accounting package. But you would extract numbers you’d add subtract multiply divide until you got the correct numbers, you’d fill in the form and then send to HMRC.
Last year HMRC announced making tax digital, which came into effect this year for most of us. How does that work? You stay within your accounting system. This is a screenshot from Microsoft Dynamics Business Central. Within your accounting system, you go to the VAT submission page. It tells you these are the numbers you should be submitting, you click the submit button, and that’s it. It’s done.
Once again, we’ve gone from something 50/60 years ago that was really complex and time-consuming, to something that today should take a matter of minutes. If you’d asked somebody 60 years ago what would a VAT submission look like today?
They probably wouldn’t have told you this. If we try and guess what a VAT submissions going to look like 50 years from now, again I can’t tell you. Perhaps it’s going to be some kind of hive mind of computer systems that are 24/7 connected to each other, updating VAT payments in real time. I don’t know. But you can see this change has been forced upon us. If it wasn’t for HMRC saying we have to do making tax digital. We probably wouldn’t have changed what we done – unlike on the customer facing side. We were happy to make those changes.
So this is something worth thinking about. Why aren’t we as keen to make those changes in the back office? Let’s start talking about the back office and how to do making tax digital properly.
Again, I’ll start with an example of how not to do it. If this is what your MTD submission process feels like at the moment, then you’re doing it wrong. If you are still printing out pieces of paper, grabbing a calculator, adding up numbers to try and figure out what goes in those nine boxes, whether you’re doing it on paper or you’re doing it in Excel spreadsheets – if that’s what you’re doing, you’re making a mistake.
What’s it look like when you’re doing it right? It should be something as simple as this. Once again looking at Microsoft Business Central. You come to your VAT submission page within your system. It tells you what numbers you should be submitting, you click the submit button. A few seconds later you have the confirmation that everything’s being done.
This entire process should take you less than a minute or two, another minute for taking it off your to-do list instead of spending hours or maybe even days figuring out your VAT submission. It should be taking minutes. But how do you get to a point that you can do this in minutes instead of hours. Well here at TVision we do a monthly webinar where we always give five tips.
So I’m going to give you on the same theme five things to think about to get to a proper making tax digital solution. The first thing to look at, recording your VAT, where are you recording VAT transactions? If you have one system for doing purchasing, another system for doing billing and bookings, another system for making and receiving payments and then another system for recording your finances, then you’ve got your VAT transactions recorded or multiple different systems.
There’s no ways you’re going to get to a point that you can just click a button to submit your MTD that return. So you need to get everything, or at least all your VAT transactions recorded on one single system. Once you’ve got one single system where you can do all of your VAT recording, you need to start looking at the set up. Making sure that their system is set up correctly to record that correctly.
So when somebody posts the sales invoice or a purchase invoice, does it calculate the correct percentage of VAT, the correct amount of VAT? Does it record it in the correct place? Is this something that’s domestic with 20% VAT? Something that’s from the EU with VAT but its reverse charge VAT?
Is this something that’s possibly imported from outside the EU that’s not subject to VAT? Make sure that all the possibilities for your business are set up so that when someone posts the transaction the VAT is recorded correctly. Once you’ve got your one system and you recording VAT correctly, then you want to set up your VAT statement within that system so that it reports that VAT that you recorded correctly. Again, it needs to take into account all of those possibilities – domestic trade, 20 percent, five percent, zero rated, EU VATable, non-VATable, International Trade zero rated.
Make sure that it’s reporting everything that you have recorded. Once you’ve got that VAT statement set up.
Reporting those VAT transactions that you’ve recorded correctly on your system. Then it’s time to do a Reconciliation. Do your manual calculation of what your VAT submission should be and compare it to what your system is now telling you. Are they’re the same? Chances are they probably going to be different. Now, you have to figure out which one’s right and which ones wrong. Or perhaps they’re both slightly wrong.
Go through your set up, make sure everything’s right. Go through your manual calculations make sure that you haven’t made a mistake. Until you have your manual calculation and your system generated calculation or the same consistently. And once you’ve reached that point that you know you’re recording all your VAT in one place, you know that it has been recorded correctly because you did the setup, you know it’s been reported correctly because you’ve done that setup and you’ve checked it, then you’re in a position to go to that VAT submission page and just click the submit button knowing that it’s submitting the correct numbers.
And next month or next quarter, when it’s time for your next submission, you know that you can press that button again, and you can trust that you are submitting the correct numbers without spending hours doing those calculations. And then just think about the amount of time that can save you, instead of somebody spending two, three, four hours today figuring out the VAT numbers.
Or even worse if it’s a paper system, perhaps spending a couple of days figuring out those VAT numbers, that person can do this in a few minutes. All that time now that they have available to do something else which adds value to your business.
It’s worth doing, and this can be your first step on a digital transformation in your back office as well as customer-facing. Why should you worry about the digital transformation?
First of all, this idea of compliance, we have at the moment making tax digital which people are busy implementing. A couple of years ago we had GDPR – Global Data Protection, which we had to implement. And possibly in a few months we’re going to have Brexit – and I cannot tell you what’s going to change when Brexit happens, but things are going to change there are going to be new reporting requirements.
So it’s important to be compliant with those rules and you can imagine if you’re still doing it on those old paper based or manual Excel adding up systems. It’s going to be really hard to manage. It’s going to be really hard to control and you run the risk of failing to be compliant and any penalties that might come with that. Also were thinking about is the idea of working smarter, you know with the digital revolution new tools have become available.
What used to be a desktop computer became a laptop became a tablet and now pretty much what you used to be able to do on your desktop you can do on your mobile phone. People can work smarter, they don’t need to be shackled to a desk. They can move around and take their work with them if you have Wi-Fi. They can walk through the lobby of the hotel and answer guest’s questions without saying ooh I’ll have to go to the back office to figure that out.
You also have the ability for people to work from home. If they’re working from home, you don’t have to provide office space for them. You don’t have to have a kitchen with coffee. You don’t have to be giving them water etc. They’re happy. They don’t have that daily commute to deal with, so you’re saving costs. They’re enjoying a better quality of life. Everybody wins. And also the idea that instead of giving people a computer that you think they should have, they can bring their own device.
Something if they’re happy using Apple if they’re happy using Microsoft if they prefer a tablet, this whole idea of as we move forwards people can start doing things like this, be happier in their work, be more efficient. The next idea people are talking a lot about, the cloud and software as a service. If you choose to go down this route.
You can let someone else deal with the day-to-day hassles of your computer system. So if you choose a Microsoft product for instance, Microsoft worry about doing your backups. Microsoft worry about security – if you get a new employee making sure that unauthorized people can’t access your information, making sure that its GDPR compliant. What happens when new requirements come out in a few months’ time, some new EU exports report or something that’s got something to do with Brexit?
If it becomes a requirement, Microsoft will change their system online and it will be updated for you without you having to do upgrades yourself or pay someone to come in and do upgrades for you. This just makes your whole back office more efficient – lets them get things done quicker, lets them get things done easier and gives them more time to deal with other value-adding issues.
And ultimately it comes down to risk you run the risk. If you do not start traveling down this digital transformation highway, you’re going to get left behind, you’re going to run the risk that you’re going to fail to be compliant and have to pay penalties or have to pay a lot of money to catch up with everybody else. You run the risk that your Workforce might choose to go and work somewhere else, which is a little bit more up to date and friendlier, happier place to work.
So there’s a lot of risk if you don’t get on this digital transformation bus now, if you don’t you’re going to be chasing it in the future and it’s going to be really hard to catch up with everybody else. So what have we spoken about? We spoke about what is digital transformation, making tax digital and we saw how they’re both part of the same thing. We had a look at how to do making tax digital properly – those top five tips, get it all in one place, recorded it, report it, reconcile it, and then you can do your submission. And we also spoke about why you should worry about digital transformation.
And if you start with making tax digital, that can become your first step on this highway of digital transformation, you can get on the bus now instead of chasing it for evermore. Which brings us back to my favourite doctor and this picture, and I want to ask you, if you travel back in time 50 years would people have predicted how things have changed, up-to-date? Very likely they would not. We cannot predict how things are going to change over the next 50 years.
What we can predict, is they are going to change, and what we can see is that change is going to come faster and faster and faster. For decades it was paper, then for years it was web forms. Now we’ve got making tax digital automatic submission. The changes are coming faster and faster. So we need to be ready for them. And also looking at those science fiction shows from the 60s – Doctor Who, Star Trek etc., all of these great technologies that they were predicting for the future. We have most of them now even better than they were predicted.
Pretty much the only ones we haven’t figured out yet, are teleportation and time-travel. But I’m sure there’s somebody at Amazon who’s working on that.
Everything I’ve told you this morning has been based on our experience of implementing Microsoft Dynamics Business Central within the hotel industry. So if you have any questions, please come over and have a word with us and we can help talk you through it. We’re at stand 336 – and my final thought, when Doctor Who first started 60 years ago, could anyone have predicted that Doctor Who would one day be a lady? I think not.
Thank you very much.