9 November 2017

Implementing a new accounting system or upgrading your existing system?

In this article we provide an overview of how to make sure systems are set up to handle VAT affairs in an efficient manner.

If you are thinking about implementing a new accounting system or upgrading an existing one, this is a great opportunity to review the VAT settings and make useful improvements to ensure greater accuracy and more efficiency. Below are some steps you can take in order to achieve this:

1. Think about what the new system should do

Firstly, you should understand what you would like the new system to deal with. This is achieved by identifying all of the different types of transactions you currently make and receive from a VAT perspective. This can include sales to UK customers at each of the relevant VAT rates, sales to EU business and non-business customers, sales to charities where a reduced rate of VAT may be applicable, inter-VAT group sales, sales of services to EU parties, and exports of goods. It also includes the different types of relevant purchases, such as purchases from UK suppliers at each applicable rate of VAT, purchases of goods from EU suppliers with foreign VAT and those where UK VAT must be self-accounted for, services from EU suppliers, and goods from non-EU suppliers. Movements of goods that do not necessarily involve a sale should also be factored into this as they often have VAT consequences if moving across borders.

At this stage, it is important to be comprehensive and to set out which reports are required and what you would ideally like to see within them. For example, do you only need a VAT report or would you also like intrastat and European Sales Listing (ESL) reports? Is there anything else you might require? Consulting with the wider business at this stage should help you identify any further transactions and reports to consider.

It would also be a good idea to take this opportunity to review sales invoices to make sure they are clear and compliant, especially with regards to international sales and those where no UK VAT is charged.

2. Assign VAT codes

You should take time to assign a VAT code to each scenario and set out how the transactions recorded under each code must be set up in the system. It should be made clear whether a reverse charge applies, what the correct VAT rate is and, depending on the software used in the business, which box of the VAT return it appears in and whether it needs to be reported in intrastat and/or ESL forms.

It may also be possible to set up special codes to restrict VAT recovery on certain purchases. For example, you could set up 50% recovery on car leases or 100% blocking on business entertaining expenses. There is no doubt that some form of manual adjustment will be required at times, however, by reducing the extra administration involved where possible, it should lead to a more efficient and accurate VAT return process (as long as the new system is set up and used correctly of course!).

By completing this step, you should be confident that sales and purchase invoices are issued with the right rate of VAT and that purchase invoices are correctly dealt with by the system.

3. Consider testing

Testing phases aim to ensure that new system settings are operating as desired. A variety of different test phases should be implemented, including the likes of writing test scripts and user testing. When it comes to writing test scripts (for example, writing down what test transactions you would like users to run), it is important that the finance department is involved. As for the user testing phase, anyone who is involved in operating the new system should be given the opportunity to contribute as they need to make sure they will be able to perform their jobs and receive the correct outcome once the new system is in place.

By completing these test phases, you’ll ensure that sales and purchase invoices for each different type of supply are handled correctly by the system and that they flow through to the relevant reports.

Don’t forget that testing should also be carried out after the accounting system has been introduced or upgraded. No matter how thorough your preparation has been, it’s amazing how often issues can arise after going live.

Some final points to consider…

  • Remember to provide proper training to staff, along with aids such as flow charts if appropriate. This will help to make sure the new system is used to its full potential and that transactions are recorded correctly. Refresher and update sessions may also be required on an ongoing basis to provide details of any changes to procedures and processes.
  • Don’t forget to put a plan in place for how to deal with any amendments to the system as a result of regulatory changes. Similarly, there should also be a process for correcting any errors that arise in the way previous transactions have been processed.
  • When drafting VAT returns, it is a great time to review the system outputs to check if transactions are reported as expected.

There is no denying that setting up a new system requires some thorough work, however the future benefits that would arise from reduced administration and increased accuracy will far outweigh this. If you are thinking of implementing a new accounting system or upgrading your existing system and you would like some help with the above steps, please do not hesitate to contact us.

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