How to ensure tax compliance for your accountancy practice

Compliance doesn’t have to be painful. Here, we share five best practices for complying with tax laws and regulations.

Keeping up with compliance is an ongoing task – one all accountants and bookkeepers will be familiar with.

The stakes are high. Non-compliance with tax laws and regulations can lead to significant penalties and audits, as well as worry for your clients about extra costs.

So, maintaining smooth compliance processes is essential. Additionally, the upcoming Making Tax Digital (MTD) for Income Tax rules could mean more clients come to you for compliance support.

In this guide, we take you through the best practices for maintaining compliance with modern tax laws and regulations. We also highlight how tax software can simplify compliance and help with regulation.

1. Stay updated on tax law changes

You can’t comply with legislation that you don’t know about. So, finding resources on tax law changes is a great first step.

You’ll have your own preferences for researching and learning new information, but to help you get started, here are some platforms and resources to try:

• LinkedIn accounting professional groups
• Email newsletters
• Podcasts, webinars, and videos by trusted accounting industry bodies
• Industry magazines and journals

Keep an eye on the HMRC website, too. You could schedule a monthly research session to catch up on key updates and discuss them with your team. HMRC provides an email newsletter to keep you posted on topics and areas you’re interested in.

Xero can also help you maintain compliance. Xero software gives you real-time updates and automatic tax rate adjustments to make sure you’re compliant with the latest rules. With MTD for VAT, for example, Xero was updated ahead of time to give you plenty of opportunity to familiarise your practice with the changes.

If you want to stay in the know about any compliance or tax updates that could affect your practice, check out the Xero blog for all the latest you need to know.

2. Automate tax reporting

A practice might use multiple systems and processes to turn client records into a fully compliant tax return. Often, this leads to a duplication of work, where you’re typing the same figures across more than one accounting system.

Today, modern software, like Xero, uses bookkeeping data from reconciliations you’ve already completed to populate client tax returns. This means you don’t need to type data from one product into a separate piece of software – data from Xero bookkeeping flows into Xero Tax automatically.

Xero also automates the delivery of returns and sets of accounts to tax agencies. Xero integrates directly with HMRC and Companies House, so you can send a return drafted in Xero directly to the relevant tax agency. And, if you want to double-check a return before submitting, the live testing function in Xero lets you test submissions with Xero and HMRC to make sure they’ll be accepted.

3. Centralise financial data

Storing data in multiple formats and systems makes it harder to complete compliance tasks. You can spend hours searching for a single client invoice if there are several places it could be.

Centralising client and practice data with a single piece of software gives you better oversight and easier access to the information you need for compliance. What’s more, following the introduction of MTD for VAT and upcoming MTD for Income Tax rules, having software that digitises client data can support compliance with digital linking rules.

Software like Xero helps keep financial data secure and accessible. Everything you need to reconcile statement lines, and draft and submit tax returns to HMRC or Companies House, is in one place. If HMRC requires evidence of client records, these are quickly and easily retrievable, down to individual invoices and receipts.

Your whole team can work securely from Xero. With customisable user roles and permissions, you only need to give your team and clients access to what they need.

4. Streamline payroll processes

Getting payroll right requires clear and simple processes. But, you also need to keep up with changes in the law.

Deductions like National Insurance and minimum rates of pay are updated annually, and sometimes, more frequently. Monitor HMRC guidance and statements when changes are expected.

The right software can make a huge difference to payroll – keeping you compliant while taking the administrative workload off your hands. When you use modern payroll software like Xero, minimum rates of pay and National Insurance contributions are automatically updated in line with new legislation. This isn’t something you need to change manually in the software.

If your clients make their own changes to pay and benefits, you can make adjustments in Xero payroll to reflect this. Plus, calculations are automated, so once the correct rates are in place, pay and deductions are calculated automatically. Xero also automates real-time information (RTI) submissions, and payroll details are sent to HMRC after every pay day.

5. Conduct regular compliance process audits

Since legislation often changes, processes that worked this year might not be fit for next year. A regular practice compliance audit can help you spot areas for improvement before they become issues.

Your audit should focus on the processes and systems used throughout the practice, so you can strengthen weak areas and explore ways to improve compliance and increase productivity. To complete an internal audit, gather information on practice processes and external legislation you need to follow. Then you can evaluate processes against regulation and best practice.

Bring this evaluation together in a report, and decide on some next steps to help you improve. Make your audit more reliable and comprehensive by drawing on reports and dashboards in Xero that use live client and practice data. There are plenty of data points to choose from – you can check live tax return statuses for your client base, payroll activity summaries, and employees’ payroll summaries in Xero.

The variety of reports and dashboards available in Xero makes it easier to act on important data and trends. We put the metrics that matter most to practices front and centre, so you can prioritise areas that have the greatest impact on practice success.

How Xero simplifies your compliance

Xero works with you by automating and simplifying compliance tasks. Our tools – such as real-time updates to meet new regulations, automated tax reporting, and live testing – take the stress out of compliance.

Xero also makes payroll compliance easier, with automated tax deductions and real-time information submissions. Changes to national rates of pay and taxes are updated automatically in the software, saving you a tedious admin task.

And, all of these features are brought together in a single platform that makes accessing information and delivering compliance services seamless. Get the peace of mind that comes with knowing your clients’ records are stored securely and only available to permitted staff.

For more help with compliance, check out our accounting software for practice management.