Date posted: 07/05/2019 8 min read

Do it once, do it right

Single Touch Payroll and Payday Filing may spark a mass migration to cloud accounting among small businesses. Are chartered accountants ready?

In Brief

  • The new Australian and New Zealand payroll systems are coming into effect in 2019, making way for a more efficient and secure system of payroll filing.
  • While the impact for businesses already using online accounting software will be minimal, those employing desktop software or spreadsheets will notice the difference.
  • The payroll migration is likely to redistribute market share among the major accounting software companies.

If there were anything left to debate about whether online software was safe, surely the tax authorities have ended it. Almost simultaneously, the tax departments of Australia and New Zealand have changed the way companies file their payroll information, effectively forcing most businesses to adopt online accounting software.

The consequence will likely be a mass migration to the cloud for hundreds of thousands of businesses over the next 12 months. So are accountants ready? New Zealand’s Payday Filing scheme is mandatory from 1 April 2019. Any business with more than NZ$50,000 PAYE and superannuation deductions a year must file electronically.

Australia’s Single Touch Payroll (STP) mandate comes into effect on 1 July 2019, affecting the nation’s 749,000 businesses with under 20 employees. This follows last year’s requirement for businesses with 20 or more employees to use STP from 1 July 2018.

If a business is already using online accounting software the impact is minimal. However, for businesses using desktop accounting software or spreadsheets, the payroll mandates will likely force them to move to the cloud.

One of the biggest triggers of this migration is MYOB’s decision to not update its popular MYOB AccountRight Classic (version 19) for STP. (MYOB’s AccountRight 2018 and later versions do support STP.) There are several hundred thousand businesses using MYOB’s desktop software, according to MYOB.

“Desktop software is going to be very hard to keep compliant because you need to keep connecting to the portal to convey the information,” says Peter Thorp CA, director of the Australian Bookkeepers Network and director of PT Partners, an accounting firm based in Springwood, south of Brisbane.

“You need to upload the file manually, it’s just not going to work. That’s why the online programs are promoted as the way to go,” Thorp says.

A good percentage of a firm’s customer base could turn up this year asking for help migrating to cloud accounting software. However, there are some good reasons as to why firms may not experience this.

“I think they’re going to go through their bookkeeper rather than their accountant,” Thorp says.

“Desktop software is going to be very hard to keep compliant because you need to keep connecting to the portal to convey the information.”
Peter Thorp CA

Who decides – bookkeeper or accountant?

Kelly Chard CA is a director of GrowthMD, a practice in Brisbane’s Chermside that provides accounting services to medical and dental practices across Australia.

Even though most of her clients use cloud accounting software, she knows plenty of other medical centres that will need to change. “Many have traditional bookkeepers using MYOB desktop software for the past 20 years and they are scared of changing,” she says.

Chard recognises that doctors’ bookkeepers will strongly influence the choice of software. “It would be easy to say, ‘Let’s just move you to MYOB cloud version’, and the bookkeeper might be happy because it tends to look the same. But it may not be the best solution.”

Chard’s advice is to use Single Touch Payroll as a catalyst for a broader discussion. The payroll cycle is a great way to pitch services such as bookkeeping, management accounting or CFO advisory. But as Chard explains, it’s easier to upsell other services if your firm already bills every month. “It’s harder for accountants who do their clients’ taxes once a year and just send it back.”

“Many have traditional bookkeepers using MYOB desktop software for the past 20 years and they are scared of changing.”
Kelly Chard CA

Some small to medium enterprises remaining on desktop accounting software may have been waiting for the cloud to catch up. MYOB’s M-Powered Services for payments is only now coming to its cloud software under the name MYOB PayBy.

The cloud version of MYOB AccountRight recently added multi-currency, but while importers are supported today, exporters will need to wait a couple more months.

AccountRight Classic also has a more capable inventory than Xero or standard versions of QuickBooks Online. Inventory-heavy businesses wanting to move to these two programs may need to buy a dedicated inventory app that integrates into the cloud accounting software.

Margaret Holmes CA of Engine Room in Pukekohe, south of Auckland, observed that at least one larger client on AccountRight Classic (version 19) had stayed on desktop software for as long as possible.

The client “knew the migration [to cloud accounting software] would be a big job. They need an add-on [for inventory] to make it work well and finding the right add-on is complex,” Holmes says.

Most firms are unprepared for navigating app marketplaces. Xero’s contains more than 700 apps, with 35 applications just in its inventory category. It is difficult to know which app is the best fit for any client.

Accountants as app advisers

Xero and Intuit are pushing the concept of “app advisory” as a necessary skill for accountants in public practice. Xero has released “playbooks” that explain the basics of recommending apps within different categories.

Intuit gives certified accountants wholesale discounts and unified billing for ecosystem apps. Last year’s five finalists in Intuit’s global Firm of the Future competition, selected from Australia, the UK, US, Canada and India, all offered app advisory services.

Chard recommends Xero to most of her clients and encourages them to look at other tools, such as expense management apps Receipt Bank and Hubdoc.

The payroll migration is likely to redistribute market share among the major accounting software companies. Xero and Intuit are eyeing the trove of several hundred thousand MYOB desktop users and anticipating that a good chunk will move away from MYOB.

But rather than redrawing boundaries, STP and Payday Filing may be an opportunity to expand the market for accounting software. “Think about all those businesses that still use spreadsheets,” says Trent Innes, managing director of Xero Australia.

MYOB’s general manager – product, David Weickhardt, agrees. “There are a lot of small businesses that are using very manual processes. Our biggest competitors are Microsoft Excel and Word.”

What if your client wants to stay on desktop?

Old desktop software

It is possible to ignore the push to the cloud and keep using desktop accounting software.

In Australia, a business can lodge its payroll information manually through the Australian Taxation Office’s (ATO) website. New Zealand allows sole traders with annual PAYE and ESCT deductions under NZ$50,000 to file on a paper form within 10 working days of payday.

However, these manual methods increase the chance of error and are far less efficient than the automated process common to online accounting software.

An alternative is to use an online payroll software just to lodge your payroll details.

MYOB has launched a standalone payroll program for micro-businesses that is compliant with Single Touch Payroll (STP). The program is in effect the automated payroll module from MYOB Essentials and costs A$10 a month for four employees or less.

Xero announced an identical standalone solution for up to four employees at about A$10 a month. The payroll product integrates with Xero’s ledger and GST cashbook.

The ATO expects a range of low-cost STP programs to join MYOB’s and Xero’s.

A full list can be found here