Why Xero Wants Your Tax Work – And How It’s Going to Get It

Accounting Software

Visiting from LinkedIn? Jump to the big news about Xero HQ

Xero has opened up a new front in the war of innovation in accounting software. Tax will take centre stage this year in Xero’s strategy to convince accountants to switch their clients from desktop accounting software.

The company will give Xero Tax, an online tax platform released three years ago, for free to any accountant or bookkeeper with at least 10 Xero clients.

Today Xero Tax costs A$65 per month for a single seat or A$149 a month for a practice. The price is for a bundle that includes Xero Practice Manager and Xero Workpapers as well.

While free software is tempting, price won’t be the main selling point. This year Xero is redesigning its client files manager, My Xero, into a practice management program highly integrated with Xero Tax.

Xero plans to make this compliance workflow so efficient compared to alternatives that it will compel you to push your clients from desktop accounting software onto Xero.

Xero is removing as many barriers as possible to make this happen. It has created an enablement team that will put all your non-Xero using clients onto Xero ledgers and add them to your Xero Tax account. The idea is that your clients can keep using their existing accounting programs and that you will use Xero Tax to file their returns and BASes.

Redesign, rebrand

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In this week’s roadshow Xero made some major announcements, mostly centred around a redeveloped and rebranded file manager that Xero partners use to log into their clients’ Xero files. Currently known as “Green Xero” because of the colour of the interface, it will be replaced this year by Xero HQ (which will be blue, incidentally).

Xero HQ is effectively a ground-up redesign of the basic set of tools required to carry out compliance. It will sync information automatically with Xero client files, Xero Tax, Xero Workpapers and Xero Practice Manager.

Rather than building a practice management suite where users move their work from one module to another, Xero HQ is a single screen that will draw in elements from the other programs as required.

It will combine features from mobile platforms such as alerts and notifications to “surface” information when needed. And it will use integrations with cloud software such as electronic signatures and file storage to automatically file clients’ documents.

If Xero HQ proves to be as effective as it appeared in the demo it will be a powerful magnet for accountants and bookkeepers using other small-practice packages such as Sage Handisoft and  MYOB Accountants Office and Accountants Enterprise.

One caveat – while many Xero HQ features should bring big improvements to workflow in practices of all sizes, this practice management system is targeted mostly at small firms with fewer than 20 employees. The sweet spot is seven to 10 employees which Xero says makes up 97 percent of the market in Australia.

Larger firms, firms with multiple offices or firms that want more detailed information about jobs will still need to use Xero Practice Manager, which is being repositioned for practices with 20 staff or more. However, Xero’s developer teams are swarming on Xero HQ and this will likely consume most resources in practice management for the next 12 to 18 months.

(Xero pointed out a recently released mobile app for Xero Practice Manager as an example of investment in development. The app is in fact for the parent program WorkflowMax and can also be used for Xero Practice Manager.)

Before taking a look at Xero HQ, two related announcements also deserve mentioning.

New Activity Statement

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Another highly anticipated release is a new activity statement. It is in final beta and is due for general release in late March.

  • The statement pulls information from the Xero client file to auto-populate the return “within 90 seconds”.
  • You can manually create an activity statement without having to pre-fill it from the ATO first.
  • Later releases of ATO Tax will add schedules for worksheets directly to the activity statement. For example, wine equalisation, private use, capital purchases and so on.
  • Add custom fields to the statement such as manually recorded information. This is useful for Xero partners using Xero Tax to lodge statements and returns for clients using non-Xero accounting software. The activity statement will remember the custom fields for all future statements and roll over the descriptions.  
  • The activity statement will also add the ability to pre-fill W1 and W2 fields in payroll forms from Xero.
  • The BAS won’t display a payment section if the client is getting a refund. The payment details will auto-populate if the form uses the ATO to pre-fill.
  • You can revise a lodged activity statement through the standard workflow in Xero TaxThe partner can send the statement to the client to sign electronically. (See details in the next section)
  • An activity log beneath the activity statement records all actions such as Updated, Completed, Out to Sign, Waiting to be Filed and Unlocked.
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E-signatures

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Xero’s e-signature workflow is by Adobe eSign. Click to enlarge.

Last year Xero added the ability to electronically sign tax returns through a partnership with Adobe and its E-Sign cloud app.

One of the biggest announcements at this week’s roadshow was that partners could now send the new activity statement to a client for electronic signing. The quarterly business activity statement (BAS) is the most used form in Xero. Adding electronic signatures will strip 15 minutes from every client, says Xero’s Matthew Prouse, solutions manager for practice tools.

Adobe sells these e-signatures as a bundle, 3,000 signatures for A$300 inc. GST. Xero announced at the roadshow that it has negotiated a second, cheaper bundle for bookkeepers. Adobe charges A$85 inc. GST for up to 500 signatures, also with a 365-day expiry.

Electronic signatures will soon appear on financial reports too, Prouse adds. Each electronically signed document contains a hyperlink under the signature. The link opens up an audit trail in your browser that includes the sender and receiver’s email addresses, their IP addresses and the registered fingerprint if the client has signed with Apple’s Touch ID or the Google Android equivalent.

The workflow for signing an activity statement looks like this:

  1. After finishing the BAS you press the "Request e-signature" button to send an email request to the client.
  2. A pop-up window asks which items you want to send for signing. The options include a cover letter, a substantiation declaration, the activity statement, worksheets and non-ATO return notes. The cover letter is generated from a template you can customise. Xero adds the client’s details automatically.
  3. The client clicks on the link in the email and visits an online portal. There the client can view the PDF from a desktop computer, tablet or mobile phone. This Xero-branded portal will store all signed activity statements, tax returns and (in future) other financial reports.
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Xero’s eSign portal. Click to enlarge

4. The client can then sign the document by tapping on the signature field. Adobe eSign records the email address, IP (internet protocol) address and (if used) the Apple Touch/Android Touch authentication.

Xero’s eSign sign screen on mobile. Click to enlarge.
Xero’s eSign sign screen on mobile. Click to enlarge

5. The client receives a PDF of the signed activity statement, which is also saved in the client's Xero portal. A copy of the statement is automatically saved into the client’s folder in your practice’s Dropbox account.

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Final signed document in Xero. Click to enlarge.

Xero HQ – a peek inside

Xero HQ will be released in stages and will take nearly 12 months to complete, Prouse says, who has been overseeing the project.

Xero previewed the list of features due for release in the next 90 days, and it’s quite a list. The first stages will appear automatically as updates within the “Green Xero” interface and towards the middle of the year it will transition to the slate-blue Xero HQ design.

Consolidated client list

In late March Xero partners will receive a message that Xero is consolidating its client list. This combines the list of customers from the practice’s own Xero file, clients listed in Xero Tax, which itself is drawn from the Australian Taxation Office (ATO), and the customer list in Xero Workpapers.

The first step of the consolidation process will ask partners to identify and merge duplicate customers from the separate programs. Once merged Xero will sync information automatically among all three locations.

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You can merge customer details into one list in Xero HQ. Click to enlarge.

Alerts and notifications

This will be one of the most powerful updates to Green Xero and is also due to begin in late March. Xero is building a broad notifications platform that shows alerts from a list of 20 triggers within Xero’s products. This will no doubt expand to include alerts from approved external sources such as apps in Xero’s ecosystem or financial institutions.

Xero HQ Alerts will cover banking, payroll, GST & BAS, Workpapers and E-Sign in the first release. Tax will follow after, with other types of alerts arriving outside the next 90 days.

The alerts are more than calendar reminders. They include deep links that will take you directly to the screen which requires your input.

For example, a banking alert will tell you when a feed has stopped in a client’s Xero file. Clicking on alert will take you directly to the feed in that client’s file so you can manually refresh it.

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Home screen for Xero HQ. This design in beta and may change before release. Click to enlarge.

Likewise, payroll alerts will tell you when a payrun is due. Clicking on the alert will take you to the draft payrun screen in that client’s file for you to approve.

The GST & BAS alert has more options than the others. When you receive an alert that an activity statement is due, a dropdown menu on the alert itself will let you assign the BAS to one of your staff, “snooze” it or set a reminder.  

If the client is not on Xero, the alert will take you straight to Xero Tax to enter the data in manually.

E-sign alerts in Xero HQ will tell you when a return or statement has been signed by the client. The link in the alert will take you to the lodgement screen to file it.

Redesigning the workflow around alerts and reminders is a conceptual leap from the typical practice management interface. Judging from the audience reaction at the Newcastle and Sydney roadshows that leap won’t be difficult to make, as most people these days are used to managing notifications on their smartphones and web browsers.

 

Dropbox

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Xero HQ integrates files stored in Dropbox as a tab. Final design may change. Click to enlarge.

Xero is gradually expanding the amount of information you can view on the contact screen. Last year’s integration with Gmail (or Google Apps) added a list of all the emails between you and your client. You could attach certain emails to the contact screen so that other staff members could see them too.

Xero Tax will automatically store electronically signed files in the relevant client’s folder in your Dropbox account. The third release for Xero HQ will add that folder as a tab to the client’s contact record. Click on the tab to see all previous copies of activity statements, tax returns and financial reports.

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Activity Statement in Xero HQ showing Dropbox options. Final design may change. Click to enlarge.

Other Xero HQ announcements

  • The ATO is abolishing the AUSKey digital certificate and replacing it with cloud authentication. This will be added to Xero HQ within the next 90 days. It will take less than three minutes to connect Xero Tax to the ATO, Prouse says.
  • Xero is adding a data conversion service for MYOB Tax 2015 in April. This will suck most of the data from MYOB Tax into Xero Tax. Xero can only import cover letters from Sage Handisoft and Reckon Tax because it is not possible to easily export data from either product.
  • The Consolidated Losses Schedule will be released for 2015 and 2016 from March 17.

So this is Xero’s big push for 2016. To woo you with a better tax platform that is free, claims to have better integration with client accounting files than its competitors, and is in the cloud. Xero’s Prouse hammered home the latter point by noting that upgrades to the Windows operating systems had no impact on Xero Tax compared to desktop accounting programs which have had to update their code to keep working.

The dominant tax packages from Sage, MYOB and Reckon must be loaded onto desktop PCs to operate and cost several hundred dollars a year. MYOB is also developing an online tax program but it is still at least 12 months away from full release.

What does this mean if you’re outside Australia?

Xero Tax is only available in Australia so a lot of the improvements to activity statements and the like aren’t relevant.

The Xero HQ update is relevant to all global users, as it is an improved version of the My Xero interface. Whereas takeup of Xero Practice Manager has been limited to Australia and New Zealand, Xero intends for the Xero HQ workflow to apply to all users in all countries.

It’s not clear whether the Australian market will receive and test the feature first, as has happened in the past. You can be sure that Xero HQ will appear in Xero’s major markets this year.

As Xero develops the API for Xero HQ it has plans to integrate with the leading online tax program in the USA, UK and potentially other countries. The alerts and notifications engine should work in a similar way as it does with Xero Tax, and likewise for electronic signatures.

How important is compliance workflow to you? Will a more efficient process convince you to switch your clients to another accounting program?

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