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Xero profits boosted by Making Tax Digital

Xero, a company that provides software for cloud accounting, has announced a rise of 36% in its profits for the most recent financial year – and it is claiming that the Making Tax Digital changes are partially responsible for this.

This rise in profits saw the New Zealand-based company’s revenues for the year hit NZ $552.8m (£284.9m), and a big part of its success was down to its operations within the UK. It secured 151,000 additional UK customers during the year, which is a new record for the company, and saw its user base here grow by 48% – which took it to 463,000.

Now the company is stating that the Making Tax Digital reforms introduced by HMRC, which require firms and contractors to submit their VAT returns online, played a big role in driving that increase during the second part of the year. In that part of the year, 108,000 people signed up for the software provided by Xero and the firm is arguing that the need to comply with Making Tax Digital played a role in that UK subscriber increase. The company’s total revenue for the UK during the financial year 2019 was £62m, which is a rise of 50% on that of the previous year.

Xero also saw a spike in its subscriber base around the world, which reached 1.8 million during the year, representing an increase of 31% on the figure for the 2018 financial year. This was the first time in the history of the company that its global customer base exceeded that of New Zealand and Australia, as it rose to 239,000 by the end of the financial year. This helped it to increase its annualised monthly recurring revenue by 32%,to $638.2 million.

However despite the improvements in its global and UK performance, the latter driven by the Making Tax Digital reforms, Xero still made a net loss of NZ $27.1m (£14m), which it is blaming on problems during the first part of the financial year.

Speaking to Accountancy Daily, the CEO of Xero, Steve Vamo, stated that the firm had achieved many positive results for the year, including increasing its customer base in the UK and hitting its first positive free cash flow position, before adding:

“As we head into FY20, we’re making great progress towards our strategic priority of driving cloud accounting adoption globally. We have a genuine competitive edge by prioritising investment in growth, and partnering closely with accountants and bookkeepers, to deliver a human-centred technology experience for small business communities.”

It may be that accountants in Liverpool, Manchester, London and other parts of the country are helping to fuel this UK growth by using software of this kind to complete Making Tax Digital returns for their clients.

Among the incidents that affected Xero during the first part of the year was a breakdown in its IT in the autumn, which impacted its customers around the world and meant that its software was unavailable for several hours.

Posted by Louise
June 3, 2019
Research & Statistics

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