Small Business Advice

Best cloud accounting software for small business

27 Mar 2019

[Updated for 2020: Best cloud accounting software for small business]

Desktop accounting software has been around almost as long as desktop computers, but small businesses are increasingly looking to cloud-based accounting solutions to manage their bookkeeping, payroll, statutory accounts and annual tax returns.

Cloud-based services offer a Software-as-a-Service (SaaS) business model, where the small business pays a small monthly fee on a recurring basis instead of forking out hundreds or thousands of pounds up front. 

With these kinds of accounting software, company’s financial records are securely stored and managed ‘in the cloud’. This means the records can be accessed at any time and from any device (provided it has an internet connection and the correct security credentials are supplied).

Note: Many online accounting platforms also offer apps for smartphones and tablets, making it even easier for small business owners to manage payroll or analyse their balance sheet while on the move.

Cloud accounting software’s role with Making Tax Digital

HMRC’s Making Tax Digital business initiative is brining fundamental changes to the way businesses across the UK manage their tax and accounts in the future. For the 2020/21 financial year, small businesses will be required to invest in digital bookkeeping. Small businesses who keep track of their financial records through Excel or on paper will need to digitalise certain records, such as VAT returns.

Note: Businesses that are VAT-registered, which have a taxable turnover over £85,000, will need to use a compatible accounting software to submit a tax return.

If you’re self-employed, accounting software can make it much simpler to manage your finances, and when Making Tax Digital is fully introduced, everyone who has to file a Self Assessment tax return will need to use a bookkeeping and accounting software that’s compatible with HMRC.

At Accounts & Legal, we have a team of small business accountants dedicated to providing fixed-price tax, accounting and business forecasting and planning services that are specifically geared towards supporting the growth of SMEs and sole traders and being HMCR compliant.

Get in touch with our team at 0207 043 4000 to discuss your accounting requirements, or receive a no-obligation quote for our services using our instant accounting quote tool.

The rise of cloud accounting software

As technology continues to improve the way small business owners do business, small companies will have better access to the tools they need to succeed. Cloud adoption with accounting software also allows small business owners to spend less time on repetitive accounting and financial tasks and more time on growing their business.

As cloud accounting becomes even more popular, additional tools and products are likely to come forward, so small business owners can become even more efficient, have more time to grow their business and make better decisions involving their finances. 

This will help put profitability right in the hands of small business owners. Cloud accounting software makes it possible for small business owners to work on bookkeeping anytime and anywhere, providing options to run a business remotely. 

Note: Even if you have little accounting knowledge, there are intuitive cloud accounting software, so you can easily set up your accounting and bookkeeping system. 

The top accounting and bookkeeping software for UK small businesses

In the past, accounting software was complex and cumbersome, and it was generally more suitable for large enterprises than small businesses. Now, there’s a huge range of online accounting software that’s been designed specifically for small businesses and self-employed workers. Many of these products are affordable or even completely free.

Accounting software is designed to make it easy for you to manage your business finances, helping you with things like bookkeeping, invoicing, inventory and payroll. The kind of accounting software you pick will usually include handy reporting tools as well, so that you can track your cash flow and monitor your profit and loss all at one place.

While accounting software can make your life much easier, it has previously been up to you whether you use it to manage your business accounts. However, that’s changing with the government’s Making Tax Digital plans, which began rolling out last year.  

Note: Under Making Tax Digital, small businesses will have to file VAT returns online starting in April 2020, using accounting software that can integrate with your new digital tax account.

Below are the best cloud accounting software for UK small businesses in 2020.

QuickBooks

QuickBooks is developed by Intuit, one of the earliest providers of online accounting software. Freelancers can use the basic package for tracking self-employed income, and small businesses can use it for tasks involving VAT and payroll. 

Pros: Through QuickBooks, you can even download and reconcile credit card transactions, in addition to being able to organise weekly timesheets and track bank deposits. There are additional other reporting and monitoring tools too. 

Cons: Lack of barcode scanning and limitations on the number of users. Note: Not always suitable for rental property accounting.

Price: Subscription prices start at £12/month and is currently reduced to £5/month for the first six months.

cloud accounting software

Image Source:QuickBooks

Xero

Xero is another one of the big players in cloud accounting software. Xero can help you in a range of areas, including invoicing, inventory, payroll and expense claims.

Pros: Xero can also can import your banking, credit card and PayPal data, and there’s an app that works on both iPhone and Android. The Xero accounting software has recently launched a handful of new tools and innovative updates, including:

  • a car mileage tracker for employees

  • quotes functionality to accurately estimate and quote projects and track profitability

  • an automated connection between Xero payroll and HMRC. 

The Business Snapshot is also being piloted, which offers real-time smart insights with a 30-day view of the health of a business.

Cons: Not many! Though the starter pack has restrictions on the number of transactions which can be done per month. 

Price: Pricing for Xero’s cloud accounting software start at £10/month and is reduced to £5 for the first three months.

Xero

Image Source: Xero

Zoho Books

Zoho Books is applauded for being an extremely customisable small business accounting software.

Pros: The software can help you issue invoices, sort expenses, and track inventory.

Cons: it doesn’t presently have a payroll feature.

Price: Zoho Books accounting software can connect to your bank account for immediate updates on cash flow, in addition to having the ability to integrate with a wide range of other apps. Prices begin at £6/month.

cloud accounting software

Image Source: Zoho Books

FreshBooks


Pros: 
FreshBooks boasts a very user-friendly interface with a lack of jargon. This online accounting software is targeted at freelancers and small businesses with simple accounting needs, so it focuses on invoicing, expense tracking and a range of helpful reports. The software usefully integrates with apps, such as PayPal and Zendesk.

They also have an 'invite your accountant' functionality, so your accountant has quick remote access to all the right documents in all the right format. 

Cons: When automatically importing expenses, FreshBooks often categorises items under the wrong tags. Another small annoyance: If you change the Terms section on an invoice, it will change it for every future invoice across the board. 

Price: There’s no pricing information available on the UK website, but the US product starts at $7.50/month.


cloud accounting software


Image Source: Zoho Books

FreeAgent

Like FreshBooks, FreeAgent is aimed at freelancers and very small businesses. Because of that, the online accounting software focuses on tasks like invoicing, time tracking and expense management.

Pros: You can set invoice reminders and upload pictures of your receipts.

Cons: It doesn't pull in the USD transactions from Paypal - this has to be done manually. It's also a little more expensive than some cloud accounting software competitors.

Price: Pricing starts at £19/month for sole traders with 50% off for the first six months. On top of that, if you’re a Simply Business customer, you can receive a 15% lifetime discount. Alternatively, you can claim a 10% lifetime discount by using a FreeAgent referral code.

cloud accounting software
Image Source: FreeAgent

Sage Business Cloud Accounting

Sage is a large enterprise software provider, but Sage Business Cloud Accounting is its small business accounting software.

Pros: It can help you with areas, involving invoicing, cash flow and payroll. On top of that, it’s also fully Making Tax Digital compliant.

Cons: No payroll. 

Price: Pricing for Sage Business Cloud Accounting software starts at £12/month, and it’s  currently reduced to £3.60/month for the first four months.

accounting software

Image Source: Sage

KashFlow


Pros: 
KashFlow’s cloud accounting software directly links to HMRC, which enables small businesses to access all of their data in one place and simplifies compliance burdens. It’s integrated with online payment processors, such as GoCardless and global payments. 

Additionally, Kashflow offers a business health check score to help small business owners keep track of how their business finances are. However, KashFlow’s small business accounting software has removed their customisable dashboard and has decreased the number of features the software has.

Cons: User experience design (UX Design) and usability. Customer support. 

Price: Prices start at £8/month.

accounting software

Image Source: KashFlow

ClearBooks

ClearBooks offers a simple accounting system for small businesses.

Pros: If you’re looking for an online accounting software that’s simple to use without all the bells and whistle, ClearBooks could be a good option for you.

Cons: The user interface isn’t as modern as some of the other top cloud accounting software options and doesn’t have any outside integrations. 

Price: Pricing for ClearBooks start at £10/month; however, if you need to comply with Making Tax Digital for VAT reporting, you will have to up upgrade to the large plan, which is £22/month.

accounting software
Image Source: ClearBooks

Free accounting software for UK small businesses

There are also a number of providers offering free accounting software for UK small businesses, including Bokio, GnuCash, Wave Accounting and Pandle.

Bokio is a free accounting software that helps freelancers, sole traders and small businesses record receipts and generate and track invoices. The free software also can support employee expenses, automated reporting and VAT returns are automatically calculated.

GnuCash is an open source accounting software. This means the code behind it is publicly available and can be shared and modified. Additionally, you can use the software to track stock, income and expenses.

With Wave Accounting, the free accounting software includes invoicing, accounting and receipt scanning. Additional services like payroll are available as pay-as-you-go.

Pandle offers a free accounting software plan to help you submit Making Tax Digital compliant VAT returns, send quotes and invoices and set up automated payment reminders for overdue payments. You can have access to more advanced features for £5/month.

Which online accounting software for small businesses is compatible with Making Tax Digital?

While it’s important to find software that suits the way you like to work, if you need to submit a Self Assessment tax return, you also need software that’s compatible with HMRC’s systems. A number of these software providers are quite cagey about whether or not their software will be compatible. 

Quickbooks, for example, says you can use it to "complete HMRC Self Assessment", but on closer inspection it simply provides the information and expects you to copy and paste it into the online form HMRC currently use.

FreeAgent, on the other hand, has a button that automatically files your tax return for you, but there’s no guarantee it will work if HMRC completely overhaul their system.

Tip: Take advantage of the accounting software options that offer free trials and test out a few to see what works best for you and your business needs.

Making Tax Digital, and in particular, Making Tax Digital for VAT, should be an urgent priority for SMEs as compliance with rules for the latter are effective from April 1st, 2020.

The benefits of cloud accounting software

Financial bookkeeping was previously time consuming and complicated, but now cloud accounting software makes it much simpler and less time-consuming, while also allowing businesses to be compliant with the new Making Tax Digital rules that are being rolled out. 

Additionally, as the most common problem among small businesses in the UK is lack of cash flow, effective bookkeeping and money management can dramatically help a small business succeed. 

Cloud accounting provides easy access to financial reports, so you can make more informed decisions on bills and payments that impact your cash flow. On top of that, online accounting software can also provide context into the relationship between profit and cashflow, which is helpful for small business owners to understand in order to have a successful business.

Investing in a cloud accounting software will also allow you to be prepared for the changes that are continuing to be rolled out with the Making Tax Digital initiative. These types of software will help you make less errors resulting in overpayment and will make interacting with HMRC less complicated.

cloud accounting software

Get in touch with Accounts & Legal for business accounting and Making Tax Digital

As a gold accredited partner of Xero, we've seen the effect cloud accounting can have when used properly. With proper implementation and strategic processes in place, it’s not just cloud accounting software, it’s a whole new way for our team to work with you, guide you and give you the valuable advice you need to push your business forward. 

We want to help our small business clients gather data and insights, manage tax and compliance, analyse quotes and make their business more profitable. We are experts in training clients in how to use the Xero software in conjunction with our accounting services. This helps streamline processes, creates efficiency and saves clients money. 

Need to get your business ready for Making Tax Digital? Our team are also certified to help make the process a smooth one and get the very best from your new software. 

Give our friendly team a call on 0207 043 4000 to further discuss how our expertise can help your business realise its full potential or try our instant accounting quote tool. Find out more about the accounting and legal services we offer.

Keir Wright-Whyte

photo

Managing Director

0207 043 4000

About the author

Originally graduating with a degree in geography from Edinburgh University, Keir claims that he was then tricked into becoming an accountant by one of the UK's top 5 accountancy practices.The deception extended to the usual training in audit and associated activities.

Keir subsequently worked in a number of advisory roles with clients including in the energy trading, pharmaceuticals and financial services sectors.

He loves working at Accounts & Legal because of the variety of work and clients, the excellent team ethos and morale, the importance placed on genuinely helping and being useful for clients and because he believes what he does matters to clients and helps the firm.

Keir's primary role is to ensure that new clients with complex businesses or needs are on-boarded in the best way and he is a "trouble shooter" both for clients and where complex issues arise internally. He also helps the accounting teams strive to improve what we do for clients, whether processes or services.

When not debiting or crediting, Keir has a penchant for fixing old buildings, skiing, surfing and cycling.

  

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