Best accounting software for small business: a comparison guide

If you’re self-employed, accounting software can make it much simpler to manage your finances.

Now that Making Tax Digital is in effect, VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 will need to use compatible software to submit their Self Assessment tax return.

With lots of accounting software options out there, we wanted to help you pick the one that works for your business. Use this as a guide and before choosing a package make sure you’ve researched and worked out whether it meets all your business’s needs.

Accounting and bookkeeping software for business

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 accounting software that’s been designed especially for small businesses and self-employed workers, and many of the products are pretty cheap or even completely free.

This type of 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 product you pick will usually include handy reporting tools as well, so you can track your cash flow and monitor your profit and loss, for example.

And with Making Tax Digital now in force, businesses need to make an informed choice about the accounting software they use to keep digital records and send tax returns.

Accounting software comparison for small businesses

The sheer amount of programs and providers available can make it hard to compare accounting software, let alone choose a package to suit your needs, but we’ve taken a look at some of the best-regarded options for your business.

Modern accountancy packages tend to be cloud accounting software, so they should work fine whether you use a Mac or PC. And most of these programs have been developed to be mobile-friendly.

Many of the paid subscription services mentioned below offer a free trial (usually one month) when you first sign up so you can try it out to see if it suits your needs. However, if you decide to buy, bear in mind that the prices shown usually don’t include VAT.

FreeAgent

FreeAgent is targeted at freelancers and very small businesses, so it focuses on tasks like invoicing, time tracking, and expense management. It’s a cloud accounting software package.

You can set invoice reminders and upload pictures of your receipts, and pricing starts at £19/month (for sole traders) with 50 per cent off for the first six months. Plus, if you’re a Simply Business customer, you can get a 15 per cent lifetime discount. Find out more.

FreeAgent say they’re Making Tax Digital-ready – and in fact have been submitting digital VAT returns to HMRC for customers since 2010.

QuickBooks

QuickBooks is developed by Intuit, one of the very earliest providers of accounting software, and it’s cloud-based.

Freelancers can sign up for the basic package that helps you track your self-employed income, while small businesses can use it for things like VAT and payroll. There are lots of reporting and monitoring tools too. Subscription prices start at £8/month, reduced to £3/month for the first six months (for freelancers and independent contractors).

For small businesses and VAT-registered companies, prices start at £12/month, reduced to £5/month for the first six months. These are the packages that are ready for Making Tax Digital.

Xero

Xero is another big player in cloud accounting software, and it can help you with things like invoicing, inventory, payroll, and expense claims.

As well as that, it can import your banking, credit card, and PayPal data, and there’s an app that works on both iPhone and Android. Prices start at £10/month, reduced to £4 for the first three months. That package gives you the ability to submit VAT to HMRC for Making Tax Digital.

Zoho Books

Zoho Books is praised for being very customisable, and it can help you issue invoices, sort expenses, and track inventory, although it doesn’t currently have a payroll feature. Zoho Books is part of an overall suite of cloud-based software – other apps include Zoho Invoice and Zoho Expense.

Zoho Books can also connect to your bank account for real-time updates on cashflow, and integrate with a whole host of other apps. Prices start at £6/month. Gov.uk lists Zoho as Making Tax Digital compatible.

FreshBooks

Benefits of cloud-based FreshBooks include the user-friendly interface and lack of jargon. It’s designed for freelancers and small businesses with basic accounting needs, so it focuses on things like invoicing and expense tracking. It integrates with apps like PayPal and Zendesk.

There’s no pricing information on the UK website, but the US product starts at $15/month. Gov.uk doesn’t list FreshBooks as Making Tax Digital compatible. But the FreshBooks support pages say that “FreshBooks is MTD compliant as of April 1, 2019 with our MTD Portal.” It may be worth checking this with FreshBooks before signing up (or getting in touch with their support team if you already use the package).

Sage One

Sage is a big enterprise software provider, but Sage One is its cloud accounting software offering for small businesses. It can help you with everything you’d expect, like invoicing, cashflow, and payroll.

Pricing for Sage One Accounting starts at £10/month, currently reduced to £6/month for the first three months. Sage says it’s ready for Making Tax Digital.

Free accounting software for businesses

There are also several providers offering free accounting software, including GnuCash and Wave Accounting.

GnuCash is open source accounting software, meaning the code behind it is publicly available and can be shared and modified. You can use it to track stock, income, and expenses. It doesn’t appear that GnuCash is ready for Making Tax Digital, so you might need to do some further research if you’re considering this option.

With Wave Accounting, the free software includes invoicing, accounting, and receipt scanning, and then additional services like payroll are pay-as-you-go. While Wave Accounting doesn’t have a direct connection to send VAT returns to HMRC, they say it lets you use approved ‘bridging software’ to do so.

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

Making Tax Digital for VAT is now in force for accounting periods starting 1 April 2019. This means you need to keep digital records, and use compatible Making Tax Digital software that lets you submit VAT returns.

HMRC has a tool on their website that you can use to find compatible software. For each of the packages we’ve written about, we’ve mentioned its compatibility with Making Tax Digital, but be sure to research this yourself before making your choice.

Making Tax Digital for VAT is just the first phase of HMRC’s digital plans. Ultimately, HMRC expects to introduce Making Tax Digital for all VAT-registered businesses, as well as for Income Tax and Corporation Tax, but the earliest these changes will be phased in is April 2020.

Some of the software providers, including QuickBooks and Xero, have dedicated Making Tax Digital pages on their website. It’s likely that these will be updated with any future plans and upgrades, and we’ll keep you up-to-date on any news from HMRC about the future of Making Tax Digital.


Which accounting software are you keen to try? Tell us in the comments.

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