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Best accounting software for small business: a comparison guide

5-minute read

Sam Bromley

5 March 2020

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

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And after HMRC introduced Making Tax Digital in April 2019, it’s more important than ever for businesses to consider accounting software. Making Tax Digital means VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 will need to use compatible software to submit their VAT returns.

With lots of accounting software options out there, this guide aims to help you pick one that works for your business. Use this as a guide – 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. 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 the self-employed. Many of the products are inexpensive (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 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 number 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-known 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. Most of these programs are mobile-friendly too.

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 small businesses, so it focuses on daily admin 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. Pricing starts at £19 a 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 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 Self Assessment 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 a month (for the Self Assessment package) – but prices are sometimes reduced for the first six months.

For small businesses and VAT-registered companies who want to use the accounting and VAT features, prices start at £12 a month. These are the packages that are ready for Making Tax Digital.

Xero

Xero is another big player in cloud accounting software. Xero can help with 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 a month, but this is sometimes reduced for the first few months. That package gives you the ability to submit VAT to HMRC for Making Tax Digital.

Zoho Books

You can integrate Zoho Books with lots of apps from Zoho’s own suite, as well as third-party apps. It can help you issue invoices, sort expenses, and track inventory. Zoho Books is part of an overall suite of cloud-based software – other apps include Zoho Invoice and Zoho Expense, although there isn’t a payroll feature yet for the UK.

Zoho Books can also connect to your bank account for real-time updates on cashflow. Prices start at £6 a month. Zoho Books is 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.

FreshBooks starts at £11 a month for its 'Lite' package. FreshBooks says its packages have everything you need to stay compliant with Making Tax Digital, so check it suits your needs.

Sage Business Cloud Accounting

Sage is a big enterprise software provider, but Sage Business Cloud Accounting 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 Business Cloud Accounting starts at £12 a month, but sometimes this is reduced for the first few 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 look like 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 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.

Eventually, HMRC expects to introduce Making Tax Digital for all VAT-registered businesses, as well as for Income Tax and Corporation Tax.

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 with any news from HMRC about the future of Making Tax Digital.

Be sure to research all your options before choosing an app for your business, and get professional advice if you need to.

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

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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