Best self-employed accounting software: a comparison guide

Updated: 3 July 2024

If you’re self-employed, accounting software can make it much simpler to manage your finances – but how do you choose the best accounting software for your business?

The government has reduced pressure on sole traders to digitise their records. Self Assessment tax payers were due to use Making Tax Digital for income tax from April 2024. The phased approach is now coming in from April 2026.

However, there are many benefits to using accounting software for small business, and eventually keeping paper records won’t meet the requirements of tax legislation. 

Why business accounting is so important 

Accounting is a way to measure, process, and share financial information. It can be used both personally and professionally – with business accounting an important part of running a small business.

Accounting is invaluable to businesses because the data it provides can help you make better business decisions. Also known as bookkeeping, accounting keeps your important business information organised in reports – making it easy to see where your business does well and where it may need improvement.

How to do small business accounting

As a small business owner, you may not have an accountant or bookkeeper on staff. Luckily, there are lots of self-employed 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.

What is accounting software?

This type of software is designed to make it easy for you to manage your business finances, helping you with things like bookkeeping, invoicing, purchase orders, statements of account, 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. Ultimately, it makes small business accounting 

Accounting software comparison for small businesses

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

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
• QuickBooks
• Xero 
• ZohoBooks
• Sage Business Cloud Accounting

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 and £29 a month for limited companies, with 50 per cent off for the first six months.

FreeAgent says its users can comply with Making Tax Digital, and has 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. You can connect your account with over 700 third-party applications through the QuickBooks App Store – this lets you reduce time spent on data entry, payroll processing, capturing backups, and tracking inventory. Subscription prices start at £8+VAT 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+VAT a month. These are the packages that are compatible with 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 £14 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 cash flow. Prices start at £10 a month, with the option to have a free trial before you buy. 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, although this is sometimes reduced for the first few months. It also offers a free trial, so you can see if it’s right for you. 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 small businesses

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

Quickfile’s cloud-based accounting software allows you to automatically import transactions from 50 banks and over 300 other web services. It lets you upload receipts on the go and you can send clients to a branded portal to pay their invoices. Most importantly, Quickfile allows you to file VAT returns with HMRC directly. 

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. GnuCash doesn’t support Making Tax Digital, but you can use third-party software to submit your returns. It’s likely you’ll 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, it says it lets you use approved ‘bridging software’ to do so.

Visit our cost of living hub for free guides and resources to help you manage your business finances.

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

Making Tax Digital for VAT means you’ll eventually need to keep digital records and use compatible Making Tax Digital software that lets you submit VAT returns.

HMRC has a tool on its 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.

Some of the software providers, including QuickBooks and Xero, have dedicated Making Tax Digital pages on their websites. These are updated with 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.

Benefits of cloud accounting software

All the options we’ve mentioned in this guide are available online (rather than stored locally on your desktop). You just need an internet connection and you’ll be able to sign into a secure system using your web browser or an app.

Some of the benefits of using cloud accounting software include:

• access your financial data from anywhere
• real-time financial reporting
• easy to share up-to-date reports with accountants and stakeholders
• software packages include backup, recovery, and automatic security updates
• secure storage with multi-factor authentication (when two or more verification methods are needed to confirm it’s you logging in)

ability to connect to other third-party accounting apps for invoicing and cash flow

More useful guides for small business owners

• The self-employed guide to Self Assessment tax returns
• Self-employed tax brackets 2023/24: new thresholds, rates and allowances
• How to write an invoice and free template
• Is professional indemnity insurance tax deductible?

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

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