Choosing and using accounting software can feel like crossing a minefield. So we had to chuckle when we saw a recent advertisement – “In goes your data. Out come your accounts.” It’s a lovely idea, and if only it were true. In reality, leaving all those spreadsheets behind is a bit more complicated.
As usual, we can help. In the last two years, Karen has dipped into this subject for her Masters in Accounting and Finance. She’s just passed with a distinction, which is good news for all of us at Merlin – and good news for you. It means we can help guide your choices if you’re looking to start automating your bookkeeping, or upgrade how you do things.
Decent accounting software has been around for about 25 years now. It’s developed from early desktop versions to the cloud-based tools we see today. You can use them to provide digital submissions for HMRC and Companies House. For VAT submissions, the main providers are all fully MTD-compliant. That means they’re aligned with Making Tax Digital, the government’s plan to modernise our tax system.
The impact of Making Tax Digital
MTD means businesses must keep digital records and submit tax returns using compatible software.The latest rollout for sole traders and partnerships increases these demands, with an extra four submissions each year. These will force many clients to adopt digital solutions, putting extra pressure on anyone with a less techie outlook. Next, we can expect to see the software enhanced by AI. It’s bound to affect the relationship you have with your accountant.
Lots of options. Does one size fit all?
No! Karen’s dissertation looked at this in great detail, focusing particularly on the charity sector. Charity finance is a specialist area, with unique reporting needs. We won’t do a deep dive here. But Karen’s conclusions apply to many small- and medium-sized organisations. There’s no ‘best choice’ of software in the market. You have to match your needs with the strengths and weaknesses of each one.
Making a comparison
Karen looked at three of the leading accounting software platforms: Sage, Quickbooks and Xero. In the office, we use several different online and desktop versions of this software. There are of course similarities and overlaps. But each one is very different from the other in what it can – and can’t – do.
We’ve added a brief summary of their strengths and weaknesses below.
Sage Business Cloud Accounting
For: Sage is well-known across the UK. It handles all key bookkeeping tasks with strong HMRC compliance, including MTD VAT submissions. The UK-specific payroll tools cover PAYE requirements well.
Against: It has a steeper learning curve for you and your team. The interface is old-fashioned now, and you must pay more for advanced features. Compared to desktop, the mobile option is limited.
Fit: Sage works best if your business has dedicated accounting staff, or you need a particular focus on compliance.
QuickBooks Online
For: QuickBooks offers strong features, such as excellent MTD compliance. You’ll find it intuitive, and it has strong multi-currency support for international trade. Many accountants are familiar with QuickBooks, so that makes working together easier.
Against: It costs you more than some alternatives, with extra costs for payroll. We’ve heard that the quality of customer support is up and down. If it’s important to you, inventory management is better with dedicated tools.
Fit: QuickBooks suits businesses needing strong reporting capabilities and room for growth. If you’re working with an accountant who’s already using the platform, it’s a good choice.
Xero
For: Xero has an easy-to-learn interface, just the job for non-accountants. All pricing tiers include unlimited users, which makes working together simple. Bank reconciliation works smoothly with major UK banks, and MTD compliance is fully supported. International businesses get strong multi-currency features.
Against: Its lower-tier plans restrict both the volume of data entry and invoices. You pay extra for payroll integration. Product-based businesses may find inventory features limited, and some reports are less customisable (compared to Sage).
Fit: Xero works particularly well for growing businesses that value collaboration. It’s a good fit with modern, tech-savvy accountants.
Making your decision
Remember that the right software for your business depends on your specific needs and growth plans. What matters most? Compliance capability? Ease of use? Compatibility with your accountant? You can always test drive the top contenders before taking the plunge, and we’re very happy to give you some pointers along the way. You’ll need to plan carefully for transferring old data that’s still needed, especially regarding correct VAT treatment. Staff training is important too, particularly MTD compliance.
How Merlin can help
To find out more about how we can help your business, please contact us. Our clients say that it’s useful to have a numerate friend prodding their thinking, especially one who understands the issues. If you’re not already a client, please get in touch here. You’ll find us a good fit if you’re looking for an accountant as an investment – rather than just a cost.
