Keeping ahead of Making Tax Digital: Bookkeeping Software for 2019

Sifting through printed pages of corporate tax declarations, VAT returns, and bookkeeping has long been the bane of an accountant’s existence, but also, a source of bread and butter. In September, HMRC announced new guidance on ‘Making Tax Digital’ (“MTD”). While making all tax digital is an overstatement of the recent press release, the announcement does make clear the connection between tax payers’ software inputs and links to HMRC.

“The guidance is very much focused on obtaining the MTD compatible software that will be needed, including ‘bridging software’ which it is expected many businesses will use to submit VAT returns,” says Chris Downing, Partner at KMPG UK.

Digitisation of VAT returns and automated bookkeeping means investing in bookkeeping software best suited to a firm’s business. Accounting software can be delivered through the cloud, with software-as-a-service offerings; or installed on site. It’s clear that while VAT is clearly the primary focus for most software available, other suites with additional accounting functions may sway the spending decision.

Direct links to HMRC is advantageous for VAT returns

1. Xero

A stalwart of the industry, Xero is preferred by SMEs due to its accessibility and user-friendly interface. The software can be delivered through internet browsers, with financial information secured by cloud-based back-up systems. Xero’s basic software is also capable of connecting directly to bank accounts. That makes receipts, current, and savings account reconciliations easier.

“Xero is perfect for SMEs. The flexible pricing allows for owners to file tax returns on time without the paperwork or the cost of employing external accountants. Equally, from an audit perspective, Xero’s read-only access to third parties can hasten the process by providing the necessary evidence across all transactions,” says Alicia Gibson, chartered accountant and former assistant manager at Deloitte.

• Pros: For many small businesses, Xero represents the standard accounting function, and can be managed by accountants and employees.
• Cons: The platform is maximised over a computer rather than mobile devices.
• Pricing: Priced on users per month and functionality, packages range from £10 to £28 per month.

2. QuickBooks

QuickBooks also offers direct links to HMRC for VAT returns. QuickBooks can calculate and file VAT and can be used by sole traders and SMEs. The technology uses the cloud to deploy its application. For the self-employed, QuickBooks can easily generate invoices, track spending, and also complete Self-Assessments. Users can also incorporate existing Excel spreadsheets into the platform. For professionals who are on-the-go, the app poses a convenient solution for on-demand business profit-and-loss monitoring.

• Pros: Direct link to MTD VAT returns, MTD strategy assistance, flexible pricing, and focus on sole traders and small businesses are the key advantages of the software.
• Cons: For more sophisticated businesses, the system may not offer all the linkages for cross-entity accounting, or templates for regulatory reporting.
• Pricing: After a 30-day trial period, the cost of using QuickBooks ranges from £4 to £14 for the first six months.

3. Sage

Small businesses may find Sage’s online bookkeeping software Sage Business Cloud Accounting useful for tracking expenses and monitoring sales. Direct bank feeds also enhance the functionality of the software – the cash position can be taken across a range of banking counterparts, making reconciliations easier.

Self-employed accountants and small accountancy firms can also use Sage Accountant Cloud, the cloud-based SaaS. The Sage Accountant Cloud neatly blends client management, data work flow, automation of reporting and administrative tasks. For accountants with many clients, the online bookkeeping software can keep track of all key dates and tasks for the portfolio of clients.

• Pros: Comparable in sophistication with Xero, Sage offers direct links to MTD VAT returns, and feeds from current accounts. The application can be downloaded to phone, tablet or computer.
• Cons: The bookkeeping software is mainly used for invoice and accounting management. It may not be as suitable for those with large numbers of receipts to process.
• Pricing: For the most basic expense management (including MTD compliance), the platform can be purchased from £6 per month to £14, a 30-day trial is also on offer.

4. FreeAgent

The HMRC recognises FreeAgent’s services as compliant with the cash basis and expense specifications set out for MTD. FreeAgent’s invoice raising and chasing is very simple. Single or recurring invoices can be generated, with payment reminders for late settlement. Expenses are captured, and with supporting evidence, uploaded via mobile phone. The online bookkeeping software also accepts feeds directly from bank accounts, making transaction management easier for sole traders and businesses. Importantly, while other bookkeeping software providers only calculate the inputs for Self-Assessments, FreeAgent can submit both Self-Assessments and VAT returns.

• Pros: The platform is extremely simple, tracking revenue and expenses.
• Cons: The application is for small businesses only.
• Pricing: FreeAgent prices depend on the type of legal entity set up. Limited companies can obtain FreeAgent services from £15 per month, while sole traders can use the service for £10 per month. A 30-day trial is also available, with pricing plans ticking upwards once six months have elapsed.

5.            KashFlowKashFlow is online accounts software, designed for small businesses. It simplifies bookkeeping, invoicing, payroll, VAT and HR, allowing businesses to control their business finances. KashFlow was one of the first online accounting software providers to be MTD-compliant and is listed on the HMRC MTD providers website.Managing every step of the bookkeeping process, from receipt digitisation to the submission of VAT, KashFlow’s online software suite provides a view of what’s happening and keeps all processes simple and streamlined.KashFlow integrates with the IRIS Accountancy Suite, a sophisticated compliance and practice management solution which generates final accounts, corporation, partnership and personal tax returns and all regulatory financial statements. It also includes bridging software to enable MTD compliant VAT filings for all those clients that are not suitable for a bookkeeping product. Feeds from other accounting and transaction management providers can also be uploaded directly to IRIS.

• Pros: The VAT dashboard allows easy submission to HMRC and reporting on what has been included.
• Cons: KashFlow requires some experience in accounting processes
• Pricing: Following a 14-day trial period, KashFlow ranges from £8 to £21 per month.

5. Taxfiler

Another award winner, Taxfiler received the 2018 ‘Accounts Production Software Aware of the Year’ at the Accountancy Excellence Software Awards. The online accounts preparation and tax software offers pricing modules from £10-£99 per month, making it affordable for sole traders and businesses alike. While not explicitly MTD compliant, Taxfiler can compile trial balances into balance sheet drafts which have already been updated for FRS 102 and FRS 105. While Taxfiler has been lauded for its ease of use and push into making all aspects of tax digital, the main problem with the software is its limited capabilities in accounts preparation.

• Pros: Easy to use and cost effective, Taxfiler is a promising solution for simple businesses and those with limited accounting experience.
• Cons: Not explicitly HMRC MTD tax compliant and limited accounting functions are the trade-offs for using this cloud-based, affordable bookkeeping software.
• Pricing: Taxfiler has no long-term contract. Taxfiler offers subscriptions from £10 to £100 per month.

7. 1tapreceipts

Catering to sole traders, 1tapreceipts offers small business owners an affordable way to keep track of spending while complying with MTD standards. The online bookkeeping software can be directly downloaded from its website. Flexible, monthly pricing is also available, and depends on how many ‘scans’ will be used during the year. Scans are the import of receipts, which are uploaded and checked by the accounts team. The expenses are then inserted into automatic HMRC expense categorisation and stored until tax return season comes around.

• Pros: Best bookkeeping software specifically for sole traders, the expense capture system is perfect for those on-the-go using mobile devices and filing individual returns.
• Cons: The accounting component of this platform is limited, so any other regulatory filings must be done elsewhere.
• Pricing: Predicated on the number of receipts and amount of cloud-based storage, 1tapreceipts can keep track of expenses from £15 to £120 per month.

Taking stock of the available online bookkeeping software and those recognised by HMRC’s Making Tax Digital, key features like ease-of-use, cloud deployment, and add-on functionality can influence the decision to invest. For small businesses and sole traders, consideration should be given to how complex operations are when compared with expense and accounting requirements. Very basic expense and income can be captured using QuickBooks or Taxfiler effectively.

For more sophisticated accounting necessities, online bookkeeping software should be sought out. Xero is considered one of the best online bookkeepers, and occupies what many small businesses consider to be the gold standard. Users appreciate that external parties (i.e. third- party accountants) can be granted read-only access; that the accounts section for balance sheet break downs and asset registers are clear; and that feeds from bank accounts are available to make reconciliations easier.

The Institute of Chartered Accountants in England and Wales (ICAEW), says that HMRC plans to make aspects of income and corporation tax digital from April 2020.  Digitising accounting and expense management is an opportunity to get ahead. Choosing to invest now may save the pain of rushing to do it in time for the deadline with no time to iron out any issues.