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Accounting platforms gear up for battle of the five armies

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New research from AccountingWEB has highlighted that while Xero, Sage, QuickBooks and FreeAgent remain the most commonly used platforms by UK accountants, no vendor has a dominant share of the market.

9th Jun 2022
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With UK accountants finally able to pull away from their covid holding patterns, many are now looking to upgrade their systems or extract more value from their existing tools, particularly with MTD for income tax (MTD ITSA) mandation less than two years away.

As the first spring conference season for three years gets underway and with a plethora of new MTD-compatible tools coming to market, a major battle is underway to win the hearts and minds of UK accountants.

AccountingWEB’s latest State of the Nation: Accounting Software report identified five main adversaries at the heart of this maelstrom. As part of our ongoing research programme, the study polled nearly 500 accountants in practice and business this spring on their use of core accounting software packages.

While Xero, Sage, Intuit QuickBooks and FreeAgent remained the most commonly used accounting platforms, no vendor has a dominant share in the market. Signs of shifting allegiances and ambiguity emerged from respondents. Users of all major players reported positive developments, but there was still plenty of room for improvement.

Xero and QuickBooks satisfaction ratings fall

Once the poster child for the rapid rise of cloud accounting tools, with 3.3m global subscribers (850,000 in the UK), Xero has now become the incumbent. That position, however, has been accompanied by criticisms from customers over outages and other functionality issues during the pandemic.

While the report repeatedly highlighted ease of use and easy implementation as positives for Xero users, it also flagged falls in user satisfaction and usage amongst key customers.

“Xero's sweet spots in 2021 were firms who self-classified as small early adopters and change-aware small and medium practices,” explained report author and AccountingWEB’s head of insight Julian Green. 

“However, by 2022 usage had fallen by 4% and 6% among both early adopters and small firms. Its usage also fell 8% among larger firms, where it had been challenging Sage for leadership in 2021.”

In terms of user satisfaction and loyalty, Xero’s net promoter score (NPS) remained positive at +19. Yet the figure has halved compared with 2021, with users citing reliability as the main reason for the fall. One business accountant called for “better customer and supplier transaction information” to help unpick issues and resolve queries, while a medium practice partner stated that “customisation UX is poor”.

With the report also raising concerns about innovation and reporting tools, users will be hoping the New Zealand developer will use the first Xerocon event in the UK since 2019 to announce improvements to the platform to sit alongside its MTD ITSA tools

It was a similar story for Intuit QuickBooks. Although survey respondents praised the tool for its ease of use and the quality of training materials provided, a recent move into tax preparation and filing fuelled pre-existing fears from some users about a drift away from the accountant channel.

“Intuit QuickBooks’ heartlands were firmly among smaller users across the board in 2021,” commented Green, “but usage among these segments fell as well as all others.”

The QuickBooks NPS rating dropped 10%, hovering in positive territory at +4, but users are no longer praising it for good value for money. The most commonly cited cause for concern from QuickBooks users was over functionality. 

One small accountancy practice cited the following example: “VAT calc rounds up instead of truncating. Also alters VAT when optical recognition software has read and transmitted the VAT correctly!” 

Another practitioner asked the vendor to “make it easier to go back to original entry after viewing the audit log of a transaction”.

Sage claws back ground in race to cloud

For so long the only game in town when it came to UK accounting software, Sage found itself playing catch-up as Xero and QuickBooks forged ahead in the pioneering years of cloud accounting. 

However, Sage has made a lot of accountants sit up and take notice with a series of strategic acquisitions timed to bolster its Sage for Accountants cloud platform. With many unknowns still surrounding the government’s MTD ITSA rollout, Sage is betting that many practitioners will fall back on a trusted vendor for help during the transition.

“Sage appears to be maintaining its position amongst users in practice generally, where its main competitors appear to be losing out,” said Green. “It has performed well amongst medium-sized users where it has taken Xero's crown and more widely among general business users, which suggests it is winning the advertising war. 

Sage’s only bleak spot is among its larger businesses, its sweet spot in 2021, where usage has fallen by 10%.”

Sage’s NPS score, whilst still in negative territory at -5, has moved in a positive direction by 8% with ease of use and intuitiveness the most commonly cited positive attributes. One small accountancy practice cited full integration to final accounts and corporation tax as a major plus point, while another found it reassuring to know that “everything is done correctly”. 

Survey respondents flagged up a need for simplicity, with one small practice owner suggesting the product should be streamlined: “far too many steps in many of its processes”. Another business accountant stated that some online modules “do not speak with downloaded software”.

FreeAgent fights for market share

Since arriving on the scene in the earliest days of cloud accounting, FreeAgent has established itself as a credible alternative to Sage, Xero and Intuit QuickBooks. Many expected its acquisition by the NatWest Group (then RBS) in 2018 to fuel the vendor’s rise to join the ranks of the aforementioned platforms, and although the tool now boasts well over 100,000 subscribers, matching the market shares of its largest competitors has proved tough.

“Compared to 2021’s survey, FreeAgent has suffered small declines in usage across all of the small firm and small business segments,” said Green. “It maintained usage among medium firms and gained users in larger organisations, albeit from a tiny base. There was also a slight increase in FreeAgent users using the platform as their second most-used software (3% in 2022 versus 2% in 2021).”

While the software is distributed free to business customers of NatWest, adoption rates among key userbases don't appear to be rising - a point which Green believes may be down to large-scale advertising campaigns from the likes of Xero, Intuit QuickBooks and Sage luring away new business customers.

Recent government attempts to clamp down on off-payroll working may have also hit FreeAgent, but the Edinburgh software house’s recent launch of a landlord tool to tackle the MTD ITSA challenge may accelerate growth in a slightly different section of the market.

Will a fifth player enter the battle?

Meanwhile, rumours of a fifth major player joining the cloud platform battle have gathered pace, with Hg Capital-backed Bright Group rumoured to be gearing up to bring its Surf Accounts cloud product to the UK. Combining Surf with its recent acquisition AccountancyManager and the anticipated arrival of BrightPay’s cloud payroll product make the new arrival a potential contender as part of an integrated cloud accounting suite. But will Surf and Bright have enough resources to break into such a highly competitive market?

With early adopters among small and medium firms showing potential interest in alternative solutions, Green commented: “What is striking about the early adopter segment in our survey is that no software vendor has a dominant share, but usage is growing for 14 vendors. It is very much a ‘pick and mix’ mentality.

“In the medium segment, a similar number of vendors are experiencing usage growth, but there are more entrenched positions,” he continued. 

“Of those, Sage is growing whereas Intuit QuickBooks and Xero usage is falling. So, if Bright Group was to move into the UK accounting platform space, there could well be an appetite among these segments. But don’t discount stiff competition from Microsoft Dynamics in the medium and large segments.”

You can contribute to the findings of the next AccountingWEB State of the Nation: Accounting Software report by taking part in the latest quarterly survey.

Replies (21)

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By TB93
09th Jun 2022 09:38

I'll be interested to see how the Bright Group develops over time. It appears there's more to it than just practice, payroll and accounts.

Thanks (1)
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By North East Accountant
09th Jun 2022 10:02

Without starting an all out war of my software is better than yours type discussion...

IMHO an absolute fundamental part of any bookkeeping software is a proper sales and purchase ledger and a full audit trail, so that's Xero out.

Also you don't want software that will alter correctly posted transactions, so that's Quickbooks out.

Never heard of Surf until this article, so that's Surf out.

Do they have accounts production and personal tax linked and in the cloud? So that's Freeagent out.

And the winner is therefore Sage, who can do all this.

There is lots for Sage still to do, I know this, but if I was a betting man, I'd say Sage. They have the appetite, they have the money, and they are a trusted UK company.

Time will tell whether I'm wrong or right.....let's see.

Thanks (3)
Replying to North East Accountant:
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By Rgab1947
09th Jun 2022 10:22

"Do they have accounts production and personal tax linked and in the cloud? So that's Freeagent out."

I have just done exactly that in my one FreeAgent client.

A Sage fan keeping closed eyes?

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Replying to Rgab1947:
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By North East Accountant
09th Jun 2022 12:06

Can Freeagent do every personal tax return type....eg.Non-UK residents, foreign income, property income, CGT etc....

I (and I'm sure other accountants) want an end to end cloud system that can do it all.

My eyes are well and truly wide open.

Thanks (1)
Replying to North East Accountant:
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By Hugo Fair
09th Jun 2022 11:00

A sagacious review?

Thanks (2)
Replying to Hugo Fair:
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By North East Accountant
09th Jun 2022 12:07

I'll take that thanks......had to google the meaning though.

Thanks (2)
Replying to North East Accountant:
By ireallyshouldknowthisbut
09th Jun 2022 13:45

North East Accountant wrote:

IMHO an absolute fundamental part of any bookkeeping software is a proper sales and purchase ledger and a full audit trail, so that's Xero out.

Whilst Xero allows you to post invoices "on the fly" purchase & sales, the sales and purchase ledger + audit trail is very much alive and kicking in Xero, its just not the same process as in Sage.

Personally I find is much more flexible and able to adapt to different scenarios. For example a business with income that does not require an invoice + some that does it works very well.

Thanks (0)
Replying to North East Accountant:
Stepurhan
By stepurhan
10th Jun 2022 08:45

North East Accountant wrote:
They have the appetite, they have the money, and they are a trusted UK company.


They may well have the appetite and the money. On the third point, this thread very much indicates otherwise.

https://www.accountingweb.co.uk/any-answers/absolute-tosh

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By Self-Employed and Happy
09th Jun 2022 10:56

I've always wondered (this article makes me wonder even more), if none of them have a footing in the large company market, then what are those large companies using to remain compliant with MTD?

I can't believe they are using bridging software???

We use Quickbooks and although the price is climbing all the time we still feel it represents good value, we have a customer on each of the other 3 mainly just so we can see how they are progressing.

The Bright thing makes sense, I have been banging on at Brightpay for 2 years to create a "export all journals" button instead of me having to go into each client and pushing a button to export to whatever software they are using, they obviously don't want to make it too easy otherwise people will be less likely to use their accounting offering.

If the accounting software is anything like the payroll software then things could get very interesting.

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Replying to Self-Employed and Happy:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
09th Jun 2022 17:38

Actually, SEH, they do! The bigger the organisation, the more reliant it is likely to be on spreadsheets is my experience.

Corporations are only required to file and report VAT and Corporation Tax liabilities, so they'll be missing out on the fun and games leading up to 2024 - but CT is waiting in the wings for them after than.

In the meantime, I was hearing just the other day about a multi-entity leisure group that compiled its group VAT return on a spreadsheet and filed it via bridging software. With all the adjustments and schemes that bigger organisations are involved with on VAT, I think it was their intensive lobbying that ensured spreadsheets would remain an accepted part of the MTD regime.

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By Red Volvo
09th Jun 2022 11:08

Not all businesses need “a proper sales and purchase ledger”.

One of my clients is a Care Home where the income is residents fees that are not invoiced and most expenditure is incurred before an invoice is received so a simple analysed cash book is preferable for accounting. We currently use Quicken which is ideal but out of date. Not cloud based and not MTD compatible. We have tried Quick Books but found data entry much more tedious. Still seeking the ideal package. Preferably need a system that will automatically enter one receipt from local council for residents fees analysed across all residents. When entering expenses in Quicken the previous payment to the same supplier is offered and one only has to change the date and amount. Which cloud based/MTD compatible system will do this? Or is a complete re think required?

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Replying to Red Volvo:
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By PChapman
09th Jun 2022 13:13

Hi,

I've not used Quicken for a long time but have and do use Quickbooks and Quickbooks can certianly do the payments and receipts you suggest. I would set both up as templates which you could then use or have automatically posted, personally I would use Invoices and Bills then the payment and receipt simply matches when received to the bank account. There is a flag in settings for offering the same as before on transactions.

As for it being tedious, that's probably a case of not being familiar and comparing to a system you are familiar with.

I don't think there is "one ideal system" out there, after all, every offering has its qwerks!

At the end of the day when you decide to migrate there will be a learning curve. Best thing to do is to get a clear picture of what you need, but don't be afraid of doing things in a different way to gain efficiencies. The biggest mistake I've seen with migrations is wanting the new to be the same as the old!

As for me, I'm currently investigating what is out there to serve my micro clients (ledger book, spreadsheet types) becuase, as you say "Not all businesses need a proper sales and purchase ledger”

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By johnjenkins
09th Jun 2022 11:10

Tom, what share of the market does VT have?

Thanks (1)
Replying to johnjenkins:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
16th Jun 2022 17:17

Sorry this has taken so long, John. Our head of insight Julian Green sent through the following figures a couple of days ago, but other commitments have held me back from replying.

We had a number of responses from VT Transactions+ in our 2021 Insight survey. They weren't quite enough to qualify as statistically significant and we saw the figure fall further in the latest round.

We know that VT has a loyal following among AccountingWEB members, but in a world where the cloud platform giants are spending millions on online advertising and TV ads, I would be concerned about whether a small, independent developer like VT can compete.

If you want to keep our insight team focused on VT's share of the market, the best way would be to take part in our regular quarterly surveys to ensure they're well represented. You can do so here:
https://www.surveymechanics.com/s/accountingwebs2

We'll continue to feed through analysis and trends drawn from the surveys on our tech pages, so do let us know if there are areas you think we should investigate more closely.

Thanks (0)
Replying to John Stokdyk:
Morph
By kevinringer
17th Jun 2022 09:23

John, I didn't realise your survey was quarterly and have only been completing it annually. No doubt AWeb issues an email to members every time a new survey is launched but somehow it gets lost in the mass of dross I receive. Maybe other AWebbers miss it too. Perhaps AWeb could send more prominent survey notifications in future.

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Replying to John Stokdyk:
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By johnjenkins
17th Jun 2022 11:10

Thank you for that, John.
VT transaction+ handles MTD for VAT quite easily and I'm sure when the time comes (if ever) VT will rise to the challenge of MTD ITSA.
I don't think QU will ever come to being so I think VT are waiting to see what the final scenario is going to be.

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Morph
By kevinringer
09th Jun 2022 13:09

MTD ITSA we're going to have to think differently from thinking just Sage or just QuickBooks or whatever. We have clients that use both, and more. As a practice, we use CCH for our accounts, PTP for tax. We don't want to have to learn/buy a myriad of software, so MTD ITSA will have to permit seamless transfer of data between vendors. The problem is that currently, there isn't even seamless transfer within vendors. It isn't just accountants that will require this. I act for loads of partnerships, some partners are members of more than one partnership, or they may be joint landlords. There's going to be plenty of scenarios where an individual partner is in A Partnership which uses Sage, B Partnership which uses QuickBooks and also has a jointly let partnership for which the reporting owner uses spreadsheets. They're all going to have to speak to each other. CSV export is not the answer. It has to be fully integrated two-way data transfer. Really, what should have happened is the software industry agree a common data standard so that all products could talk to each other.

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Pile of Stones
By Beach Accountancy
09th Jun 2022 20:33

Sage Business Cloud support is basic and their customer reps are patronising. I have an ongoing issue with being thrown out of the software and not being able to log back in if I don't use it for a bit. Support does not take it seriously, and blames me, despite (a) I have followed all their recommendations and (b) I don't have the same issue with Xero, QBO, Quickfile, etc. Also their comparative p&l (a basic report) was in beta for 18 months, which indicates a lack of internal backing for the product

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Replying to Beach Accountancy:
Morph
By kevinringer
09th Jun 2022 21:39

I don't know about Sage Business Cloud, but I do know about Sage 50cloud support which is great for us in the accountants' club (or whatever it is called), but is a charged-for extra for my clients. In contrast, QBO support is part of the package. The QBO training and on-boarding is much better than Sage 50cloud too. But we're comparing different products. I feel Sage 50cloud is aimed at accountants and bookkeepers whereas QBO is aimed at business owners.

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By Chris Pittock
10th Jun 2022 17:17

"Audit Trail is very much alive and kicking in Xero"? Not sure we are all on the same wave length here. The audit trail on Sage means that you can see whether anyone has added transactions after you have completed the accounts by reason of the transaction number, but with Xero that can't be done. Anyone releasing the lock down date and putting on entries dated in a year that has formally completed causes havoc for the accountant in the next year as you can't trace the entries.

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Replying to Chris Pittock:
Morph
By kevinringer
11th Jun 2022 10:01

Chris' comment is so true and also applies to QuickBooks: we balance and reconcile everything, we lock, the client wants it unlocked and disaster ensues. In contrast, Sage jobs I can easily do a search to locate all transactions input since I reconciled because each has a unique serial number: and it is a true serial number. This highlights the difference between user needs: accountants are usually looking at historic transactions so we can put together last year's accounts, VAT etc whereas businesses are interested in the current position: who owes what etc.

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