Small business accounting software: Start here

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Since 2015, AccountingWEB has tracked “the MTD effect” driving the adoption of online cloud accounting tools. But the figures from our 2018 awards survey uncovered a new twist to this tale.

The PC-based accounting systems that saw out the 20th century are undoubtedly giving way to a new generation of online bookkeeping systems. Only Sage 50cloud, VT Transaction+ and QuickBooks Desktop remain from that era among the 11 programs listed on our comparison table of the most popular small business accounting packages.

The user feedback coming out of our annual awards and software reviews survey highlighted the “MTD effect” that stimulated cloud accounting adoption within the profession – which has more than doubled since the original 2015 Budget announcement.

In comparison to responses from practitioners taking part in the Accounting Excellence Awards, the cloud growth rate among the wider business population in our survey stalled slightly since Treasury minister Mel Stride announced the switch in direction from MTD for income tax to VAT in July 2017.

The MTD dip: Accounting Excellence practitioners vs software survey 

Cloud accounting trends 2006-18

Xero vs QuickBooks: The big showdown

Towards the end of 2018, we set out how Xero and Intuit QuickBooks were locked in a struggle for dominance, with roughly equal market shares in terms of quoted user numbers. The ratings collected from more than 1,900 small business software survey participants reveal the neck-and-neck intensity of the competition.

Xero changed the game when it entered the UK market in 2006-7 and cemented its position as the leading cloud player by capturing the first wave of early adopters. But Intuit QuickBooks has been gaining ground rapidly in the past two years. Competition is particularly marked on the practice side of the profession, where QuickBooks has taken a four-point lead over Xero as the market shifted from trendsetters to more price-sensitive “second wave” cloud users going online to cope with MTD.

Sage, which retains a significant UK customer base after a generation of desktop market leadership, did not have a good 2018. Difficulties executing its transition to cloud products, confused branding and marketing strategies and executive clearouts were reflected in poor engagement levels with the 2018 survey population. Sage appears to be more focused on the mid-market at the time of writing, but with rebranded cloud suites in place, it needs to prove to existing customers and prospects that it remains a relevant supplier of bookkeeping tools.

For all the focus on the big suppliers, there are interesting stories among the smaller UK independents. Multiple award-winner FreeAgent is no longer part of that pack, having become part of the Nat West/RBS banking group in 2017. Now available as a free offering to bank customers, FreeAgent has reportedly added tens of thousands of users to its camp.

Integrated cloud practice suite Capium has also benefited from MTD, building up a 6% share of our survey population. Taxfiler’s hook-up with IRIS/KashFlow is another example of the practice in the cloud concept catching on both with startup firms and with established practices that see the advantages of online systems, but shy away from configuring multiple tax, bookkeeping and practice software tools.

Since we collected the ratings and reviews for our 2018 awards and software reviews, Xero and QuickBooks Online Accountant have both moved more actively into accounts production, tax and practice software, challenging bookkeeping software suppliers Sage and IRIS that have been in this market for decades.

Against the backdrop of the MTD-fuelled rise in online accounting, compliance tools are going to take on a much deeper significance in 2019. To find out how fast and how far that shift is moving, we need your help. By adding your ratings and comments to our online survey, you can help AccountingWEB track what’s happening in the market and the relative positions of the different products.

We will share the information with AccountingWEB members and suppliers in updated Software Reviews on the site, and will also present Accounting Excellence Software Awards based on your votes.

The bot race

We heard a lot about bots in the past two years, but in spite of the tradeshow demos, few sightings have been recorded in the field. The developers assure us that voice will be the next major interface to sweep through accounting software – but how many people do you know who prepare their accounts, payroll runs or tax returns on mobile devices?

For all the new thinking that has taken hold within the profession, recording, reviewing and analysing transactions are reflective, desk-bound activities. Artificial intelligence could change that side of accounting, however, judging from the way autocoding has become a standard feature of online accounting software.

Having seen one technology wave surge into the mainstream, eyes will be turning towards the next big thing. Analysis from Hg Capital, an investor in IRIS and other accounting software providers, suggested that AI won’t spawn new types of application, but will be seen instead in enhancements to existing tools.

The speed and ingenuity with which developers introduce new AI capabilities will probably be the most important differentiator within the industry over the next couple of years. Our old friend Making Tax Digital could accelerate things again on this front, where AI data-gathering bots could alert accountants and their clients to impending deadlines and act as a go-between for compiling the data and collecting authorisations for filing regulatory updates.

If you are considering your options for small business accounting software, visit our latest Software Reviews comparison table. Detailed reviews are available for the 11 most popular applications rated by more than 1,900 accountants.

About John Stokdyk

John Stokdyk, AccountingWEB head of insight

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.


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24th Jan 2019 17:04

John, QBO were the first onliner to join Taxfiler. Please don't fall into the trap of only mentioning Iris products in such cases. And what about GBooks?

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24th Jan 2019 17:11

Thanks John, useful roundup

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18th Feb 2019 23:24

Thanks John, certainly AI will be at the top.

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21st Feb 2019 10:29

Bookkeeping requires discipline and is not easy. I just wonder if there is a bit of an expectations gap here. In our experience you can quickly get into a pickle if not sure what you are doing.

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21st Feb 2019 10:53

It really doesn't matter what software you have or where it is. It is the quality of the input that counts. The cloud or MTD will not stop an inexperienced bookkeeper making the same mistakes as they would in a handwritten cashbook or spreadsheet.

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21st Feb 2019 11:04

I think that is right, and if it is right then I don't see how this software is going to suddenly make us all redundant as judging by what we are seeing.

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By RogerMT
21st Feb 2019 11:07

While the race to hoover up the book keeping of small businesses continues apace amongst cloud software developers - I bet they love what MTD has done for them - it remains the case that the simple uploading of bank transactions to software suites, regardless which brand, is often strewn with basic analysis errors and analysis consistency problems, which have to be put right, the old-fashioned "hands on" way. If AI is taking all this over, one hopes (ha!) that the bank analysis errors are ironed our first!

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21st Feb 2019 11:38

I would like to echo some of the comments already given. The quality of input is the hardest thing to get right and with varying rules on VAT, it is hard for all but the most experienced of bookkeepers to get right. For instance, I contributed to another thread yesterday about VAT being charged on Takeaway vs Eat In food. Purchases from Amazon, Ebay and via Paypal cause quite a lot of grief. What about the ability to only claim 50% of the VAT back on a car lease? There are adjustments to the VAT Return for Partially Exempt businesses and for company cars where fuel is provided. I haven't come across any software that handles these issues. They may seem like minor issues on small bills, but they are the transactions faced by small businesses.

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to raybackler
21st Feb 2019 12:07

What about the 5% on green unless it is part of a wider transaction. What about the partial VAT on some buildings. All need to be handled by someone that knows what they are doing.

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By Rozzo52
21st Feb 2019 13:13

Accounting Software provider Moneysoft offers Moneysoft Business Manager 7 with MTD for £120 including Vat

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21st Feb 2019 14:13

Again I think the above is right. I think the Accounting software was becoming fairly cheap and efficient before all the MTD and Cloud / ai - hoo hah. This is not the problem for small business owners.

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By Rick J
21st Feb 2019 15:24

Has anyone produced any accounting software that will stop our dear beloved clients from:

1) Posting Car HP payments ( or even the cash purchase of a car) to Motor and Travel
2) Posting an expense invoice to a p&l nom account, and then posting the payment of that invoice to the same p&l account.

3) Posting a drawing against director's loan account to Directors' remuneration.

4) Posting the payment of the director's child's school fees to Legal and Professional. (That might be the client himself doing the book-keeping...)

Any other examples anyone?

You'll still get clients saying "Got everything done on Quickbooks (or Xero, whatever) this year. Absolutely everythings in there! I think your fee this year should be about half what it was last year..."

Hmm -- everything is indeed in there. Sometimes even twice. But getting accounts out of it? Its like trying to get the milk back out of a cup of coffee.........

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21st Feb 2019 18:53

This is so true. Then HMRC come swaggering in like the Sweeney and say a few things slightly skewiff have we ? You must be negligent then. Lets start the bidding at 30 per cent penalty....

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22nd Feb 2019 16:15

The trouble with Sage is, unless the in-puter has at least 3 mornings a week to up update the ledger and good knowledge of book keeping it ends up a complete disaster, no matter what they claim.

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23rd Feb 2019 15:30

I am just finding the whole MTD stressful, my clients are not interested in doing anything and want me to do it all which is fine as a bookkeeper. Most are sole traders, 1 vat client, 1 Ltd co., I am still trying to find an MTD software and just can't seem to find anything suitable that doesnt seems to take twice as long. Currently have old Sage 50 stand alone (not cloud) and would love to update with Sage but far too costly, I want an old fashioned Nominal, Bank Recs, easy to do and just cant find.

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