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Online accounting review: FreeAgent

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12th Aug 2008
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Described on its website as “Accounting for the rest of us”, FreeAgent is unusual among the current explosion of SaaS accounts solutions in targeting a very specific market segment - IT consultants, web developers and business consultants. Accountant and SaaS-watcher Nigel Harris took it for a test drive.

Founder Ed Molyneux described FreeAgent to me as “painless online accounting for busy freelancers”. The company is focusing on one, two- and three-person businesses rather than on small businesses generally.

For this target market, FreeAgent central reckons it has a more comprehensive and easier to use offering than close competitors such as Liberty Accounts, Xero, QuickBooks and Freshbooks. It’s a compelling logic: to make it as simple as possible FreeAgent focused on a specific section of the market which it estimates comprises somewhere between 700,000 and several million businesses - easily enough to sustain a start-up internet accounting application.

Key features:

  • Time and expense tracking
  • Analysed cash book from uploaded electronic bank statement, including from PayPal
  • Professional, customisable invoicing – with close integration with PayPal for payment by credit card
  • Real time double entry accounting engine (hidden from view most of the time)
  • Comprehensive UK tax timeline – VAT, PAYE, CT or SA income tax

In use

In use you can clearly see this is a fully fledged SaaS product, not just using the Web as a delivery mechanism, but fully embracing the benefits of Web 2.0 with both data and the platform itself “in the cloud”, as they say these days.

I like the customisable Overview dashboard-style home page, which gives the user a non-technical, at-a-glance overview of the business. The rest of the application looks and feels like a conventional desktop accounts package, with an acceptable response time as data and screens are delivered online.

Sales invoicing looks good and works intuitively. The average freelancer who can use a word processor should have no trouble with this. Downloading bank data from an electronic bank statement makes entering bank data easy too, so data entry chores are reduced. Payment types have to be selected from a dropdown list, and are treated differently according to the selection made, which reduces the opportunity for errors. I particularly like the fact that when a dividend payment is posted, FreeAgent also generates a fully completed dividend voucher, something I don’t think any other accounting application does. In fact, quite a few accountants don’t either!

To cater for the many small company directors who draw their income from their company as a combination of salary, expenses and dividend, FreeAgent has something called “Smart User Payments, whereby a payment can be automatically allocated against expenses due, then net salary, with any balance being treated as a dividend.

Comprehensive tax functions

A payroll function is included, with no effective limit on the number of employees, but with only limited functionality. Payslips produced on the system can be edited though, so users can run some of the more obscure payroll calculations such as maternity pay and student loans through something like the free HMRC CD software, and then post the calculated figures back into FreeAgent.

VAT accounting is fairly comprehensive, but lacks some of the controls we take for granted in desktop software. Invoice, cash and flat rate schemes are catered for, and rather exceptionally the system will calculate the adjustments required when switching between cash and invoice accounting. However, data cannot currently be locked down once a return is produced, although this is planned for a future update, so users need to be disciplined in not backdating transactions.

The on-screen presentation of the VAT return is very user-friendly, showing the VAT scheme used, the VAT return figures (with the box numbers to fill in) followed by a detailed transaction listing to show the make-up of each figure on the return.

VAT flat rate scheme users will find that the so-called “flat rate scheme surplus” is shown as a separate income type in the Profit and Loss account, rather than being lost in the turnover figure.

FreeAgent aims to provide a complete financial management solution, so it includes the calculation of tax liabilities for Self Assessment (for sole traders and partnerships) and Corporation Tax (for companies). The built-in tax calculator is fairly comprehensive, and caters for the new capital allowances regime and corporate losses. Does this threaten the accountant’s livelihood? I think not. Many one-man consultants cobble together their own company accounts and CT returns without professional assistance anyway, so these are not a loss to the profession.

For many others the real time calculation of future tax liabilities will enable clients to ask for timely and informed help from their accountants, so I think we should welcome this type of facility in accounting software.

Tax alerts from the “cloud”

One of the most popular features of FreeAgent, and one which really shows off Web 2.0 technology at its best, is the Subscribe to your Invoice and Tax Timelines in Outlook/Google Calendar feature. While you can see impending tax deadlines (and Companies House filing deadlines now) and invoices due for payment on the dashboard page, FreeAgent goes one step further by enabling you to subscribe to a live feed of the data which is automatically slots those dates and events into Outlook (2007), Google Calendar or Apple iCal.

You then have a constantly updated set of calendar events on the calendar you look at every day, which can include things like '7 Oct 2008 Pay £3,240 VAT'. This VAT liability will be updated with the actual liability as invoices are raised, expenses categorised etc, so you don't even need to log in to FreeAgent to be always aware of due dates coming up, when to chase invoices, and how much the taxman will need paying next month.

For advisers

For the professional adviser, the FreeAgent trial balance data can be downloaded in summary or as a detailed nominal ledger report for import into a final accounts system.

Curiously, journals can be posted as single-sided (yes, really, I tried it, and sure enough the trial balance didn’t), although there are future plans to add access controls to prevent this. In practice, one imagines that most users will be unable or unwilling to try to get into this aspect of double-entry bookkeeping, but until better controls are introduced this inability to manage those who want to “have a go” may worry some accountants. Other future planned developments include a purchase ledger, multi-currency accounting and the ability to produce estimates and then convert them into invoices.

Accountants can also subscribe to their clients’ timeline alerts and get a consolidated view of tax liabilities and deadlines.

FreeAgent is being sold through two channels: direct sales via Google and so on; and through partners such as PCG, FSB, Business Gateway, chambers of commerce and accounting practices. In the case of the latter the company is targeting IT contractor/consultant-focussed practices and has already signed up a few specialist practices.

Pricing

Is it good value for money? The pricing is simple enough - £15 per month for sole traders, £20 for partnerships and LLPs and £25 for limited companies. For the extra money the latter get the additional features of dividend vouchers, payroll, PAYE/NI calculation, Corporation Tax and Smart User Payments.

All users get an initial free 30 days and contracts can be cancelled at any time so there’s no long-term tie-in. All your accounting data can be exported at any time, so you should be able to migrate fairly easily to a more sophisticated system if your business outgrows FreeAgent.

FreeAgent looks good, is pretty straightforward to use, and offers an unrivalled range of features for its target market. Firms with a significant number of IT contractors and one-man consultancies should certainly be looking at FreeAgent as at least one of their online offerings.

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Ed Molyneux
By Ed Molyneux
05th Sep 2008 10:33

VAT Period Locking now supported!
Nigel,

Thanks for the comprehensive review.

Just to let you and your readers know that we deployed Release 'Anjou' last night, and we now fully support the locking of VAT periods.


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By JSJ54
19th Aug 2008 19:00

Journal entries
FreeAgent are in the process of changing the journal entries by "adding a new warning to the page - when the journals are out of balance, a box with 'Out of Balance' will appear and creating a journal entry will by default have the right values in to balance things out".

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By futuregillian
20th Mar 2011 17:46

Highly recommended for businesses looking to save time whilst st

We’ve been using Freeagent Central for a while now – just preparing our second year accounts using it, and still love it. Great for a growing company like us.

The best thing about it is that you can set up recurring invoices and invoices for future dates which email out to clients automatically – no more needing to make sure you are in the office on the first of the month to get your invoices out. The email reminders are also very useful and you can personalise all of it so you don’t lose that personal touch – in fact some of our customers have mentioned that they feel like its customer service when we are chasing invoices!

Before Freeagent Central accountancy software we used Sage Instant Accounts, which I found very complicated and time consuming for a small company like ours. I can honestly say Freeagent Central have quartered the time we spend doing the books whilst also making our accounts process more effective.

There is an iPhone app too, which I was very excited about. However you can’t raise invoices on it, only bill time and expenses to projects, and track your mileage etc. I've heard that there is a new and improved one in the pipeline but not in the app store yet.

The monthly subscription option makes it very affordable and (shameless plug) you can receive a 10% discount on your monthly subscription if you use this referral link: http://fre.ag/396w913i - I'll be upfront that I will get 10% off my subscription too if you use it, but would still be recommending it even if it was twice the price.

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