Accounting online and how this works

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Introduction

What is contractor accounting software and how does online accounting work when you are a small business owner? You may consider this when you run your own company or work as a sole trader. Accounting online using contractor software (UK) is a new way of keeping your business’ accounting records as a limited company contractor or a business owner. This is an alternative to a traditional spreadsheet or paper cashbook, as in years gone by.

There are many choices for online accounting for contractors and small businesses. Therefore, what is the best accounting software for contractors which is available if you change to this new way of maintaining your accounting records? We are now also in a time when Making Tax Digital (MTD) is truly here. Therefore, it is a key decision for your business to choose some great online accounting software (UK) to keep your business records on in the future.

When you run your own business, you need an accountant and bookkeeper. In times gone by, in many cases, a contractor or small business accountant may have taken care of both of these roles. However, with small business accounting software for contractors, in most cases the business owner can now have much oversight of the company’s records when using online software.

The types of bookkeeping systems

In recent years, contractor accountants have offered a choice of two systems in the main. The first is an Excel spreadsheet which works well and still does now. The second choice, however, is an option through an online portal that will keep your records digitally.

Therefore, what is online accounting, and how does this work? Online accounting is a new way to keep your records in that we use digital software to do this, and the records are stored online. Many small business owners now do their accounting via a digital platform and keeping your records online will make it easier to complete data entry and do constant updates. FreeAgent is a popular choice of online system for contractors and small businesses.

New Era

We are now in the times where MTD is here to stay. HM Revenue & Customs (HMRC) first brought this in for businesses that were VAT registered and above the VAT threshold. They also gave additional time for businesses to adapt so that some could continue with spreadsheets and use a unique software tool to file with HMRC. Any VAT-registered business should now use an online software package that complies with MTD. This is where contractor VAT digital software comes in for those in the UK contracting industry.

An online digital platform has a license fee for using the software, and the typical charge is between £10 and £30 per month. Most platforms also offer a free trial to test this out before you sign up. There are also less-familiar free options out there that provide basic plans. These plans will cover your business up to a certain number of transactions per annum.

Online contractor accounting software (UK) -the best online digital platforms

As a business owner or limited company contractor, some examples of some of the best online accounting software for contractors are:

  • FreeAgent -specialist small business accounting software -this is ideal accounting software for IT contractors, contractors in other industries and small business in general. Many regard FreeAgent as the best contractor accounting software.
  • Sage -a package for businesses of all sizes.
  • Xero -a package for businesses of all sizes and is a bit more technical; therefore, it is more suitable for larger enterprises.
  • Zoho Books.
  • Quickbooks Online.

 Micro businesses

The term micro businesses are given to many small businesses in the UK, including contractors and freelancers. The software solutions mentioned above will be sufficient for most small and medium businesses. However, there are some solutions which offer an online accounting system which is free if your business has very few financial transactions. This option of free accounting software will enable businesses to use online accounting instead of completing spreadsheets. A couple of examples of free software are:

  • QuickFile.
  • Google Sheets.

The pros of online contractor accounting software for your business

When you run your own company and you use online accounting, the most popular packages have lots of different accounting features, which include:

  • Having an overview of your business finances and its cash flow.
  • An automatic bank reconciliation. This is great compared to previous times when you needed to do this manually while completing spreadsheets. This does however assume that you have your bank connection correctly set up.
  • Most of the well-known software platforms allow accounting in multiple currencies. For example, you may have a Euro or US Dollar account.
  • Issuing unlimited invoices and the facility to set up recurring invoices. Besides sending invoices, most systems also enable you to track these and show when they are paid, and which invoices are still outstanding.
  • Keep track of accounts payable for your suppliers.
  • Most online software packages also include an option for unlimited users. This enables you to add our employees and any other directors.
  • Expense management for each employee.
  • Expense tracking for the employees.
  • File company tax forms via the online platform.

Importantly, with your contractor accounting software, you will have an overall view of your business’s financial picture when you use online accounting. The online system will also show your profit so far in the current year and what funds are in your business.

Advantages

The main advantages are:

  • Your company bank account can link directly to the online system. As part of this, your business bank transactions will import automatically here. Alternatively, you can also upload your bank statement transactions into the portal. Suppose you have a company credit card or a personal credit card with which you pay for business transactions. In that case, you can add the credit card account to the online system, and it will import your transactions.
  • You can add expenses that you incur personally to your online software. Many also have the option for you to take a photo with your smartphone. You can then upload the expense into your online software.
  • When you do the updates yourself, you will need to classify each entry for income and expenses and other business transactions such as tax payments and payments to you. In addition, you will need to mark out if there is any VAT within each transaction. Moreover, this is much quicker than entering four or five data fields for each entry in a spreadsheet-type system. Therefore, although there may be a small cost for using an online digital platform, it is certainly easier than using spreadsheets. Many non-VAT registered businesses also now use this.

Further advantages

  • You can create invoices on many online systems and send them to your customer or client. Some online packages also enable time tracking, enabling you to keep a record of this. This time can then feed into the invoices that you create on here. The platform will also allow you to track which invoices still need paying. Therefore, this will help you keep an eye on which invoices are still outstanding.
  • Some online systems also allow you to record inventory management. As a result, this will enable you to track any business assets you purchase.
  • You can file some important company tax returns via the digital platform. This process is much easier than using the HMRC platform, which was the case previously, or indeed filing paper returns which was the case before.
  • Importantly, you are in control when you run your own accounts system for your business. In this context, it feels good to be in control rather than sending everything to your accountant and letting them deal with it. You will have the information for your own business readily online. As a result, you can see your business’s financial standing and how its cash flow looks in real-time.

Online contractor accounting software 

Fewer mistakes

There are fewer mistakes when you are using online software for your business. Of course, you need to ensure that your bank feed is working fine.

Under the spreadsheet service, it is possible to miss entries or transpose the figures. These types of errors no longer exist when you are using an online system. Again, this provides that you ensure your bank feed is connected and you update this correctly.

Mobile friendly

Most of the popular online software packages also now have a mobile app. Therefore, you can view your business position online and on the move.

Mobile viewing is a growing trend and is here to stay. When you travel by train, bus, or taxi to work, you could do some of the updates on the go. Updating on the go will save you from doing this on your laptop or PC on an evening or weekend when you get home.

Online support

There is online support if you encounter any queries using a digital platform. Most online systems have good customer service support that helps you solve any issues quickly. FreeAgent comes back to any queries on the same day in most cases, i.e., if you ask them a question during the day rather than in the late afternoon.

Maintaining records

You can keep all your records electronically within an online software package rather than keeping paper records.

Providing that you:

…you will be in good stead should one of the tax authorities need to view these in the future.

With regards to your receipts, it would also take quite some time to scan all your receipts into an online system. Therefore, we would advise you to have a mixture of both online and offline records. 

Contractor accounting software -current digital reporting and the future

When you are using a digital platform for your business, you can currently file via most online systems:

  • Your VAT returns to report your sales tax and purchase tax.
  • Your RTI (Real Time Information) reports the deductions from payroll.

In the future, it is the aim that a business can also do other tax filings via the online platform. These other filings will include:

  • Formal accounts which include financial reports.

However, most of the above some way off due to the complexity of such documents. Currently, the UK income tax return can be filed via some online packages but only for self-employed people.

For small businesses, including contractors, the popular choice, as mentioned earlier, is a system called FreeAgent. This system captures all the above filing capabilities and much more.

Final thoughts

Online accounting for your business is still relatively new, but this has its plus points. The system is developing as we move along, and it aims to become much better in the future.

If you do not currently use an online software package, we have detailed what you should consider if you want to change contractor accountant. One of the considerations would be that your new accountant uses online accounting software and is familiar with how this works.

Finally, if you sign up for FreeAgent, there is a monthly licence fee cost. This fee is just short of £30 per month; however, some accountants can offer this for you at £15 per month. Furthermore, if you bank with NatWest, RBS, or Mettle, they will cover your FreeAgent licence fee.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: August 1st, 2022 / Categories: Accounting, First timer guide /

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