Accounting online and how this works

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When you run your own business, what is UK limited company contractor accounting software? Further to this, what is contractor accounting and how do contractor online accounting platforms work when running a small UK business? As part of running your own contractor company, you may need to consider what is online accounting for contractors. Indeed, all businesses and this includes limited company contractors, require a system for their bookkeeping. This could be Excel accounting software for small business such as an Excel spreadsheet type system. However, if you decide to go online, what’s the best bookkeeping software for contractors? Key to note, if you use online contractor software (UK) to do keep your records, this makes your updates much easier and saves you time. Therefore, as part of moving online, it’s surely a good idea to look into the top bookkeeping platform and best online accounting software for contractors.

When you look to make the change from a contractor bookkeeping spreadsheet to online accounting, you could start this by taking a look at UK free accounting software for contractors. Indeed, many providers will offer free trials and you could test this out before moving over. In this guide, we will look at how to switch to online accounting software. Contractor options for online software are now within easy reach for your business. There is also plenty of deals out there from the main providers to choose from. You can check the market to see what is on offer and how much each one costs. In this guide, we will go over a number of choices later for contractor’s accounting software. What’s more, we’ll look at what to think about in terms of top online accounting software.

Initial thoughts

Contractor online accounting is still a fairly new way to keep your business records as a UK contracting professional. Indeed, it has only been around for a few years but it is becoming more popular as time moves on. When you use this, you will maintain this type of accounting on cloud-based software. As a result, this stores all of the data for your business online in the cloud. Key to note, you will access the UK bookkeeping software online via a web browser on one of your devices. Once, you are on the platform for your business, you can do any new updates to your records.

As a UK limited company contractor or small business owner, this new way of keeping records is something to consider. What’s more, the new online method is instead of an Excel spreadsheet or paper cashbook, as was very common in years gone by. When it comes to UK accounting software, contractors can now make the switch and many do. To sum up, many UK businesses and contractors now switch to online accounting software for their company records. Key to note, this is due to the fact that this is much easier in many ways to do updates. What’s more, online software is less prone to errors or mistakes which itself can save lots of time.

First thoughts on online records

The types of UK contractor accounting software

There are many choices out there in respect of online accounting for contractors. Therefore, what is the best accounting software for contractors (UK) on the market? We will take a look at some of the choices later on and let you know our thoughts on each one. Some will work better than others and it all depends on your business and what is ideal for you. Therefore, you can search and try and find the best accounting software for small contractors. As a result, if you find a system that will be ideal, you could change to this new way of record keeping in terms of accounting and finance.

We are now in the times of Making Tax Digital (MTD). As a result, MTD is now in place for all of those who register for VAT. What’s more, when you are registered for VAT, you need to use an MTD compliant software package. Therefore, if you are a VAT business, you need to switch to an online system going forward. As a result, it could be time to look at some great contractor online accounting software (UK). If you do switch, it would be good to chose some of the best MTD software available. As a result, once you set this up, you can keep your business records online in the future.

Running your contractor limited company

When you run your own business, you need a bookkeeper and an accountant to look after you. When you have this in place, one will take care of the bookkeeping and the other will look after the annual accounts work. In times gone by, a small business accountant may have taken care of both of these roles for their clients. That is unless you did your own bookkeeping. Therefore, many contractors sent invoices and receipts to their accountants to update the books. From this, the accountant would then complete the bookkeeping and file the VAT. This worked well in the past, however nowadays this option is not really used as much now.

However, now there is the option of small business accounting software for contractors. Therefore, when you use the best contractor software online, you can do lots of the updates yourself. As a result, this should reduce your accountancy fees, Also, you will have a better oversight of your company’s records at any given time. What’s more, the accountant can access this too and look after the more complex areas for you. Therefore, you will both have access and can both perform certain task in respect of your record keeping. At the end of your company year, your accountant will also complete the annual accounts for contractors and tax work, as well as the filing with the UK authorities.

The types of bookkeeping systems

In recent years, some 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 is that of contractor bookkeeping software. This second choice is through an online portal and will keep your records digitally.

Therefore, what is online accounting for business and how does this work? In essence, online accounting is a new way to keep your records. What’s more, this method will use digital software to keep the business records and it stores these online. Indeed, many small business owners now complete their bookkeeping through online software. As a result, a contractor software for small business package will make the data entry a lot easier. Also, it’s simpler to do the constant updates on an ongoing basis and it saves you time in the process. When we take a look at the options to choose from, FreeAgent is a popular choice. In fact, this is a great online system for UK contractors and small businesses alike. Further, many of these regard this as the best online accounting software for contractors in the UK.

A new era

We are now in the times where MTD is here to stay. HM Revenue & Customs (HMRC) first brought this in for VAT businesses that were above the VAT threshold. They also gave extra time for businesses to adapt to MTD. Indeed, this was so that some could carry on with spreadsheets and use a unique simple accounting software for contractors’ tool to file their VAT with HMRC. Now, all VAT-registered businesses should use an online contractor business software package that complies with MTD. Therefore, this is where contractor VAT digital software comes in for those who are in the UK contracting industry.

Most online platforms that offer cloud accounting software (UK) have a license fee. What’s more, they charge this when you use their contractor small business software. Further, the typical charge for this is between £10 and £30 per month. Also, most of the best accounting software (UK) platforms will offer a free trial. Therefore, this allows you to test it out before you sign up.

There are also some less-familiar options for free accounting software for contractors out there. Basically, these will provide basic plans for small business. What’s more, these plans cover your business up to a certain number of transactions per annum. Therefore, what is the best small business accounting software for contractors?

What to think about for online contractor accounting software (UK) 

The best online digital platforms

If you choose online accounting for contractors, you will need to look for an online business accounting software specialist provider. When you consider business online accounting, contractor software choices are available from a number of providers.  Even so, it is the case that some are better than others. Each will have their own merits and some will be better for you than others. Therefore, here are some examples of the best online accounting software for contractors:

FreeAgent This is a great piece of specialist small business accounting software (UK). It is ideal accounting software for IT contractors as well as contractors in other business sectors. What’s more, this is the most popular accounting software (UK) for UK contractors and it is also ideal for many other small businesses too. Indeed, many regard FreeAgent as the best contractor accounting software out there. In fact, thousands of contractors around the UK will use this more than any other online platform. Therefore, at the moment this is regarded as the best online accounting software for contractors (UK).
Sage This is a package for businesses of all sizes. Many of the larger companies will use Sage be they limited companies, partnerships or sole traders.
Xero This a package for businesses of all sizes. But this is a bit more complex to use. Therefore, it is much more suitable for larger enterprises.
Zoho Books This is not as popular as some of the others, although some contractors and small businesses do use Zoho Books MTD service and accounting software.
Quickbooks Online These have been around for probably the longest time. Also, the software is good for many types of business but it is not really a preferred contractor option.

Summary of the above

In terms of contractor accounting software pricing, most of these options charge around £20 to £40 per month. If you use one of these through a firm of IT contractor accountants or contractor accountants, they may be able to get a discount on the software for you. As we mention above, many regard FreeAgent as the best one out there. What’s more, there are a growing number of contractors that use this. In addition to this, many small business owners as well as contractors regard it as the top accounting software (UK). Indeed, this is because it is easier to use than some of the other systems above and it is focused on small business.

Free options

As another option to the best online small business accounting software providers, you could search online instead for ` cheap accounting software UK’ or `basic accounting software UK’. But, just like anything else in life, going for the cheap option is not always the best idea. Instead, you may find such small business accounting online software are not as easy to use as the current better platforms which offer accounting software online for small business. What’s more, a cheaper option may not have a good support facility either.

Micro businesses and free platforms

The term micro business is given to certain types of small business in the UK. Furthermore, this term will include UK contractors and freelancers. The small contractor software solutions that we mention above will be ideal for most small and medium businesses. Even so, there are some options out there which offer a free online accounting system. These free accounting online software providers will let you sign up if your business has very few transactions. What’s more, this option of free accounting software (UK) enables a business to use online accounting instead of completing spreadsheets. Therefore, you could do a search online for `best free bookkeeping software UK’. However, please be aware that some platforms advertise as free but there is a catch. This could include being free for a period of time or free before you reach a certain limit of transactions etc.

When we look into free options, a couple of examples of free accounting software online are:

  • QuickFile -this is a fairly basic system but it works quite well and is quite easy to use.
  • Google Sheets -this is another basic type of system and made by Google.

You might want to look into one of these free online accounting software (UK) options if your company is not actively trading. You could also search online to see if you can find any other free ones. With regard to the two above, you could look these if you have very few transactions through your business at the present time.

The pros of using online contractor accounting software for your business 

Initial pros of using online accounting for limited company

When we look into what is online accounting for contractors, there’s lots of great features to test out and use. Indeed, when running your own company and using contractor online accounting, the best contractor software (small business) packages have many types of accounting functions. Therefore, most of the top cloud-based software providers have features including:

  • You have a good overview of your business finances and its cash flow.
  • There’s an auto bank reconciliation which is great when comparing it to times gone by. Indeed, when using spreadsheets, you’d need to do this on a manual basis while using these. Still, this feature assumes you have your bank connection to the software correctly set up.
  • Most of the well-known software platforms allow accounting in multiple currencies. For instance, you may have a Euro or US Dollar account.
  • You can use digital billing software for contractors and issue unlimited invoices. What’s more, there’s the facility to set up recurring invoices too. Besides sending invoices, most systems also enable you to track these. As well, they’ll show when invoices are paid, and which ones are still due. Key, this feature is great to keep track of any amounts owed.
  • You can keep track of any accounts which are payable for your suppliers.
  • Most online software choices include an option for unlimited users. This enables you to add your employees and any other directors, should you want to.
  • An expense management system which you can use for each employee, should the need arise.
  • Expense tracking for your employees.
  • You can file certain company tax forms via the online platform.
  • A list of frequently asked questions with their respective answers. Also, many will have a number of various online help videos. These will help explain how to carry out certain tasks on the software.

Further thoughts on initial pros

With your contractor accounting software, you will have a good overview of your business’s financial picture. What’s more, when you use online accounting, the system will also show your profit so far in the current year. Further, it will show and what funds are in your business. These are helpful tools when it comes to taking a look at how much dividends your company currently pay.

More pros -contractor accounting software and online accounting

The main advantages of online accounting software for contractors are:

  • Your company bank account can link up to the online system. As part of this, your business bank data will auto import into your online contractor accounting software. Also, there is another option to upload your bank transactions into the portal. What’s more, you may have a company credit card or a personal credit card with which you pay for business transactions. In this case, you can add the credit card account to the online system and it will also import your transactions from here.
  • You can add expenses that you incur on a personal basis to your online software. Many also now have the option for you to take a photo of the receipt with your smartphone. When you do this, you can upload the expense into your online software.
  • When you do the updates yourself, you will have to classify each entry for income and expenses. As well, you also have to do this for other business transactions such as tax payments and payments to you. Further, you will need to choose a VAT rate for each of your transactions. As a result, this is much quicker than entering four or five data fields of data for each entry like you would in a spreadsheet-type system. Therefore, although there may be a small cost for using an online digital platform, it is much easier than using spreadsheets. Due to this fact, many non-VAT registered businesses also now make use of this because of the time saving.

Further pros when using online financial accounting software

There are some further advantages of online accounting software for contractors and these are as follows:

  • You can create your sales invoices on many of the online systems and send them to your customer or client. Some online packages also allow time tracking for your invoices and this enables you to keep a record of this. As a result, your time can then feed into the invoices which you create on the system. What’s more, the platform will also allow you to track which invoices are still unpaid. Therefore, this will help you keep an eye on which invoices are still due so you can chase them up.
  • Some online systems also allow you to record your inventory management. As a result, this will enable you to track any business assets which 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 formerly the case, or indeed filing paper returns which was the case before this.
  • Key to note, you are in control when you run your own accounts system for your business. In this context, it will feel good to be more in control of the finances yourself. This is when you compare it to sending all your records to your accountant to let them deal with it. What’s more, you will have all of 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.

The best features of online contractor accounting software 

Fewer mistakes with contracting accounting software

When you use online software, it makes the bookkeeping far easier and you are less prone to mistakes. This is because the software reconciles the business bank account on an ongoing basis. Another reason for less mistakes is that the software does all of the adding up for you. This will include totals of your expenses owed, totals for each type of expense in your business and other areas too. What’s more, once the platform is up to date, it will auto work out the VAT return figures which makes VAT filing easier. It also works out the numbers for your P&L account and Balance Sheet so you can see your overall business totals.

One thing that you do need to is make sure that your bank feed in your contractor accounting software is working fine. The feed needs refreshing from time to time for security reasons and you just need to connect the platform to your company bank account. Once it is reconnected, it will import any missing items through from the bank account.

As we mention above, there are much less mistakes when you use online software for your business. Under a spreadsheet service, it is possible to miss entries or transpose the figures. When this happens, it takes time to track such errors down. These types of errors no longer exist when you use an online system. Once again, as long as your bank feed is connected all bank account entries will auto import through.

Mobile friendly

Most of the best online accounting software for contractors’ packages now have a mobile app. Therefore, if you take the time to look for the best app for self employed contractor, there are plenty of choices out there. As a result, you can access the app when you are out and about and not in front of a PC. This is great due to the fact that when you’re on the move, you can view the position of your business accounts online. When you’re out and you buy something for your business, you can scan the receipt there and then. The app will then load it into your account as one of your expenses. This in itself is a time saver as it saves you carrying out such tasks once you are home.

Mobile viewing is now a growing trend and it is here to stay. In terms of business, many contractors and other business owners will connect to their accounts online. When they do this, they can carry out some tasks to save time later. What’s more, when you travel by train, bus, or taxi to work, you could do some of the business record updates on the go. As a result, it will save you from doing this on your laptop or PC, perhaps on an evening or weekend when you get home. Many will find this very handy and a good time saver when it comes to company updates.

Good online support

Another plus point for going online is that there’s good backup from the software providers, should you need it. The support is there because you may run into issues from time to time. This could occur when you use the software. What’s more, you may need help if you do not understand something. On the other hand, it may be that you don’t know how to work one of the features. As a result, there’s good online support from the top providers, if any queries arise when you use their platforms.

For instance, FreeAgent will come back to you on any queries the same day in most cases. Indeed, this is the case if you ask them a question during the day, rather than in the late afternoon. What’s more, their responses are also detailed and explain what to do fix the issue. On the other hand, they may ask for support access so that they can view the issue and find a fix. Therefore, to sum up, most online systems have good customer service support and they’ll help you solve any issues quickly.

Maintain your records

As part of running a business, you need to retain your records for a certain length of time. These include bank statements, invoices, receipts and mileage records. When you use online software, you can keep most of your records on an electronic basis, rather than keeping paper records. The only thing you cannot really keep are receipts for your costs.

When you use accounting software, you’ll be in good stead should one of the tax authorities need to view your records in the future. This could come by way of a VAT or tax enquiry. In fact, this assumes that you will be in good stead if:

With regard to your receipts, it would take quite some time to scan all of these into an online system. Therefore, the best thing to do is have a mixture of both online and offline records.

UK contractor accounting software -current digital reporting

Tax forms

After our earlier thoughts on what is the best accounting software for contractors, which tax forms can you file via this? Basically, when you use a digital platform for your business, you can currently use most online systems to:

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

Plans for the future

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

  • Formal accounts which include financial reports.

However, most of the above are some way off due to the complexity of such documents. Key to note, you can file the UK income tax return via some online packages but only if you have fairly simple income details.

For small businesses, and this includes contractors, the best online accounting software for contractors, as we mention earlier, is a system called FreeAgent.

When we look into the best MTD software for small business (UK), FreeAgent fits this role too. Indeed, the FreeAgent system also captures all the above-mentioned tax form filing. Further to this, the current FreeAgent cost is just under £30 per month, although many contractor accountants can offer this half price. What’s more, if you bank with Natwest, RBS or Mettle through your company you can get the software for free as the bank will pay the software licence.

Final thoughts

When we look into what is online accounting for contractors, this is still a new way to keep your business records. Although it is still fairly new, it has its plus points for you as a contracting professional. The system is advancing as we move along, and it aims to become much better in the future.

If you or your accountant do not use an online software package at present, we have a guide that explains how to change contractor accountant. One of the things to give thought to would be that your new accountant uses contractor online accounting software and is familiar with how this works.  It is also a plus point if they use the best MTD VAT software and best UK accounting software.

As a final note, if you switch to online accounting software for small business (UK) and sign up for one of the best contractor accounting software providers called FreeAgent, there is a monthly licence fee cost. As mentioned, this fee is just short of £30 per month. However, some accountants can offer this for you at £15 per month. Further, if you bank with NatWest, RBS, or Mettle, they will cover your FreeAgent licence fee.

Link to Contractor Advice UK group on


Published On: April 6th, 2023 / Categories: Accounting, First timer guide /

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