How does online accounting work when you are running your own company? We are now in the middle of 2020 and Making Tax Digital (MTD) is now truly here.
In recent years, contractor accountants have offered in the main, a choice of two systems. The first is an Excel spreadsheet which works well and still does now. The second is an online portal, and this comes with a plan to keep your records online with an idea of making it more simple for you to do the constant updates. A popular choice here for contractors and small business is FreeAgent.
We are now in the times where MTD is here to stay. HMRC first brought this in for any business that is VAT registered. Now, if you are VAT registered, you should be updating an online accounting package that complies with MTD.
What’s more, there is a license fee for using an online software creator, and the typical charge is between £10 and £30 per month.
The pros of online accounting for your business
When you run your own company and you use online accounting, you will have an overall view of your financial picture. The online system will show your profit so far in the current year and what the funds are in your business.
Your company bank account can link directly to the online system, and your transactions will port automatically into here. When you are doing the updates yourself, it will involve classifying each entry and marking out if any VAT is part of this. What’s more, it is easier and quicker than entering four or five fields of data for each entry in a spreadsheet type system.
You can create your invoices on many online systems and send them to your customer or client via here too. It will enable you to track which invoices still need paying, and you can then keep your eye on these.
You are in control, and 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 have info for your own business online and can then see where you stand at any point in time.
There are fewer mistakes when you are using online accounting for your business as long as you make sure 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 are now done away with when you are using an online system, and you are making sure that you update this correctly.
You can view your business position online and on the move. Mobile viewing is a growing trend and is here to stay. If you travel by train or in a taxi, you could do some of the updates on the go. This saves you doing this on your laptop or PC on an evening or weekend when you get home!
There is online support if you come across any queries. Most online systems have good support services that help you solve any issues quickly.
You can keep all of your records electronically within an online accounting package, rather than keeping paper records. Provided that you a) keep your business records either online or offline, and b) you comply with the current requirements for how long to keep your business records for, you will be in good stead should one of the tax authorities need to view these in the future. It does, therefore, take time to scan all of your receipts into an online system. I would, therefore, advise you to have a mix of online and offline records to save yourself some time.
Current digital reporting and the future
When you are using online accounting for your business, you can file your VAT returns via the online system. You can also now file your PAYE reports via most online systems. In the future, it is the aim that a business can also file its Corporation Tax, Self Assessment, and formal accounts via digital online systems.
For small businesses, and this includes contractors, the popular choice is a system called FreeAgent. This system captures all of the above and much more.
Online accounting for your business is still fairly new but it definitely has its plus points. The system is developing as we move along and aims to become better and better in the future.
If you do not currently use online accounting, I have detailed what you should consider if you are looking to change contractor accountant. One of the considerations here would be that your new accountant uses online accounting and is familiar with this.
Finally, FreeAgent is one of the leaders out there for contractors and small business and if you sign up with them there is a cost for the licence fee each month. However, if you bank with Natwest, RBS or Mettle they will cover the FreeAgent licence costs.
Link to Contractor Advice UK group on