At MMG Chartered Accountants, we specialise in supporting businesses across a range of sectors, helping them maximise tight startup budgets and grow into SMEs and large enterprises. Last year, we wrote about the benefits of cloud accounting solutions for businesses (which included some common use case examples) but with the introduction of Making Tax Digital (MTD) as well as an overall move towards digital banking and a wider uptake of cloud accounting, we’re noticing many new queries emerging from clients as well as online.
As many people turn to the internet for advice on business accounting software, we’re also noticing a rise in comparison articles for the different options available on the market as well as sponsored articles that aim to raise awareness of options and entice new users. Across most articles, however, you’ll notice the big names popping up such as Xero and QuickBooks – two of the options we also recommend to our startup and SME clients! See our top tips for choosing the right cloud accounting software for your business below as our guide explores what cloud accounting is, the benefits of cloud accounting, and why SMEs should consider making the switch sooner rather than later.
What Is Cloud Accounting Software & How Does It Work?
Simply put, cloud accounting software works on a subscription model where the software the user is interacting with is hosted on a secure server (or “in the cloud”) and can therefore be accessed online at any time and from any compatible device. When data is entered into the cloud accounting software it is backed up on the server so it can be called on at any time when running reports or other software functions without you having to store that data on your device.
The main benefit of this is that unlike traditional accounting software where all data is stored on a specific device, cloud accounting software provides better flexibility for teams to simultaneously access data, is more portable, and is always up-to-date – removing the need to install and manage software on individual computers or worry about taking manual backups. Cloud accounting software, just like traditional accounting software, will be subject to the same regulations but will additionally offer better compliance with evolving industry changes and is less likely to suffer redundancy as the software package will auto-update instead of you having to purchase a new package when your old traditional software reaches end-of-life.
Cloud accounting software can also offer better integration options with some of your other existing software tools and business applications as it’s constantly being updated and can respond faster to user demand or industry changes. For example, Xero offers accounting for businesses as well as payroll services for employees and expense management within one system.
Key Advantages Of Cloud Accounting Software
Cloud accounting software offers a range of features that can benefit startups and SMEs, including:
- Real-time access to financial data from any compatible device connected to the internet
- Improved collaboration between stakeholders such as your accountant, employees, or contractors
- Scalability to accommodate business growth over time with invoice management and alerts
- Cost-effectiveness compared to traditional accounting methods
- Reduced need to change or manually update your software package
- Enhanced security measures to protect sensitive data as well as tiered access controls for users
Cloud accounting solutions can also be tailored to meet the specific needs of different businesses depending on their size, meaning you can upgrade as you go instead of paying for all features from day one if you do not need them. This can support businesses to save money, be more efficient, generate reports instantly to support decision-making, and automate manual tasks to speed up the processing of invoices and more.
How Cloud Accounting Software Can Simplify MTD Compliance
To meet one of the key tax reporting elements of the Making Tax Digital (MTD) legislation, businesses need to ensure they choose a compatible accounting software with an approved provider as per the list on the Government website. While the requirement includes traditional accounting software packages, we strongly recommend opting for a cloud accounting solution to ensure the package you select can easily keep up with future changes. This not only ensures compliance but also reduces the time and effort required to manage tax-related tasks.
Find out more about the requirements for MTD here.
Frequently Asked Questions (FAQs)
Is it a legal requirement to use accounting software?
Since April 2022, all VAT-registered businesses have had a legal requirement to file their tax returns digitally to HMRC to comply with Making Tax Digital (MTD), however, non-VAT-registered businesses are not (yet) subject to this requirement. More information about compliance and thresholds is available at https://www.gov.uk/government/publications/vat-increasing-the-registration-and-deregistration-thresholds.
Is accounting software needed for small businesses?
While it may feel like a large undertaking, setting up your small business with an efficient cloud accounting software package will pay off long-term as it will provide better flexibility for your growing business and help you create positive accounting habits along the way. (You can also speak to our team about switching.)
Why use accounting software instead of Excel?
While many startups and small businesses can quite effectively manage their finances in an Excel spreadsheet, this approach won’t be easily transferable to modern accounting software packages when the time comes and can create an extra burden on you and your team. Alongside this, cloud accounting software offers automation, reporting and forecasting, better security, and integration capabilities that Excel cannot match.
Do I need an accountant if I have an accounting software?
While accounting software simplifies the accounting process, an accountant or Chartered Accountant can provide advice to optimise your tax planning, budgeting, cash flow, and more as well as support your strategic direction – backed by many years of industry experience! Book a consultation with our team here.
Can HMRC see Xero?
Not directly, however, if you are due to be audited or inspected, HMRC can request direct access to your accounting software (including Xero) which will allow them to see your accounts in full as well as any notes left on the system. However, HMRC cannot automatically see your accounts and will only be able to see your tax returns when you submit them.
Is cloud accounting safe?
Yes! Cloud accounting software is subject to strict financial and personal data policies and regulations to ensure the safety of your clients, business, and staff. Most modern accounting software packages will additionally come with safeguards such as firewalls to prevent security breaches, multifactor authentication on login to prevent unauthorised access, and encryption on all data. Speak to our team to find out more or request additional information about a particular accounting package.
Contact MMG Chartered Accountants
Take advantage of cloud accounting best practices and elevate your business to new heights of success with MMG Chartered Accountants by contacting our team at mail@mmgca.co.uk or calling your local branch.