With more accountants than ever offering either bespoke or third party software for their clients to use, we look at the significant benefits online accountancy systems can provide for contractors.
Many specialist accountants now offer some type of online accounting facility, and some firms are almost completely ‘virtual’ in the way they interact with contractors. A number of invested in complete bespoke systems, whereas others use software such as FreeAgent, Xero and KashFlow.
Most of the leading third-party accounting software providers charge between £10 and £20 per month, typically following a free trial. You can also often take advantage of discount codes, especially if you sign up for an extended period.
Most contractor accountants will provide the third-party software (such as FreeAgent) to their clients, and absorb the costs within their fixed monthly fee, so you won’t need to sign up separately.
There are significant cost benefits to be had for accountants themselves, as these accounting systems save so much time, and provide secure and practical benefits for clients. This type of technology has been instrumental in allowing specialist accountants to provide much better levels of service, without having to raise their prices in recent years.
How much money can I take out of my company?
How often have you wondered how much money you can distribute from your company in dividends? The ability to see a snapshot of your accounting data at any moment in time is an essential feature of every online accountancy tool. You no longer need to ask your accountant each time you want to declare dividends, as an online system will show you instantly what your distributable profits are, having taken into account all your outstanding taxes and other liabilities.
You should also be able to produce a series of accounting reports, which will show you the state of your finances at any moment in time – most notably your company’s Profit & Loss Account, and your Balance Sheet – the two key financial documents.
There have been specialist invoicing apps for many years, but online accounting software will let you invoice your clients directly and also synchronise the numbers with your accounts in realtime. Not only that, but you will also be able to record and sort invoices, find out which ones are overdue (or nearly late), and customise the look and feel to provide a professional image with your own company’s branding. From our experience, this particular feature is indispensable.
Whatever type of business you run, it feels good and reassuring to be in control of your own accounts and data. In the old days, you’d stuff your receipts and invoices into a pre-paid envelope, send it to your accountant, and hope for the best. The accountant’s world was an insular one, but now you have control over your own information, and your accounts are completely transparent and have never been easier to understand.
You are less likely to make mistakes if you use online accounting software, and if you do, they can be rectified so easily. Any erroneous data entered will often be spotted first by the software itself, and if not, your accountant has direct access to your data and will spot any errors when your accounts are reconciled (typically around the time your quarterly VAT return becomes due).
An obvious benefit of online accounting, but also one which is easy to take for granted. How often have you had an out-of-hours query about your accounts, and were unable to contact your accountant? You should be able to resolve many such queries simply by logging in to your account and viewing your own data.
Rather than keeping all hard copies of your expenses ‘safe’ in a drawer somewhere, you are likely to be better of harnessing the power of online accounting software to keep an electronic copy of all your important documents. Simply scan receipts, and other data, and store these images against your online accountancy entries. Not only is this a practical way to keep your accounts neat, but you will also be able to easily reproduce documentation required in the unlikely event that your are subject to an HMRC enquiry.
Another obvious, but important benefit of using an online system to manage your accounts. All of your accounting tasks can be completed via your keyboard – invoicing, scanning and recording expenses, and sending messages to your accountant. Very little information (if any) now needs to be sent via the post. Time is a precious commodity, and contractors who compile their accounts online are likely to have more of it free than those who don’t.
Compatible with other systems
Although software features do vary between providers, a number of software products will allow you to communicate directly with HMRC. You can submit your quarterly VAT returns, for example, and file your self-assessment returns from within the application, rather than submitting these returns via HMRC. You may also be able to submit RTI data (real-time information), which tells HMRC which deductions have been made each time your company payroll is run. Many contractor accountants will still take care of all HMRC dealings on behalf of their clients, so such features may not be included in bespoke systems.
Reconcile your bank data
A really helpful feature of many systems connects your online accounting system to your business bank provider, allowing you to view your current bank balance, and details of all transactions. These transactions are then matched to the invoices and other entries you have made. You will usually have to a) authorise your bank to feed data to the third part app (e.g. via Barclays Data Services – or use an aggregator service such as Yodlee, and b) submit a request to your bank from within the accountancy software itself.
- If your accountant offers their own in-house accounting system, ask them which features their software supports before signing up.
- For third-party software, which many contractor accountants use, the most popular brand is FreeAgent. Other tools include Xero, KashFlow and ClearBooks.
- You can access our list of contractor accountants here.