Accounting software is a digital tool that helps a small business record, organise and track its finances in one place. 

In its simplest form, accounting software replaces manual bookkeeping and spreadsheets. Used properly, it shows you how much money is coming in and going out, what tax you owe and whether your business can afford its next move. 

You can use accounting software whether you’re a sole trader, landlord, in a partnership or running a limited company, with tools designed for each type of business.

Making Tax Digital (MTD) for income tax comes into force in April 2026, initially affecting sole traders and landlords with a qualifying income of more than £50,000. 

• From April 2027, MTD will affect sole traders and landlords with a qualifying income of more than £30,000

• From April 2028, MTD will affect those with a qualifying income of more than £20,000

Under the new rules, small businesses must maintain digital records and submit tax returns via MTD-compatible software. This means that if you don’t already, you will need to start using the correct accounting software to ensure you are MTD-compliant. 

If you don’t want to invest in full accounting software, you could connect existing spreadsheets to bridging software. But because this is more lightweight, it’s better suited to businesses with simple financial records. 

Note: VAT-registered businesses (those with an annual turnover of more than £90,000) should already be using MTD-compatible software, because MTD for VAT has been in place since 2019.

You don’t always need to sign up for separate accounting software. Some business bank accounts come with free basic accounting software or tools, while others enable you to connect directly to full accounting software as part of a bundled plan.

Some of these providers include:

• Barclays – Offers access to software such as FreshBooks for business customers

• Mettle – Offers integration with FreeAgent if you make at least one transaction a month

• Monzo – Offers integration with platforms such as Xero, Sage and QuickBooks

• NatWest – Comes with FreeAgent for free

• Tide – Provides its own integrated Tide Accounting service

If you already have a business bank account, check what it includes in terms of accounting tools, or whether upgrading your plan would unlock additional features. If you’re opening a new account, look closely at what’s provided, how much it costs each month and whether the tools available meet your needs. 

Built-in accounting tools can work well for straightforward finances, but businesses with VAT, payroll or more complex reporting needs may find they need full standalone accounting software instead.

That really depends on the type of business you run, your budget and your requirements. If you’re a freelancer or solo entrepreneur with basic needs and a tight budget, free accounting software is likely to be the best choice – at least, for now. 

Some on-premises open-source accounting packages have no monthly fees, while cloud subscriptions vary from provider to provider. The exact price depends on your business size and the plan you choose.

• Entry-level plans offer the cheapest option but are typically only suitable for sole traders and small businesses requiring basic bookkeeping. These may only cost £10 to £20 a month

• Established VAT-registered businesses that require more advanced accounting features must pay more for mid-range and advanced plans, where prices can be anywhere between £30 and £100+ a month

However, these costs often only cover the basic package, and you may have to pay extra for add-ons such as payroll and compliance, or multiple users. This makes it crucial to read the small print carefully and understand what’s included.

Many providers offer free trials or initial promotional pricing that can make it much cheaper for the first month or so. It’s worth taking advantage of these but check what’s included before signing up and make a note of when the free trial or discount ends. 

Six questions to ask before picking your accounting software

When setting up your accounting software, follow our top tips below:

• Link bank accounts early on – Connect your business bank account from the very start, because automatic bank feeds save you hours of manual entry

• Set up categories correctly – This ensures your reports are accurate, you file VAT returns correctly and you can easily see where your money goes

• Schedule regular bookkeeping time – Set aside a weekly or monthly slot to review your transactions and check invoices and expenses

• Invite your accountant – Give your accountant early access so they can help with reconciliation and provide guidance

Although accounting software may provide all you need to manage relatively simple business finances, the larger and more complex your business is, the more compelling the argument for hiring a qualified accountant. Reasons to consider hiring one include:

• Offloading time-consuming duties like bookkeeping, payroll and invoicing

• Learning which accounting method is best for your small business

• Ensuring accounts remain accurate and compliant

• Timely filing of tax returns, avoiding potential fines

Today’s accountants do more than simply number-crunch too – with 83% of UK small business owners saying their accountant or bookkeeper helped limit the impact of high inflation last seen in 2022 through expert advice and guidance, helping save those businesses an average of around £28,000 a year.

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