Starting a business is exciting, but most new entrepreneurs have one thing in common: they’re terrified of the financials!
To ease the pain, one of the smartest early decisions you can make is choosing the right accounting software. Get that right, and it frees up your time, helps you avoid mistakes, keeps you compliant, and gives you insights that can steer your venture in the right direction.
Below is a guide to what to look for in your new accounting tool, a breakdown of the most popular ones available, and a little more insight into why standard spreadsheets just won’t cut it anymore, even for the smallest of organisations.
Why digital accounting is no longer optional
Making Tax Digital (“MTD”) has changed the way businesses submit information to HMRC
The UK government has introduced Making Tax Digital to push for all tax records and related submissions to be digital and accurate. Businesses over the VAT threshold are now required to keep VAT records digitally and submit VAT returns via compatible software.
From April 2026, many sole traders and landlords will also need commercial software that supports Making Tax Digital for Income Tax (MTD-IT) to send quarterly updates, keep digital records of self-employment or property income and expenses, and eventually file returns using that software. So, if you don’t keep all this information online now, you’ll need to shift to an accounting platform sooner or later!
Digital tools increase data accuracy and visibility
Manual bookkeeping (using spreadsheets, receipts in boxes, etc) is prone to mistakes or missed deadlines. Digital accounting lets you integrate bank feeds, scan or photograph receipts, automate calculations (for tax and VAT), and generate reports (like profit and loss, and cashflow forecasts). This is especially important when scaling up.
You need to make compliance as easy as possible for yourself!
Digital systems can help ensure you comply with accounting standards, VAT rules, payroll obligations, and provide the necessary audit trail if HMRC or another authority needs to inspect your books.
What to consider when choosing accounting software
Before we dive into my comparisons of some of the biggest accounting tools out there, here are the questions you need to ask yourself when evaluating which platform is going to be the best fit for your current circumstances.
- Is the tool Making Tax Digital compliant? As I’ve already mentioned, this will save you SUCH a headache later on!
- Would a desktop version do, or would you benefit more from cloud-based software, which can be accessed from anywhere and will be updated automatically by the provider? Most of my clients opt for the latter
- Can the software be linked up to your bank feed, so transactions are imported automatically and bank reconciliations are super easy?
- Does the software have features that will support your business type? For example, aside from standard invoicing, you might want your accounting platform to help with inventory management, payroll, or tracking and facilitating international payments
- Can the software be integrated with other apps? It’s incredibly useful to have all your business systems ‘talking’ to each other – so see if it’s compatible with your CRM, payment system, payroll software, and more before you commit
- Can the software grow with you? This is especially important if you want to be able to access more complex functionality, or add more users at some point
- Will it take you a while to learn the software, or is it intuitive enough for you to start using straightaway? Most providers offer technical support and a range of how-to content to help you get up and running, but it’s worth considering the learning curve here, especially if you’re wearing all the hats right now!
- Which package best meets your needs, and is the pricing in line with your budget? Always make sure you review the options thoroughly to avoid paying for more than you actually need
Comparing the big three business accounting tools in the UK: QuickBooks, Xero and Sage
Here are some of the pros, cons, and distinguishing features of the three most widely used accounting software platforms in the UK for small and medium businesses (and the ones that I work with the most often).
| Software | Key features and strengths | What you need to consider |
|---|---|---|
|
QuickBooks |
Popular, widely supported, strong ecosystem. Helps with invoicing, bank feed integration, expense tracking. Multiple pricing tiers so you can pick a plan appropriate for you as a sole trader, small business, or a larger operation. Regular updates for compliance, good support. Good user interface, dashboards with the metrics you need. |
The best features tend to come in the higher-priced tiers. Depending on your business, you may need add-ons or integrations to manage more complex needs (inventory, large number of users, specialised reports, etc). Sometimes users find the deeper functionality is harder to get to grips with. |
|
Xero |
Strong on ease of use, clean design, excellent bank feed and automation. Good reporting tools and dashboards. Very good integration with other tools. Fully MTD-compliant for VAT and MTD-IT. Good for multi-currency. Scales well — many businesses start with Xero when they’re small and continue with it as they grow. |
Pricing again can rise with more advanced needs. Some features (inventory, multi-currency) may only be available in higher tiers or require add-ons. Support quality can vary; some users find certain country or sector-specific features lacking. |
|
Sage |
It’s an established name, trusted, and good for businesses that need more traditional accounting rigour plus cloud features. Sage “Business Cloud Accounting” offers VAT-compliant invoicing, trackable invoices, and AI-assisted data capture. Good for multiple users, more complex bookkeeping, payroll add-on options. Might be more familiar to accountants – especially those who have been in the field for a while! |
Can be more expensive or complex to set up for small minimalist needs. Because of its breadth, sometimes Sage provider you with more features than you actually need, which can complicate things. If you’re very small and want simplicity, Sage is probably not the best option. |
If the Big Three feel too big / too expensive / too ambitious (or if some features of theirs don’t quite fit), there are a few alternatives. Some are lighter, some are niche, some are free or have free tiers.
QuickFile is a budget-friendly, cloud-based tool that works well for micro-businesses with lower transaction volumes. It offers a free tier for smaller companies and it provides everything you need to get your digital accounts up and running, making it one of my favourites (and one that I use on a regular basis myself).
FreeAgent is a UK-based platform built with freelancers and very small businesses in mind. It’s simple to use, comes with solid invoicing tools, bank feed integration, and expense tracking. Crucially, it’s MTD-compliant, so it covers you for VAT submissions without any hassle.
Zoho Books is another strong contender, especially if you’re already using other apps in the Zoho ecosystem. It’s competitively priced and offers modern automation features, with free or low-cost plans that still include a surprising amount of functionality.
Crunch is a bit different: it combines accounting software with access to real accountants. It’s popular with freelancers and contractors who want the reassurance of professional advice alongside their bookkeeping tools.
KashFlow has been around for a while and offers a straightforward, no-frills approach. It’s lighter on features than the big three but often ideal for small businesses that just want the basics without extra complexity.
For businesses that expect to grow into more complex needs, Microsoft Dynamics 365 Business Central is worth considering. It goes beyond accounting into enterprise resource planning (ERP), making it a solid choice if you see yourself scaling to manage inventory, operations, and more advanced workflows.
How to choose what’s right for you
Putting together what you know of your business, here’s the process you need to follow when settling on the right accounting software for your setup!
Define your needs now
How many invoices are you going to be sending out a month? Do you have stock/inventory? Do you need payroll? Do you have multiple users or staff who need access? Do you trade in more than one currency? Are you VAT registered already, or likely to be soon? Get 100% clear on what you need before you start your research.
Try to predict what you’ll need in the future
Think 1-3 years ahead. Which features might you need as you grow? It’s usually easier to pay a bit more now for a scalable platform than to migrate later.
Check for MTD compliance
Since this is required by law for many businesses (especially VAT, and soon for Income Tax), you will need ensure the software is fully recognised by HMRC for the specific MTD obligations you will have.
Test the user experience and support
Get trials where possible. See whether the UI (user interface) is intuitive. Check how easy it is to get help, whether that’s from customer support, or via a universal knowledge base. If accounting is not your strength, you’ll want something that’s forgiving and can guide you!
Calculate the total cost
It’s not just the monthly subscription you need to think about. You’ll have to factor in the cost of add-ons (payroll, extra users, inventory, multi-currency features), any hardware you need (scanners, phones, that kind of thing), the costs and process involved in switching from your current software, and how much your accountants will charge if they need to use or integrate with the software.
Integration and automation
Can your preferred accounting software link with your bank(s) for auto imports? Does it integrate with payment providers like PayPal and Stripe? Double check what the tool can be linked up to, so you’re not wasting time duplicating data across different systems.
Security
Cloud-based solutions in particular should have good security, automatic backups, and data export options that make keeping your information safe a breeze.
A few recommendations based on your business type
If you’re a freelancer or sole trader with low volume requirements…
Something simple that already covers invoicing and expense capture, is compatible with MTD for VAT (or will when required), and offers good support. FreeAgent or Zoho Books (the free or low-cost tier packages) are your best bet.
If you’re a small retailer or service business…
Xero or QuickBooks might be good. If you have stock, you’ll want something with inventory support. If you have modest staff, you’ll definitely need payroll integration.
If you’re a business with multiple users, multiple income streams, or fast predicted growth…
Sage Business Cloud, Xero, or QuickBooks plus add-ons. You could also consider something like Dynamics 365 if you expect your accounting to get more complicated.
If you’re working with a really tight budget…
Look at lower-cost plans of major providers, or at simpler tools like QuickFile, KashFlow, FreeAgent (with certain bank accounts), or open-source options like GnuCash.
Choosing the right accounting software goes beyond working out what’s the cheapest, or looking at what everyone else uses. It’s about matching your current needs and future plans, staying compliant (especially with Making Tax Digital), and choosing something that helps you run your business more smoothly.
If you take nothing else away from this blog, please make sure you:
- Go digital early — it helps compliance, efficiency, and gives you insights!
- Check your software’s MTD compliance now.
- Don’t overpay for features you’ll never use, but don’t under-prepare so you’ll need to switch later.
