Choosing bookkeeping software for small businesses is more than picking the most notable brand or the cheapest option available.
Often, the right answer depends on if you’re a sole trader, a growing limited company, or somewhere in between. In the UK, choosing the right software also depends on if it’s compatible with Making Tax Digital (MTD) requirements.
QuickBooks and Xero are the two most widely recommended options for many small businesses, with Sage, FreeAgent and Zoho Books suiting specific budgets and business types. In this guide, we’ll explain what to look for, which providers we’d recommend and why, and how to make sure the software you choose keeps you compliant with HMRC.
What to look for in bookkeeping software
Before comparing providers, it helps to know what’s most important to a UK small business looking for bookkeeping and accounting services. This can include:
- Compatibility with Making Tax Digital (MTD): The software must be recognised by HMRC for Making Tax Digital, either for VAT or the new Making Tax Digital for Income Tax.
- Bank feeds and reconciliation: Automatic bank feeds save hours of manual entry and reduce the chance of errors.
- Scalability: The best kinds of bookkeeping software for small businesses should account for sole traders, but also still work and adapt if you take on staff, register for VAT, or incorporate.
- Available integrations: Payroll, invoicing, stock management and payment processing should connect to your bookkeeping software without duplicate entry.
- Accountant accessibility: The software you choose should allow your accountant or bookkeeper direct access, rather than exporting spreadsheets back and forth. This then makes year-end far smoother.
- Cost versus features: While free tiers can suit simple tasks, they can often cap the number of transactions or invoices, which growing businesses outgrow quickly.
Use this list as a guide on what to evaluate before you choose your software. Once you’re clearer on the requirements of the business, you can choose a bookkeeping option that avoids the disruption and cost of switching software later on.
Bookkeeping software that we’d recommend
Our dedicated bookkeeping accountants work inside the software our clients already use, to simplify your accounting and reduce extra workloads switching you to a new system.
We’re always happy to recommend a tool to clients, and these are the providers we come back to most often:
- QuickBooks: This software is a strong all-rounder with excellent bank feed reconciliation, mobile invoicing and reporting. It’s a solid choice for sole traders and works really well with established limited companies.
- Xero: This is a bookkeeping software that’s particularly popular with growing businesses needing multiple user access, strong third-party integrations, and clear real-time reporting.
- Sage: As a long-established software in the UK market, with options ranging from simple start-up packages through to more robust systems, it works for organisations of all sizes and is a favourite for larger small businesses.
- FreeAgent: This tool is often free for business customers of certain banks, and built with UK sole traders and freelancers in mind, including for Self Assessment support.
- Zoho Books: They are a lower-cost option with a free tier available, which is useful for very small or early-stage businesses that don’t yet need the full feature set of the bigger platforms.
We’re highly proficient in all of the above, so whichever direction you want, we can set it up, migrate your existing records, and keep it running correctly alongside your compliance obligations.
What accounting software does HMRC recommend?
HMRC doesn’t recommend or endorse individual products. Instead, it maintains a directory of software that has been recognised as compatible with Making Tax Digital, which businesses can check before choosing.
Best bookkeeping software for sole traders
If you’re self-employed, the priority when choosing a bookkeeping software is typically simplicity and cost. FreeAgent and Zoho Books both work well if your affairs are straightforward and you mainly need to track income, expenses and mileage. Then, QuickBooks has a self-employed tier for if you expect to grow into a limited company and want software that scales with you.
No matter the software you choose, make sure it supports Self Assessment reporting, since this remains the way most sole traders report income to HMRC until Making Tax Digital for Income Tax applies to them.
If you’re not sure when that applies to your business, our Self Assessment tax return service can talk you through your current obligations.
Best bookkeeping software for growing businesses
Once a business takes on staff, registers for VAT, or starts dealing with multiple currencies or locations, the software needs change. Xero and QuickBooks tend to be the strongest fit on these occasions, largely because of their ability to connect payroll, stock management, e-commerce platforms and payment providers without manual re-entry.
Sage’s mid-tier products are also worth considering for businesses with more complex reporting needs. At this stage, businesses benefit from thinking outside of their current requirements and choosing software that won’t need replacing again in twelve months’ time.
Is my bookkeeping software MTD compatible?
Making Tax Digital already applies to VAT-registered businesses above the registration threshold, and is being extended to Income Tax for many sole traders and landlords.
To be MTD compliant, software needs to keep digital records and submit returns directly to HMRC. QuickBooks, Xero, Sage, FreeAgent and Zoho Books are all recognised MTD software, but if you’re using something else, or a spreadsheet-based system, it’s worth checking directly. HMRC maintains an official directory of MTD-recognised software, and separate guidance on choosing software for Making Tax Digital for Income Tax for those affected by the newer rules.
Our guide to Making Tax Digital covers what the initiative means for your business in more detail, and if VAT is the part you’re less sure about, our VAT services page explains how we support businesses through registration, returns and compliance.
Free vs paid bookkeeping software for small businesses
Free bookkeeping software can be a sensible starting point for a very new or very simple business, but most free tiers come with limits. These limits include:
- A capped number of invoices
- No bank feed automation
- Restricted reporting.
With these restrictions, they often affect growing businesses most, meaning what could be suitable for one moment can become a hinderance later on.
When it comes to paid software, it’s never just about extra features. Business owners spend a lot of time on manual entry, and the right software can reduce this massively. As well, there is a reduced risk of errors that could cause problems with HMRC when using a more intuitive bookkeeping software.
As a general rule, if your business is VAT-registered, employs staff, or is regularly issuing invoices, paid software will usually pay for itself in time saved.
How to choose the right bookkeeping software
There’s no single “best” bookkeeping software for small businesses in the UK, as the right choice depends on your business structure, if you’re VAT-registered, what other systems you need it to talk to, and your budget.
A useful approach is to list your non-negotiables (MTD compatibility should always be one of them), trial two or three shortlisted providers using their free trials and check how easily your accountant or bookkeeper can access your records directly. Switching software later isn’t impossible, but it’s far easier to choose carefully the first time.
When to get accountant support with bookkeeping
You can absolutely do your own bookkeeping, and plenty of small business owners do exactly that, especially in the early stages. Where it tends to make sense to bring in support is when:
- Your time is better spent running the business than reconciling accounts
- You’re approaching the VAT threshold
- You want confidence that your records are ready for tax deadlines rather than pulled together at the last minute.
If any of that sounds familiar, our bookkeeping services can take care of reconciliation, reporting and software setup, working inside whatever system suits your business.
If you’d like professional support with your bookkeeping, using the right software for your business, get in touch with us today.
Contact us on 0800 999 1800 or send us an enquiry.
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