How to choose bookkeeping software – case study 1
Earlier this month I met with a lady who has kindly agreed to be a bookkeeping case study for me. We discussed the nature of her business, how she currently keeps her receipts and records, and any other software she uses in running her business.
We started by looking at what she’s doing currently: keeping her records in a spreadsheet with a paper filing system alongside. Then we spoke about Making Tax Digital (MTD), and what changes she might need to make to comply with MTD in the future.
Banking arrangements
She has a separate bank account for her business. All her business income is paid into it, and most of her business expenses are paid out of it too.
We discussed how using bookkeeping software with a bank feed would save her having to type in the date, name and amount of every transaction into her spreadsheet – saving her time and helping to eliminate errors.
Forward-thinking
She’s already starting to feel a little out-of-control with her paperwork. She likes the idea of moving to software with a bank feed before her business grows too much more.
She also wants to move to something that will be able to handle Making Tax Digital when the time comes.
Digital links
As she uses practice management software to send invoices to her clients, as soon as Making Tax Digital applies to her, she is going to need to comply with HMRC’s digital links requirements.
The digital links rules prevent information being copy-typed or cut-and-pasted from one piece of software to another. Data transfer must either be automated or electronic.
Cost considerations
Automated data transfer needs an API (application programming interface). Only two software packages currently offer an API that links to her practice management software. Both are expensive. As she’s just starting out, she’s looking for a more cost-effective solution, even if it means a bit more work on her part.
Electronic data transfer involves exporting and importing .csv or .xml files. Her practice management software can export her sales invoice data in .csv format. So, to comply with the digital links rules, she needs bookkeeping software that can import a .csv file.
Types of MTD software
We talked about who she was intending to do her tax return. She said she was planning to do it herself. So she needs an all-in-one software package, that can not only keep digital records and send her quarterly updates to HMRC, but can submit her end-of-year tax return too.
Recap
So far, we know she needs software with a bank feed that isn’t too expensive, that can import .csv files, send quarterly updates to HMRC and submit her tax return too.
My next question to ask who she banked with.
Banking provider
Some banks offer free access to bookkeeping software as a benefit. NatWest, Royal Bank of Scotland, Ulster Bank and Mettle give business account holders access to FreeAgent. Barclays gives business account holders access to FreshBooks.
FreeAgent suits the size and nature of her business. By having a business account and paying bank charges, she’ll be able to access FreeAgent’s all-in-one bookkeeping and tax software for free.
Filing
Some software offers digital receipt storage, eliminating the need for a paper filing system. FreeAgent comes with a limited amount of digital storage. I warned her that, if she exceeded that, she might need to pay a small monthly fee for unlimited storage.
I also clarified that Making Tax Digital doesn’t mean she has to keep digital copies of her receipts – it’s her choice. If she wants to upload copies of her paperwork into FreeAgent, she can. If she prefers to stick with paper filing, that’s fine too.
Conclusion
As the above case study shows, choosing software isn’t always straightforward. There are multiple factors to consider, particularly if you want to advance-plan for Making Tax Digital.