Accounting issues solved by software – say 42% of British SMEs

Accounting is one of the most important areas of a company. The role of accounting is vital in businesses, especially as many critical business operations are recorded under it. Accounting software can help enormously, especially when looking to solve key accounting issues such as  keeping track of billing and invoicing, payroll management and tax management.

We wanted to understand how British SMEs do their accounts, and in particular what challenges they find when doing their accounts: Do they use manual methods, such as spreadsheets, or do they use software? Do they manage their accounting in-house or do they hire an external accountant to help them with it?

We also wanted to know what the feeling around HMRC’s Making Tax Digital is and what problems – if any – small businesses are encountering.

We interviewed over 400 self-employed people and SMEs from various industries and sectors. Our full methodology can be found at the bottom of the article.

Highlights of the study:

  • 42% use accounting software to help them with their accounting
  • 55% don’t feel confident about their understanding of Making Tax Digital
  • 47% of respondents use Excel or Google Sheets to keep their accounts

Despite software, the spreadsheet is still the most used form to keep SMEs accounts

The results of the survey showed that almost half of respondents (47%) use spreadsheets (Excel or Google Sheets) to keep their accounts. This result is not surprising at all if we think about a freelancer or a company with less than five employees. In this case, the accounts and main tasks can be done in a spreadsheet. However, it may become an issue as the company grows and more data needs to be recorded. 

As soon as the structure of your company becomes a little more complex, the shortcomings of spreadsheets may soon come to light as a lot of manual work is involved. For example tasks such as uploading and downloading data, cutting and pasting, together with checking the accuracy is all manual work that when the number of staff increases can mean that more time is dedicated to that as opposed to other tasks that are needed to ensure the growth of the company.

accounting issues

The use of an accounting program that largely automates all these tasks is therefore the solution. Our research shows that almost 42% of respondents who do accounting for their work  use accounting software to  help them solve their accounting problems.

Mariah Tompkins, director of accounting firm WKM Accountancy Services states that: “Investing in a decent piece of accounting software shouldn’t just be a box-ticking exercise to meet government requirements.”  

Andrew Moyser, partner at MHA MacIntyre Hudson also highlights the benefits of accounting software: “Businesses that use accounting software typically have greater visibility of their results and can quickly identify any anomalies within their business, which can help drive improvements and growth.”

Lack of time, regulation and knowledge, the main challenges for SMEs

We wanted to understand what are the main challenges that SMEs are currently facing. Lack of time (45%), difficulty keeping up with new regulations (20%) and lack of knowledge (19%) were the three main challenges.

42% of respondents are in charge of the accounts at their workplace, and 15% work together with an accountant. The majority of people in charge of doing the accounting may not necessarily have the training or background in accounting, this would explain why 15% of them have the support of an external accountant. 

Webinars and YouTube, the two most popular resources used

Despite this, the number of people doing the accounts in small businesses are high. We wanted to understand how they gathered the knowledge. Almost a third (29%) learned via webinars and YouTube tutorials, followed by face to face courses (20%) and online courses (13%).

Only 11% stated having learned by using the resources on the vendor’s website. 

42% of companies rely on accounting software to support them with heavy tasks

When asked which tasks software is helping with, the three main ones were billing and invoicing (20%), bank reconciliation (18%) and payroll management (16%). 

When asked about how they keep their accounts, 42% of respondents stated using accounting software. Sage50cloud (36%) and QuickBooks (32%) are the two software widely used by respondents in the UK, followed by Xero (9%) and FreshBooks (4.5%).

accounting issues solved by software

Making Tax Digital, still a concern for small businesses in the UK

This year, all businesses in the UK that bring in more than £85,000 in revenue will have to comply with HMRC’s new Making Tax Digital regulation. The digitalisation of VAT tax processes will make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

If you are not familiar with it, the HMRC is looking to make the UK’s tax system more effective and efficient for taxpayers with Making Tax Digital by mandating businesses, accountants and bookkeepers to maintain records and submit VAT returns digitally. 

We asked respondents how confident they feel with their understanding of Making Tax Digital; 55% stated not feeling confident and 45% feel confident with their understanding. In addition, 51% of respondents stated that their current software is not helping them in that. 

When asked about what have been the main difficulties relating to adapting to Making Tax Digital, a number of respondents mentioned lack of information (31%), the cost of finding a new software or upgrading the current one (15%) and finding a compliant software (13%) as the key difficulties.

Mariah comments that: “Some small businesses know that Making Tax Digital is a priority, but they aren’t really sure where to start.” Andrew states that: “We would encourage anyone unsure over their  obligations or who is not complying to seek assistance urgently.”

It is also worth noting that 20% of respondents stated not having encountered any difficulties at all – this could be because they already have a software that is compliant with HMRC requirements or perhaps because their companies are not needed to comply with Making Tax Digital (for example, they don’t generate more than £85,000 a year).

Some respondents stated that they’ve had to upgrade their current software to be able to comply with Making Tax Digital, incurring costs ranging from £45 – £80 for an upgrade on their current software. Others have had to consult an accountant for the software choice and advice, also incurring a cost of around £200 in some cases. 

These results show that some of the respondents, either by lack of information or resources, haven’t invested in a compliant software. To avoid it being an extra cost that you weren’t expecting, it’s vital to make sure that the software used is compliant with the HMRC. Luckily there is a broad range of vendors offering compliant software.

accounting issues

The right option for your business

Opting for accounting software isn’t mandatory, however it can be very helpful for a growing business. Having your financial records in one place can help you save time, as well as keep your data safe and increase the visibility of your finances. 

As Mariah explains: “being able to view details of cash flow, payroll, invoicing, and handy reports all in one platform has transformed the way we work and made us much more efficient day-to-day.”

Andrew also states that adopting software will be a trend for SMEs in the near future: “Making Tax Digital and the increasing digitalisation means that over time the use of robust accounting packages is going to become increasingly vital. We expect to see most businesses using software within the next three to five years.” 

If you are looking for software that is compatible with Making Tax Digital, take a look at our most popular software that is compliant with the HMRC requirements. If you want to learn more about the options available to you for accounting software visit our listing on Capterra.co.uk to find the ones that suit your needs.


Methodology of the study

To collect the data for this report, we conducted an online survey. The answers come from a sample of the target market UK. 460 participants qualified to participate in the survey through screening questions out of a total of 482 participants in September 2019. Qualified participants are employed (full-time, part-time or self-employed) and work in a small to medium sized enterprise (1-250 employees).