What is the best accounting software for contractors?
If you struggle to balance your books, accounting software for contractors will help you to better manage your finances.
Such software offerings help you to autonomously regulate your accounts, saving you both time and money in the long term. They also provide you with a simple and proactive way to make sure you’re keeping your books up-to-date and error free.
However, if you conduct a quick Google search, you’ll find the range of accounting software options is vast and somewhat confusing. They vary in the level of support available, features offered and cost.
So, what is the best accounting software for contractors? Here are a few pointers to help you decide:
What features do you need?
As a first step, work out which basic accounting features you need to conduct your business. Most contractors feel comfortable with a simple billing and invoicing system where, for example, you can raise and view your invoices, get an overview of your profits and losses, and identify any outstanding debtors and creditors.
However, depending on the nature of your work and your setup, you may need specific features from your accounting software, such as:
- Project accounting: this can be very useful for contractors where the costs and applicable rules (including IR35) can differ from project to project.
- VAT management: if you are VAT-registered, you will need to make sure your accounting software can cope with cash and invoice accounting for VAT. For example, does it facilitate the flat-rate VAT scheme and produce a VAT return? Additionally, some packages allow you to submit your VAT return directly to HMRC.
- Payroll management: You may need a payroll management system to help you calculate and pay your employees’ salaries and create the necessary payslips and tax forms. Some systems allow real-time information submissions to HMRC, which can make PAYE more efficient.
- Budget and forecasting: some software packages offer features that interpret your financial performance for the current year and then estimate your expected performance for the next financial year. This can help you to set realistic targets and prepare for the year ahead.
- Fixed asset management: if you want an audit history, cost records, depreciation calculations and resource allocation.
- Enterprise Resource Planning: If your business is relatively complex, you may need an enterprise resource planning system that combines all your business systems in one platform.
It’s important to pick an intuitive system that’s easy to use. For example, accounting software packages with a simple dashboard to give you an overview of your financial affairs are particularly useful. Also, remember to bear in mind:
- Your existing infrastructure: if you want to integrate your accounting software with any existing tools that you already use, make sure this is possible. You don’t want to change your entire software infrastructure because of one program.
- App availability: most packages come with an iOS and Android app to complement the desktop version of the accounting software. Find out what features will be included in the app.
- Level of support: make sure you find out the level of customer support you’re likely to receive from your accounting software provider. You may want to test the reliability of their service before signing up.
- Security: most accounting software providers have moved their products to the cloud. Double check what security measures are in place to backup your data and keep your business information safe.
Some software will also link direct to your company business bank account.
If you already use an accountant, you may want to use an online accountancy package to complement this service. Some accountants support a handful of the leading bookkeeping software brands; sometimes this extra service will come at an additional cost. However there are a number of contractor accountants that include online software free within their accounting cost. The benefit of using a contractor accountant with generic market online accounting software is that if you decide to switch accountants in the future you can port all of your accounts with you by giving the new accountant access.
Alternatively, you may want to go it completely alone and only use accounting software. But be aware that you will then be responsible for all aspects of your tax and accounts.
Other online accounting packages tread the middle ground and may provide you with a direct line to your own dedicated accountant alongside your accounting software package. It all depends on how confident you are in your abilities to manage your finances.
Just as with a regular accountant, each accounting software package will differ in terms of cost and service. There are some free bookkeeping services available, which usually allow you to keep a simple record of your day-to-day transactions.
However, most accounting software for contractors will charge for their services on a monthly or yearly basis. Some offer a tiered pricing structure, where you are charged more for additional features and services, and others provide a free introductory period so you can try before you buy. It’s important to determine what services you will be offered, so you can evaluate whether you are being charged a fair fee by your contractor accountant.
Here’s a quick and useful calculation to check you’re spending a reasonable amount: divide the cost of your accounting software by your daily rate. For example, if you charge £100 per hour for your services and your accounting software costs £50 per month, that’s 50/100 = 0.5.
In other words, your accounting software is costing you the equivalent to half an hour’s work a month.
Don’t be fooled by a false economy either – you have to fully understand the tax rules and information to contract without an accountant. Even if this is cheaper it can end up costing you more in the long run which why many contractors opt for the best of both worlds – a specialist contractor accountant with market leading popular accounting software.
When it comes down to choosing the best accounting software for contractors, make sure you shop around and work out which one will offer your business the best set of features.
Get a quote and list of services from a few different contractor accountant software providers so that you can compare them.
For more information visit ContractorUK's online accounting software directory.