Over recent years hundreds of thousands of businesses have moved from desktop accounting packages to cloud based online accounting software. For VAT registered businesses who have to comply with HMRC's Making Tax Digital (MTD) scheme, this has become a legal requirement. They now have to digitally link their VAT information from their accounting software or spreadsheets directly to HMRC's MTD platform.

For other businesses, the move to online accounting has been a way to work more efficiently.

Key players in the online accounting market

The main online accounting packages available in the UK today are Xero, QuickBooks and Sage Business Cloud Accounting. All of these software companies have spent millions of pounds in the past few years in marketing and advertising campaigns. They supposedly show how simple and straightforward their products are to use and how they can make a positive difference to how you run your business.

But the reality can be quite different!

Unfortunately, effective bookkeeping and producing accounts requires a 'little' more effort than simply taking a photo of a receipt on your phone and the accounts package will automatically log the information onto the system to enable you to produce your accounts.

At DWilkinson&Company we are increasingly being asked to help businesses to sort out issues which have occurred when they have been trying to use online accounting packages without the appropriate training and support.

Below we have set out some of the common issues we come across.

The main problems with online accounting software

  • Ignoring the principles of double-entry

All online accounting packages still work on the system of double-entry bookkeeping. So every business transaction (whether an invoice or a receipt) will affect two different accounts or nominal codes in the software. Quite often users only post into one nominal code, which ultimately distorts the figures which are fed through into the profit and loss account. We spend a lot of time going through online software to ensure 'every debit has a credit' and that all transactions are recorded accurately to the correct nominal codes. This means that profit and loss statements and tax calculations will be correct.

  • Logging everything as a general expense

Business owners will quite often log everything to the 'General Expenses or Sundries' code and then wonder why their profit and loss account isn't providing them with a detailed analysis of where the money has been spent!

The general expenses code should only be used when the transaction isn't covered by any other nominal code in the software. Much time is spent working our way back through all the expense items and recategorising them to the correct code.

  • Over claiming vehicle expenses

Unless the business has purchased its own company vehicles, business owners or employees should only claim for mileage that is incurred for business journeys only, i.e. they cannot claim for driving to and from the office/business premises. Nor can they claim for all their private vehicle's fuel, servicing and repair bills.

Again, we spend a lot of time going through the software and taking out any vehicle transactions that should not be claimed for.

  • Over claiming refreshments

Similarly, there are specific rules from HMRC which need to be followed when it comes to claiming for out of office refreshments or subsistence claims.

Frequently we see business owners claiming for every cup of tea or all their lunch items when they are actually working in their office. As a result we spend a lot of time deleting food items which are not necessary subsistence costs.

  • Wrongly reconciling bank transactions

When looking down the online software bank feed, it is very easy to accept the match suggested by the software. However it pays to check that the bank feed in question is pulling in the correct transaction logged on the software. This is essential where there are several transactions for different customers or suppliers for the same amount.

Failure to do this can make credit control activities very difficult and so everything has to be re-tagged to the right transaction.

Outsource your bookkeeping…

Many business owners are put off from outsourcing their bookkeeping activities because of the likely cost implications. However, the monthly or quarterly cost for us to take on board all of your bookkeeping work can sometimes be less than what it costs to do an annual review and amend any incorrect transactions that have been inputted by the client.

Plus, by getting us to handle the bookkeeping aspects it will save you a considerable amount of time (and probably free up your evenings and weekends!). And you will have the peace of mind that everything has been logged correctly, to the correct nominal code, and then checked, so that information produced for your accounts and tax calculations will also be correct.

… Or invest in training

If you would prefer not to outsource your bookkeeping, we would strongly recommend that you undertake specific online accounting training which is relevant to the software package you are using. We can provide this training for you or recommend suitable providers to use.

Free quotes and consultation

If you would like to find out how much your bookkeeping activities would cost to outsource to DWilkinson&Company, do get in touch. We will confirm what you want to outsource and how often you want your books and accounts updating and give you a quote based on your circumstances. Simply contact us on 0113 320 0001 or email office@dwco.co.uk.