A small business owner's guide to using technology to manage and record finances

A small business owner's guide to using technology to manage and record finances
Enterprise Nation
Enterprise NationEnterprise Nation

Posted: Wed 23rd Aug 2017

Clive Lewis, head of enterprise at ICAEW, looks at the various ways businesses can use technology to record financial transactions.

Financial technology has two basic purposes. Firstly, to enable businesses to record financial transactions to control and manage the business.

Secondly, to enable businesses to keep records to meet the requirements of H M Revenue & Customs (HMRC) with regard to returns made on which the liability to tax is assessed but also payroll and VAT (if the business is VAT registered) records.

Basic record-keeping

Many business people do not have the time to regularly maintain full accounting records of their business. If the business is cash based and it does not sell or buy on credit, the accounting records can consist of till receipts and purchase invoices paid by cash, credit card or via the bank account.

A basic cash book is used to write up records of cash sales and payments and the bank statement provides the information on payments, direct debit and credit card payments.

To calculate the profitability of the business, the cash book record of receipts and payments will have to be analysed to provide sufficient information for tax returns.

If the business is a sole trader or partnership it is required to complete a self-assessment self employment tax return.

If the business' turnover is under the VAT threshold (£85,000 in 2017/18) it can file a three-line trading account (turnover, expenses and profit and loss).

In terms of management information if the cash book is kept up-to-date it can provide a picture of the cash balance at the bank.

Spreadsheets can help with accounting

Simple use of a cash book becomes more difficult if your business sells or buys on credit.

In this case, in addition to a record of receipts and payments, the business needs to keep records of the sales and purchases transactions as well as the amounts owing by customers for sales and to suppliers for goods purchased.

Businesses can use spreadsheets to record sales and/or purchases as well as recording sales invoices owed by customers and purchase invoices still owing by the business.

The spreadsheets can provide sufficient information of income and expenditure to complete a sole trader's self-assessment self employment tax return if the business is under the VAT threshold and can file a three-line trading account (turnover, expenses and profit and loss)

A cash book and/or spreadsheets can be used to produce accounts of a limited company, particularly if an accountant is retained to produce the accounts for Companies House and HMRC.

But cost and effective use of time can soon suggest the use of technology based solutions.

Accounting software

Increasingly, businesses have used accounting software to keep accounting records. This will come at a cost but has a number of advantages, some of which are listed below.

  • Some software can produce professional sales invoices which meet the VAT requirements of HMRC

  • Software can be used to email sales invoices to customers and send regular reminders of outstanding debts

  • Accounting software enables the business to keep accurate and up-to-date accounting records

  • Automatic production of VAT returns

  • Up-to-date records means immediate information on debtors (amounts owing by customers) and creditors (amounts owed to suppliers)Accounts (profit and loss account and balance sheet) can be produced at the press of a button

  • Telephone helpline support is available with software problems and questions

Since 2011 limited companies have been required to submit their accounts and corporation tax returns online, with the accounts in a version of HTML where key amounts and text are identified using a standard set of inline eXtensible Business Reporting Language (or iXBRL) tags.

Accounts production software can produce fully tagged company accounts in iXBRL format to accompany the online filing of corporation tax returns.

Cloud-based (online) accounting

Cloud-based accounting using online accounting software is a recent development.

This works by storing accounting data in a database on the servers of the organisation that is providing the business' service.

The service provider takes responsibility for the safety and security of the  accounts data.

An internet service provider acts as a gateway between the business’ computer system and the internet. It is even possible to access some systems from mobile devices.

Using online software offers the following advantages:

  • Data can be remotely accessed at any time by an authorised individual with internet access and a browser

  • Businesses effectively ‘rent’ the software through a monthly charge so ‘up-front’ costs are lower

  • Businesses can upgrade their hardware when it suits them (rather than when it suits the software supplier)

  • If the business has an accountant adviser, they can access the accounting data and help ensure the records are kept up to date and reconciliations regularly undertaken

Online accounting systems range from basic cashbook systems, through multi-ledger systems (for multiple users with in-house finance expertise) to full blown Enterprise Resource Planning (ERP) systems.

Making Tax Digital

HMRC has announced that it will require businesses to start filing quarterly accounts through digital means, instead of the annual returns which are currently required.

The initial intention was to make all businesses start from April 2018 but on 13 July 2017 ministers announced a new timetable for Making Tax Digital.

The new timetable reveals:

  • Only businesses with a turnover above the VAT threshold (£85,000 for 2017/18) will have to keep digital records and only for VAT purposes

  • They will only need to do so from 2019

  • Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

HMRC is currently trialling software to enable businesses to file quarterly returns. There may be software available to allow businesses using spreadsheets to write up accounting records to link to the filing software.

There is a comprehensive list of commercial suppliers here.


Whether a business choses paper based or accounting software will dependent on a number of factors including how comfortable the business owner is with using technology, the nature of the business' transactions and the need for regular, reliable financial information.

The advent of Making Tax Digital will lead to greater use of digital by 2020.

The extension of iPhone applications will speed the use of online accounting software.

Many accounting software solutions are designed to be straightforward to use. Some software providers offer potential new users use of the software for a trial period.

A free discussion with a Business Advice Service (BAS) chartered accountant can help businesses decide which accounting option best suits their requirements.

Enterprise Nation
Enterprise NationEnterprise Nation
Enterprise Nation has helped thousands of people start and grow their businesses. Led by founder, Emma Jones CBE, Enterprise Nation connects you to the resources and expertise to help you succeed.

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