Last updated: 19 October 2026
Cloud accounting means keeping your business records in online software instead of on spreadsheets or a single office computer. Your data is stored securely on the provider’s servers, so you, your team and your accountant can work on the same, up-to-date figures from anywhere. With Making Tax Digital now in force for VAT and for many sole traders and landlords, cloud software has moved from “nice to have” to the normal way UK businesses keep their books.
What Is Cloud Accounting?
Cloud accounting software runs in a web browser or mobile app. You pay a monthly subscription, and the provider handles hosting, backups, security and updates. Bank feeds bring transactions in automatically, receipts can be photographed and attached, and reports such as the profit and loss account and balance sheet update in real time.
How Cloud Accounting Software Works
- You log in through a browser or app using secure, two-factor sign-in.
- You enter or import data – bank feeds, sales invoices, bills, receipts and payroll journals.
- The software processes it – matching bank lines to invoices, applying VAT codes and updating the ledgers.
- You and your accountant share access – no files to email back and forth.
- Routine tasks are automated – recurring invoices, payment reminders, bank rules and tax submissions.
What Do You Need to Get Started?
- A business bank account that supports a bank feed.
- A subscription to HMRC-recognised software.
- Your opening balances (bank, debtors, creditors, VAT, loans) at the switch-over date.
- A simple process for capturing receipts and invoices as they arrive.
Cloud vs Traditional Accounting
| Cloud software | Desktop or spreadsheets | |
|---|---|---|
| Access | Any device, any location | One computer or file |
| Bank data | Automatic daily feeds | Manual entry or uploads |
| Updates and backups | Handled by the provider | Your responsibility |
| Making Tax Digital | Built-in submissions | Needs bridging software at best |
| Cost | Monthly subscription | Licence or free, plus your time |
Advantages of Cloud Accounting
- Real-time figures – see cash, debtors and profit at any point, not months after the year end.
- Less data entry – bank feeds and receipt capture cut manual work and errors.
- Easier collaboration – your accountant can review and fix issues as they happen.
- Tax compliance – VAT returns and Making Tax Digital for Income Tax quarterly updates are filed directly from the software.
- Security – data is encrypted and backed up off-site.
- Integrations – connect payroll, e-commerce, payments and expense apps.
Disadvantages of Cloud Accounting
- Ongoing subscription costs, which usually rise as you add users or features.
- Internet dependence – you need a reliable connection.
- Switching effort – moving historic data between providers can be time-consuming.
- Bank feed errors – automation still needs regular checking, or mistakes get repeated.
Cloud Accounting and UK Tax Compliance
Making Tax Digital for VAT
All VAT-registered businesses must keep digital records and file VAT returns through compatible software. See our guide to Making Tax Digital for VAT.
Making Tax Digital for Income Tax
Sole traders and landlords with qualifying income over £50,000 have had to keep digital records and send quarterly updates since 6 April 2026. The threshold falls to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028. Quarterly updates for 2026/27 are due by 7 August, 7 November, 7 February and 7 May. Read more in our guide to Making Tax Digital for sole traders.
Company Tax Returns and Accounts
HMRC’s free online service for filing company accounts and Company Tax Returns closed on 31 March 2026, so companies now file their CT600 through software or an accountant. From April 2028, Companies House will also require all companies to file their annual accounts using commercial software.
Popular Cloud Accounting Software in the UK
- Xero – strong bank feeds and a large app marketplace; popular with growing companies.
- QuickBooks Online – flexible plans for sole traders and small companies.
- FreeAgent – designed for freelancers, contractors and micro businesses; free with some business bank accounts.
- Sage Accounting – a long-established UK name with cloud and payroll options.
All four are recognised by HMRC for Making Tax Digital. The right choice depends on the size of your business, whether you need stock or project tracking, and which apps you already use.
How to Choose the Best Software
- Check it is HMRC-recognised for the taxes you need (VAT, Income Tax, or both).
- Make sure it has a reliable feed for your bank.
- Consider how many users need access and the cost per user.
- Look at integrations with payroll, payments, stock or e-commerce platforms.
- Ask your accountant which software they support best.
Implementing Cloud Accounting in Your Business
The simplest time to switch is at the start of a VAT quarter or financial year. Set up your chart of accounts, enter opening balances, connect bank feeds, create bank rules for regular transactions, and agree with your accountant who reconciles what and when. Our cloud accounting services include set-up, migration and training.
Frequently Asked Questions
Is cloud accounting safe?
Reputable providers use encryption, two-factor authentication and off-site backups. The main risks are weak passwords and shared logins, so give each user their own access.
Do I have to use cloud software for Making Tax Digital?
You must use HMRC-recognised software. Most of it is cloud-based, although some bridging software lets you submit from spreadsheets.
Can my accountant access my cloud accounts?
Yes. You can invite your accountant as an adviser user, so they can review, correct and file without you sending files.
How much does cloud accounting software cost?
Prices vary by provider and plan, from free versions bundled with some bank accounts to monthly subscriptions that rise with users and features.
We Can Help
Accotax sets up and runs cloud bookkeeping for sole traders, landlords and limited companies, including Making Tax Digital submissions. Contact us for a fixed-fee quote.
