Accounting Accounting Advice

What’s the best cloud accounting software for small businesses?

4 Mar 2020

Desktop accounting software has been around almost as long as desktop computers, but small businesses are increasingly looking to cloud-based accounting solutions to manage their bookkeeping, payroll, statutory accounts and annual tax returns.

Not only do cloud-based services offer a Software-as-a-Service (SaaS) business model, where the small business pays a small monthly fee on a recurring basis instead of forking out hundreds or thousands of pounds up front, but the company’s financial records are also securely stored and managed ‘in the cloud’, meaning they can be accessed at any time and from any device (provided it has an internet connection and the correct security credentials are supplied).

Many online accounting platforms also offer apps for smartphones and tablets, making it even easier for small business owners to manage payroll or analyse their balance sheet while on the move.


Given the obvious advantages of cloud accounting, particularly for sole traders, freelancers and other small business owners, it probably comes as no surprise that there is a growing range of cloud accounting platforms to choose from. Let’s compare some of the best cloud accounting software available for small businesses in the UK.


Launched in New Zealand in 2006, Xero was an early pioneer of cloud-based accounting software, and has become a hugely popular solution for small businesses in the UK. Like most SaaS platforms, Xero gives customers a range of service plans to choose from, with each plan costing incrementally more and offering slightly more functionality as the price increases.

Each of Xero’s three plans offer small businesses the ability to generate quotes, invoices, purchase orders and bills, handle automatic bank reconciliation, import data from Excel, Google Sheets and CSV files, and process payroll for at least five employees.

Starter plan - £9 a month

Xero’s ‘starter’ plan is their cheapest, at £9 a month, but it also has a few limitations that make it more suitable for very small companies or freelancers with a limited roster of clients. For example, this plan limits users to five invoices, five purchase orders and 20 bank reconciliations per month, and doesn’t offer multi currency accounting for businesses that export to the EU or elsewhere.


Standard plan - £20 a month

Xero’s standard plan offers businesses unlimited invoices, estimates, purchase orders and bank reconciliations, but doesn’t include multicurrency accounting.

Premium plan - £25 a month
For an extra £5 a month the premium plan offers the functionality and unlimited transactions included in the standard plan, combined with multicurrency accounting.

Each of Xero’s three plans also includes payroll for five employees at no cost, with each additional employee costing an extra £1 per month.


Established in 2005, London-based cloud accounting platform, KashFlow, was one of the very first providers of accounting software to adopt a SaaS business model.

Like Xero, KashFlow includes three service plans to choose from, depending on the needs of the business.

Starter plan - £5 + VAT per month
The starter plan offers small businesses the ability to create quotes, invoices, purchase orders and bills, perform automatic bank reconciliation, import data from QuickBook, Sage and CSV files.

However, KashFlow’s starter plan doesn’t include any payroll functionality, and this plan limits customers to 10 invoices and 25 bank transactions per month.

Business plan - £10 + VAT per month

KashFlow’s intermediate plan includes all the functionality that comes with the starter plan, but allows users to raise an unlimited number of invoices, purchase orders and estimates, and record an unlimited number of bank transactions.

Business + Payroll plan - £15 + VAT per month

Unlike Xero users, KashFlow customers are unable to run payroll unless they sign up for the company’s premium plan, which costs £15 plus VAT. This gives customers access to the same functionality included in the intermediate plan, while also offering a complete payroll management solution.



The Scottish cloud accounting startup, FreeAgent, offers a lot of the functionality provided by Xero and KashFlow, including estimates, invoices, purchase orders, bills, bank reconciliation and expense reporting. It also includes a number of tools not provided by the other cloud-based accounting platforms, such as time tracking and project management functions.

However, FreeAgent is a little more expensive that Xero and KashFlow, and its tiered pricing plans are based on a business’s corporate status rather than general functionality.

Sole Trader plan - £19 + VAT per month

As the name suggests, FreeAgent’s sole trader plan is intended for freelancers, contractors and other sole traders. Users can manage an unlimited number of estimates, invoices and bank transactions, and can also use the platform to file their annual self-assessment.

The sole trader plan is priced at £9.50 + VAT for the first six months, before rising to £19.

Partnership/LLP plan - £24 + VAT per month
Partnerships using FreeAgent have access to the same unlimited functionality as sole traders, but are also given a profit share tool in order to run profit share calculations.

The partnership plan is £12 a month for the first six months, before rising to £24.

Limited company plan - £29 + VAT per month

For £5 more each month limited companies using FreeAgent gain access to corporation tax and dividend calculation tools, in addition to the functionality included in the platform’s other plans.

FreeAgent’s Partnership and Limited company plans also include payroll functionality, although they are both limited to companies with fewer than 10 employees.

Our verdict


Cloud accounting is not a one-size-fits-all service, so some platforms may serve particular businesses better than others. Larger businesses that need to run monthly payroll could opt for KashFlow’s ‘Business+Payroll’ plan if they have more than 9 employees, or Xero’s standard plan if they have a staff of 9 or fewer.

For freelancers and sole traders that need multi currency accounting but don’t have any employees, KashFlow’s standard plan may be the best solution.

Free cloud accounting software

However, some very small businesses with relatively simple finances and few ledger entries may be able to benefit from cloud accounting software without incurring any cost at all. To find out more read our article about the one or two free cloud accounting platforms currently available.

Want to be a little more hands off?

Cloud-based accounting software is a great leap forward for entrepreneurs and business owners that have the time to handle their business’s own bookkeeping, payroll, reconciliation and financial reporting. However, as your business grows we can manage your finances so you can manage your business.

At Accounts and Legal we have a team of small business accountants dedicated to providing fixed-price tax, accounting and business forecasting and planning services that are specifically geared towards supporting the growth of SMEs and sole traders. Get in touch with Accounts and Legal to discuss your requirements, or get a no-obligation quote for our services now using our  accounting quote tool.