Essential accounting software for contractors

Whether you are just starting out as a contractor, or have been working at contracting for some time, reviewing and trying to decide on the best accounting software for contractors can be daunting, writes Christian Hickmott, managing director of Integro Accounting.

The truth is; there are many options, often with good websites in support, describing all the elements that the software in question can provide. But do you know exactly what you need?

What should contractors look for in accounting software?

If you are a contractor working through your own limited company your basic bookkeeping is likely to be startlingly straightforward – at least from a pure transactional viewpoint.

You will raise an invoice either monthly or weekly; reclaim any eligible out-of-pocket expenses (such as mileage), and record your company expenses (such as insurance, accountancy fees, professional body memberships).

Then, things start to get a little more complicated as you will probably wish to draw a salary from the company, and this will bring payroll reporting requirements.

VAT too will bring added complexity if you need to (or wish to) register for VAT.

Essential accounting software for contractors tends to cover these five things

Your essentials on your journey to choose the best accounting software if you’re operating through a limited company, therefore seem to be five-fold, and as follows:

1. Invoicing that can be sent direct from the software system;
2. An app that lets you take a picture of out-of-pocket expenses,
3. The ability to record those out-of-pocket expenses into the software system as they happen;
4. Payroll recording and filing payroll direct to HMRC;
5. VAT recording and filing VAT direct to HMRC.

What about accounting software for contractors inside IR35?

Good question! If you are working on a contract inside IR35 it is very likely that you will wish to work on an outside IR35 contract in the future, or find that you switch quite regularly between the two statuses.

This presents a scenario where you have two different ways of accounting taking place - albeit within the same set of limited company accounts.

It is therefore very useful when working inside IR35 to have a software solution that can record distinct projects; alongside the five essentials listed above.

This will help you and your accountant to get ‘a feel’ for your financial position in real-time, and take it from us, this is now an expectation rather than a luxury in modern accounting!

Put another way, the days of only knowing where you stand financially after your accountant has prepared your end-of-year accounts are long gone. This welcome step-change is a direct result of all the excellent accounting software tools, apps, and widgets available for contractors. With the outside-inside IR35 criteria in particular, shop around.   

Self-employed or freelancing on top of a contractor role? There’s an app for that...

Many contractors will undertake some freelance work alongside their main contract or change intermittently between freelance/self-employed work and larger contracts. So, are the best solutions for accounting software for contractors likely to work just as well if you also do some more ad-hoc work freelance?

Broadly speaking ‘yes’, and the ability to record commercial project work would be very useful in this scenario, as would the ability to send and track quotes from your accounting software.

Contractors, find out what accounting software your accountant prefers to use

Alongside any research you do into the best accounting software for contractors, it is a good idea to research which accountant you would like to use, while having an eye on the software which they deem essential.

As stated at the top, there are several excellent software providers to contractors, small businesses and the self-employed, but it is likely that your accountant will recommend just one piece of accounting software for contractors and perhaps another for slightly larger businesses. With so much choice out there in the software marketplace today, why is that?

Why accountants like one or two tools - at most

Well, the reasons boil down to cost and efficiency -- very appropriate for us accountants! In particular, your accountant will be able to provide the best value for money when the firm’s clients (that’s you dear contractor) are all using the same accounting software. Or if not the same, perhaps two tools, to accommodate the different needs or different sizes or different types of businesses on the accountant’s books.

Positively, when you choose one of the better-known brands of accounting software for contractors, rather than an individual accountancy provider’s bespoke or internally built accounting software, you will invariably be opting for a product or platform that is portable between accountancy providers. This helps keeps continuous control of your company’s finances firmly in your hands, and it also saves the faff of having to learn  ‘what goes where’ with a new piece of software.

Naming names: best accounting software for contractors? It’s ‘Horses for Courses’

The main two contenders for contractors’ affections and clicks in the software accounting space are FreeAgent and then Intuit Quickbooks. Both of these can manage project finances, as mentioned above, and the five essential areas, as listed above. 

Xero and Sage are also good for the five, but tend to be more appropriate for larger businesses. So these two may be a better choice if you intend to scale up your contracting business in the future, however, or have bold plans right now!

Final tips for finding accounting software that fits you and your biz

Generally speaking when it comes to software to get your tax, accounting and HMRC payments all perfect, it’s often a case of ‘horses for courses.’ But a good starting point is to have a chat with different accountants to see what they favour. Alternatively, approach a few accountancy providers who you know to be using different software packages, as they often will give you a walkthrough of their preferred system free of charge, with no obligation to sign up to their services. You can then find the accounting software and accountancy provider that is the best fit for you and your contractor business!