Moving to Cloud Accounting

Spreadsheets, desktop packages and paper files can still work, but they become harder to rely on as a business grows. Cloud accounting keeps your records online, so you and your accountant can work from the same up-to-date figures.

Digital record keeping is also now a legal requirement for many sole traders, landlords and VAT-registered businesses. This guide sets out five reasons to consider the move and how to plan it without disrupting your reporting.

What Is Cloud Accounting?

Cloud accounting software runs online rather than on a single computer. You log in through a browser or app, and the provider stores your data on its own systems.

Many packages connect to your business bank account, import transactions and let you scan receipts. You can then produce invoices, reports and tax submissions from the same set of records.

1. Digital Records Are Now Part of Tax Compliance

Making Tax Digital for Income Tax is being phased in for sole traders and landlords. Your start date depends on your qualifying income, which is your total self-employment and property turnover before expenses.

Tax return	Qualifying income	Start date
2024/25	Over £50,000	6 April 2026
2025/26	Over £30,000	6 April 2027
2026/27	Over £20,000	6 April 2028

If you are within the rules, you must create digital records, send quarterly updates and submit your tax return through compatible software. Limited companies do not fall within Making Tax Digital for Income Tax, but they must still keep accounting records.

VAT-registered businesses must usually keep VAT records digitally and file through compatible software, unless exempt.

These rules require compatible software rather than cloud software specifically, and you can keep using spreadsheets with bridging software. However, you cannot copy and paste data between products in your digital records chain. A single cloud package can remove much of that risk because it holds your records and sends your submissions in one place.

2. You See Your Financial Position Sooner

Records updated once a quarter or once a year tell you what has already happened. Regular bank imports give you a more current view of income, costs and money owed.

HMRC notes that digital records can help you view your up-to-date cash flow and identify mistakes early. If you use Making Tax Digital for Income Tax, you can also see a predicted tax bill when you send a quarterly update.

This gives you time to plan for tax payments, chase late invoices and make decisions on current figures rather than old ones.

3. You Spend Less Time on Manual Data Entry

Typing figures from bank statements and receipts takes time and creates room for error. Software that creates digital records can import bank transactions automatically and scan receipts and invoices.

Automation does not replace checking. HMRC warns that some transactions may not appear in full in a bank feed, and you remain responsible for the accuracy of your records. Regular reviews still matter, but they usually involve correcting exceptions rather than entering every item.

4. Working With Your Accountant Becomes Simpler

Cloud accounting lets you and your accountant work from one shared set of records. You no longer need to email spreadsheets or wonder which version is current.

Your accountant can review figures, raise queries and spot issues during the year. This can make year-end work more straightforward, particularly when your bookkeeping stays up to date.

5. Your Records Rely Less on One Device

Paper files can go missing, and a laptop can fail or be stolen. If you cannot replace lost records, sole traders must provide their best figures and companies must try to recreate them and tell their Corporation Tax office.

Online records reduce your reliance on a single device or office. You still have security duties, though. The National Cyber Security Centre advises businesses to back up essential data and turn on two-step verification for online backups. Check what your provider offers and export your data regularly.

Why Act Now?

HMRC will use your 2025/26 tax return to decide whether you start Making Tax Digital for Income Tax in April 2027. If your qualifying income exceeds £30,000, that start date is only months away.

Even if you are not affected yet, leaving a software change to the last minute increases the risk of rushed set-up, poor data and missed deadlines. Moving now gives you time to test your new system before it has to work.

How to Plan a Move to Cloud Accounting

A good switch starts with your records, not your software.

1. List your requirements. Consider VAT, payroll, invoicing, stock, multiple businesses and any other tools you use.
2. Check compatibility. Use HMRC’s software finder if you need software for Making Tax Digital, and confirm the features with the provider.
3. Choose a sensible start date. The start of a tax year, accounting period or VAT period usually makes reconciliation easier.
4. Tidy your existing records. Reconcile your bank accounts, review unpaid invoices and agree opening balances with your accountant.
5. Move or recreate current-year data. If you change software during a tax year under Making Tax Digital, you must import your digital records or recreate them in the new package.
6. Set up access and test. Add only the users you need, turn on two-step verification and check that your reports match your old records.
7. Keep your old records. Export them securely and confirm that you can still open them.

How long you keep records depends on your circumstances:

Records	Minimum period
Self-employed	5 years after the 31 January deadline for the tax year
Limited company	6 years from the end of the financial year, or longer in some cases
VAT	Generally 6 years

The right package depends on how your business operates. Our accounting team can review your records and help you plan the move, and landlords can read our guide to Making Tax Digital for landlords. Contact Nichols & Co to discuss your current set-up.