MTD ITSA from April 2026 UK sole traders above £50,000 income must use HMRC-recognised software. What this means for you
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Cloud Accounting

What is cloud accounting?

Cloud accounting is accounting software that runs on remote servers — owned and maintained by the software vendor — and accessed through a web browser or mobile app. Your financial data is stored on the vendor’s servers, not on your local hard drive.

The term covers both simple invoicing tools (like Wave or FreshBooks) and complex enterprise platforms (like Sage Intacct or NetSuite).

How cloud accounting differs from desktop accounting

The key differences between cloud accounting and traditional desktop accounting:

Automatic updates: Cloud software updates automatically. Desktop software (like older QuickBooks Desktop) requires manual installation of each version.

Anywhere access: You and your accountant can both access the same live data simultaneously. Desktop software requires either a local network or expensive hosted solutions to share access.

Bank feed integration: Cloud accounting connects directly to your bank account via Open Banking (UK) or Plaid (US) and imports transactions automatically. Desktop accounting requires manual CSV imports.

Automatic backups: Cloud vendors back up your data continuously. Desktop accounting relies on the user to back up their own data.

The one thing desktop does better: Some businesses with very poor internet connections or strict data-residency requirements (particularly in regulated industries) prefer desktop software for reliability and data control. This is a minority use case — most small businesses are better served by cloud.

Cloud accounting and MTD

For UK businesses, cloud accounting has become a compliance issue, not just a convenience one. Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which requires quarterly digital submissions starting April 2026 for sole traders above £50,000 income, mandates the use of HMRC-recognised software. All major HMRC-recognised MTD software tools are cloud-based.

The five major cloud accounting tools reviewed on this site

  • QuickBooks Online — best for US small businesses with employees
  • Xero — best for UK businesses and MTD ITSA compliance
  • FreshBooks — best for US freelancers billing 5-15 clients
  • Wave — genuinely free cloud accounting for micro-businesses
  • Zoho Books — best feature-per-dollar, with a genuine free plan under $50K revenue

Pricing reflects publicly available 2026 rates. Verify with vendors before purchasing.