Online contractor accountancy has moved beyond tech contractor first adopters and moved firmly into the mainstream. A steady stream of new contractors over the last 12 months, with fresh expectations, has helped to fuel the increase in online users.
This is according to James Poyser, co-founder of online contractor accountant inniAccounts, who is seeing a much wider range of contractors more confident about cloud-based services choosing an online, rather than ‘traditional’, accountant.
“Eighteen months ago it was mainly early adopting tech-savvy contractors who could see the benefits of a genuine online service,” explains Poyser. “Now we’re seeing contractors from all sectors switch from their existing provider who just can’t meet their expectations with an Excel spreadsheet or passive online portal.”
Market forces creating more contractors
The steady trickle of new-start contractors joining inniAccounts in its early days has increased to a flood, which Poyser ascribes to the economic recovery: “Now is a good time to go contracting. But a year ago people were reluctant to leave a full-time job if they had one.
“For several years the media has propagated a view that times are tough so if you have a job you should stay in it. What’s happening now is that the economy is starting to turn and large organisations are looking to reignite projects, which means an increase in roles for contractors.
“People start to feel more confident and less reluctant to move out of that full-time role, so we’re seeing a lot more highly skilled knowledge workers choose contracting.
“We’ve also got those workers who have survived multiple redundancy rounds and have realised that job security is becoming an outdated norm. They’ve made a conscious decision to take control of their future by becoming professional contractors.”
What contractors want
So, why are so many contractors now choosing to do their accountancy online? Poyser believes it to be a combination of factors: “A new contractor goes online to look at all the offers. They’ve got three broad choices: large contractor accountancy firms with no genuine online presence; high street accountants; and the online providers.
“The market for online apps has matured massively over the last four to five years. This new breed of contractors can understand the benefits cloud services can offer, and are making the connection and seeing how it can apply to accounting.”
HMRC has made the online submission of corporation tax and VAT returns mandatory, and the real time information (RTI) initiative requires payroll to be recorded online, too. So if the last mile is electronic, why not bring it further upstream as well?
James Poyser, inniAccounts
Existing contractors are also ‘getting it’ from their peers. Poyser explains: “Contractors tend to be a tight-knit bunch, so if one of them is spotted in the office uploading their expenses via their smartphone, while the rest of the contracting team are sat there plugging numbers into a spreadsheet, it becomes a point of conversation.”
Poyser highlights that another powerful motivator to move online is HMRC’s quest for modernisation: “HMRC has made the online submission of corporation tax and VAT returns mandatory, and the real time information (RTI) initiative requires payroll to be recorded online, too.
“So if the last mile is electronic, why not bring it further upstream as well?”
When online does not really mean online
In Poyser’s view, contractor accountants can be divided into four broad categories:
- Those using and supporting other people’s software, such as Xero and FreeAgent
- Genuine online contractor accountants offering online services that work in real time
- Practices using in-house systems that don’t work in real time, so they have online portals that Poyser says are “really only glorified online spreadsheets”
- ‘Laggards’ who are not doing anything.
“The importance of the first two categories is underscored by the fact that several have been acquired by larger companies in the last year,” adds Poyser. “Much of bookkeeping and accountancy is about capturing data and systemising processes and information. So you’d think that this is the one industry that would benefit from cloud services.
“But according to the Institute of Chartered Accountants of England and Wales (ICAEW), only about 3% of accounting firms are using cloud technology. Unfortunately, accountancy suffers from being an established profession with leaders, who are not that tech savvy, reluctant to adopt change and new ideas.”
Raising the bar by lowering the barrier to entry, and removing the fear
Poyser, a former IT contractor like the rest of inniAccount’s development team, is seeing demand for cloud-based contractor accountancy services being driven by the software companies and end users, and not by accountants
He explains: “A genuine service is designed with contractors in mind, with no accountancy terminology, and easy and intuitive to use. There should be a low barrier to entry and the system should operate in real time.
“This means if a contractor creates a client invoice for £9,000 and sends it off for payment, they can go to their dashboard and see a single number telling them how much money they have to pay out, and how they can pay it, by dividends or salary. Corporation tax, VAT, expenses have all been calculated in real time.
“The real benefit for the contractor is that they have a system that takes way the fear of running up an unexpected tax bill, and that leaves them in total control.”
A great systems still needs great accountants to avoid commoditisation
Poyser acknowledges that there is the potential for some providers’ offerings to become commoditised: “But contractors will win in the end because it will come down to a ‘battle of the services’.
“Alongside an online system designed for contractors that operates in real time, there must be a great accountancy team. That’s not just to ensure the software is compliant and up-to-date, it’s also to provide direct support to contractors.”
Poyser says: “I don’t think that the future holds any revolutionary new software innovations with killer features – we’ve already covered that ground.
“But the number of users of genuine online contractor accountancy is currently very small, relative to the total number of contractors. So,” he concludes, “what we will see going forward is dramatically increased rates of take-up of cloud services by an increasingly enabled contractor market.”