Understanding Xero: A Deep Dive into Cloud Accounting

Introduction to Xero

New Zealand-based Xero has made quite an impact in the cloud accounting landscape, especially since its focus aligns with the UK government’s Making Tax Digital (MTD) initiative. Starting from April 1, 2019, UK businesses with a turnover exceeding the £85,000 VAT registration threshold are mandated to comply with MTD for VAT, and Xero is geared up to support those businesses effectively. This compliance is crucial for businesses seeking to streamline their tax obligations and accounting practices.

Pricing Plans Overview

Xero’s pricing structure consists of three tiers, catering to various business sizes and needs:

• Xero Starter: Priced at £10 per month, this entry-level plan is very limited: users can send only five invoices, enter five bills, and reconcile just 20 bank transactions monthly. This makes it suitable primarily for very small businesses.

• Xero Standard: At £22 per month, this plan eliminates transaction limits and offers more flexibility for growing businesses.

• Xero Premium: For £27.50 per month, users gain multisupport, making it suitable for SMEs engaging in international transactions.

For potential subscribers, it’s worth noting that discounts are often available across all tiers, making it a bit easier to manage costs.

VAT Compliance Features

One of Xero’s standout features is its support for online VAT submission directly to HMRC, available in all tiers. This means that businesses can file their VAT returns digitally, simplifying compliance and reducing the risk of human error. Beyond VAT submission, Xero offers various add-on features, such as Payroll, Projects, and Expenses, allowing businesses to customize their experience based on individual requirements.

Getting Started with Xero

Signing up for Xero is a straightforward process. New users are prompted to provide their business details, after which they are guided through a setup wizard that simplifies configuration. This includes setting up the financial year, choosing between default or custom chart of accounts, and connecting bank accounts for direct transaction import.

The “Add Bank Accounts” screen supports numerous UK banks, making it easy to consolidate finances. However, some newer digital banks, such as Monzo, are currently not integrated, although businesses can still add accounts manually.

Invoicing Made Easy

Xero places great emphasis on ease of invoicing, which is further enhanced by its guided setup process. Users can easily Enter outstanding invoices or utilize a CSV template for bulk uploads. Additionally, Xero offers a free customer portal, allowing clients to view their invoices and even make payments through PayPal seamlessly. This level of integration can streamline cash flow management significantly.

Employee Management and Payroll

For businesses with employees, setting up payroll is an essential feature. Xero offers Payroll at a rate of £1 per employee per month, with a minimum fee of £5, making it a cost-effective solution for managing wages, PAYE tax, and national insurance contributions. The payroll feature also supports functions such as leave requests, enhancing overall HR management.

Time and Expense Tracking

Xero provides built-in tools for time tracking and expense management, which can greatly benefit project management. Employees can submit timesheets, and a dedicated expense system allows easy claims submissions, integrated with visual receipt recognition technology. Users can also explore apps from Xero’s marketplace to enhance connectivity with other services.

Interface Experience

While Xero excels in functionality, some users may find its interface less appealing. Although the main dashboard and payroll sections are user-friendly, certain configuration pages appear outdated. Tiny fonts and legacy Flash components for generating charts can detract from the overall experience, particularly on modern high-resolution displays. However, the mobile app maintains a clean and accessible interface.

Support and Resources

Xero offers comprehensive support, including free webinar tutorials that cover various functionalities, from linking bank accounts to navigating the Making Tax Digital initiative. This proactive approach to user education can significantly ease the transition for new users and ensure they make the most of Xero’s features.

Verdict on Xero

In summary, Xero stands out as a reliable accounting solution tailored for businesses prioritizing sales and inventory management. While it may come across as slightly pricier compared to some competitors like Sage, the breadth of features and attentive support make it a strong contender. However, its somewhat clunky interface and the limited nature of its Starter plan could be areas for improvement in the ever-evolving world of cloud accounting tools.