When Vancouver-based cloud software firm Bench Accounting folded at the end of last year, panic swept through thousands of North American SMEs that had relied on its services.

Many customers raised concerns over access to their data. One complained in an X post that he had just paid Bench to migrate his details over from QuickBooks, but now all that information was “just gone”.

In its shutdown notice, Bench reassured customers that, for 10 weeks, they would be able to retrieve their data from a special URL, using their standard logins. However, three days later, the crisis was averted when the firm was rescued in a buyout. The acquirer, Employer.com, vowed to uphold continuity of service and data security.

Sighs of relief all round, then. But lingering shock, too.

Hybrid theory

In the US, Bench had attracted around 35,000 SME customers. For Ryan Pearcy, founder of Digital Transformers UK and a leading cloud tech podcaster, the firm’s initial success reveals fundamental contrasts between the US and UK accountancy markets.

“The UK market has flourished into trusted advisers, filling a void left by banks,” he explains. “In the US, it’s far more transactional. Many accountant/client relationships already run via software platforms. With manual bookkeeping going on behind the scenes, Bench pitched itself as a tech-accountancy hybrid that would streamline the workflow even more. Leaning into US users’ transactional expectations, it had promised to lower costs by removing the burden of interacting with an accountant in a traditional way.”

In Pearcy’s assessment, the company’s subsequent failure stemmed from the aggressive nature of the investment market. By touting itself as a nimble software as a service firm, Bench had managed to raise $113m of finance, which came with risks. “Investment backers typically demand high growth,” Pearcy says. “If the company’s not hitting agreed metrics, the backers have more of an incentive to scrap it than go for another funding round, which, in this case, would probably have had to be even bigger than the first.”

As for whether something similar could happen in the UK, Pearcy points out that the market is changing. While UK accounting was traditionally a slow-growth model, with owners based inside the business, more PE-backed firms are emerging. So more owners can decide from a distance whether a firm lives or dies.

Structural challenge

Other experts believe that the UK accounting software market has lacked resilience for some time. Kevin Sefton FCA is Co-Chair of the Accountants in Practice Specialist Interest Group at UK industry body the Business Application Software Developers Association (BASDA). He is also Co-Founder of personal tax platform untied, which includes in its services Making Tax Digital (MTD) for income tax.

Sefton points out that the user group with the greatest reliance on commercial platforms is unrepresented taxpayers. But new HMRC figures on self-assessments from that group due by 31 January this year show that just 3% were filed via third-party software. The remaining 97% came through native HMRC facilities. “That poses a major structural challenge,” Sefton says. “Even if we factor in the government’s commitment to extend MTD for income tax, fewer than one million unrepresented taxpayers will be in scope. That may sound like a lot. But in reality, there isn’t much room in a marketplace of that size for many vendors.”

HMRC has already recognised more than 1,000 different software products as suitable for MTD for VAT, Sefton notes. But ultimately, that array of suppliers may be unsustainable. A 2023 report from the National Audit Office found that 6% of links to those providers didn’t even open a working web page. And on the critical point of investment, Sefton stresses: “UK vendors have nothing like the scale of funding that Bench was able to access.”

While some stakeholders have suggested that tax platforms could be made available for free, Sefton is highly sceptical. “Looking at developers’ costs, I struggle to see a viable pathway for free-forever, high-quality software that includes full record-keeping and filing facilities,” he says. “Previous free products have either left the UK market, shut down entirely or shed users by introducing fees. That all adds to the risk of clients losing data.”

So what would happen to customers’ data if a UK vendor goes under for financial reasons? “There’s currently no protection,” warns BASDA CEO Kevin Hart. “The buyer bears the risk.”

Evolving role

For ICAEW Head of Data Analytics and Tech Ian Pay, the Bench story highlights the critical role of accountants as safeguards between client businesses and software providers. “Bench users no doubt thought the platform was safe, right up until it wasn’t,” he says. “Its team of backroom staff with basic bookkeeping training didn’t provide the type of safety net that traditional accountants can offer.”

In Pay’s view, accountants can focus clients’ minds on the importance of backing up their data, either by including backups in their service model, or by saying: “We don’t think that should be part of our job – but here are the essential steps you need to follow.”

Pearcy agrees that, alongside software products, the accountant remains a vital counsel. “Many business owners don’t understand their own finances,” he says, “so accountants are still needed. But as artificial intelligence (AI) erodes compliance work, their role will evolve. Advisory skills will be in greater demand, and assurance will become more important for providing comfort in the AI tools that firms adopt.”

Meanwhile, Sefton urges accountants to acknowledge that software products can provide valuable support for their work. 

“It’s important that advisers aren’t threatened by software, but embrace it,” he says. “If a client can pay a small amount each month for a high-quality software product, that facility will help their adviser support them. Everyone’s winning: the adviser has all the client’s data in real time and the relationship is based around a compliant, optimised approach.”

Further reading

ICAEW guidance on the risks and benefits of cloud software is available here.

For additional thoughts on the topic, check out BASDA’s report Making Tax Digital for Income Tax Self-Assessment: The Software Developer Impact and Implications for the UK.