Despite the ready availability of low cost accounting software, the majority of sole traders, start-ups and other small companies prefer to use Excel or even manual book-keeping. Either that or they hand the whole problem over to a professional to look after. Microsoft's new Office Accounting 2008 package, however, could change all that, at the same time providing a much needed wake-up call to the incumbent vendors.

There are several reasons why Office Accounting 2008 is likely to cause a stir in the world of small business accounting. Not least of these is the availability of an Express edition which sole traders and others can download for unlimited use, free of charge. This approach encouraged some 2 million to give up their shoebox records in favour of the PC when it was first released in the US a couple of years ago.

But don't be fooled into thinking the Express version a poor man's product. Some features have been disabled, for sure, but only those more likely to be used by larger organisations. That leaves a full set of sales, purchasing and nominal ledgers, together with VAT processing plus integration with Microsoft Word, Excel and Outlook. More or less everything, in fact, required to handle the book-keeping needs of a startup or other small business.

The Express edition also benefits from the same HMRC accreditation as the full product and the same Outlook-style user interface, which we found intuitive; particularly the task-oriented flow charts which you can either follow religiously or jump in and out of to get jobs done.

Indeed, it really is the same software, and to upgrade from the Express to the Professional edition all you have to do is buy a licence. This immediately unlocks the so-called Pro features; for example, allowing multi-user access to the SQL Server Express company database as well as adding stock control, sales and purchase order processing facilities. Plus cashflow forecasting, multi-currency support and whole lot more.

The Professional version also offers integration with Outlook 2007 Business Contact Manager and not just to share customer/supplier information. Rather it's possible to view transaction histories, bill for time, create quotes and generate invoices - all from inside Outlook. This is a nice feature, enabling additional users to make use of the package without having to buy extra licences.

Other things that caught our eye were integrated support for PayPal and an optional BACS payment service. We were also impressed by the reporting facilities, with dynamically linked reports that let you start with a summary of the collected information from where it's possible to drill down to, for example, see customer transactions or even display individual invoices - simply by clicking the associated entries. Data can also be exported and manipulated using Excel, with support for dynamic pivot tables another key selling point.

You can even process your own payroll, at a cost of just £9.95 per month. Moreover, instead of having to maintain local copies of tax tables, with Office Accounting 2008 payroll data is anonymously uploaded to an online tax calculator where the liabilities are calculated using centrally maintained tables and the results returned in just a few seconds.

On the downside, we did encounter a few issues installing the Microsoft software, but nothing major. We were more concerned to discover that although we could import data from Sage, we couldn't do the same with QuickBooks, even though it's possible with the US version. Likewise the lack of support for flat-rate VAT could be an issue. We also found it difficult to customise the Word templates used for invoices and other forms.

Finally, bear in mind that you won't find many professional accountants able to accept data from Office Accounting 2008. However, that could change, with Microsoft offering tools to allow professionals to accept and return data via Office Live rather than having to exchange disks or printouts. Clients can also continue to use their systems rather than freeze them until the year end accounts have been reconciled, as happens with some other packages.

Although late to the UK market, Microsoft's Office Accounting 2008 product looks set to cause a stir, not least because small businesses can now get a proper accounting package for free. Upgrade to the Pro edition and even more functionality becomes available, with in-depth Outlook integration and an online payroll service among a clutch of unique features.