A practical guide to data protection compliance when using cloud tools, AI software, and third-party integrations in your accounting firm.
Accounting firms handle some of the most sensitive personal and financial data of any profession. From payroll details and tax returns to bank statements and personal identification documents, the data you process daily is exactly the kind GDPR was designed to protect.
Every cloud tool, integration, and AI service you use processes client data in some form. Each of these represents a data processing relationship that falls under GDPR obligations.
The risks of non-compliance are significant: fines of up to £17.5 million or 4% of annual turnover (whichever is greater), reputational damage, and loss of client trust. For a profession built on trust and confidentiality, a data protection failure can be devastating.
The key principle to understand is this: you remain the data controller even when using third-party tools. Outsourcing data processing to a cloud provider does not outsource your responsibilities.
Cloud accounting software such as Xero, QuickBooks, and Sage stores client data on their servers, often across multiple data centres. Understanding where and how your data is processed is a core GDPR requirement.
For every cloud tool you use, you should:
Ensure each provider has a Data Processing Agreement (DPA) in place. This is a legal requirement under GDPR, not optional.
Confirm where data is stored (UK/EEA vs overseas) and that appropriate safeguards such as Standard Contractual Clauses exist for international transfers.
Check data retention settings in each tool and configure them to match your firm's retention policies. Do not rely on vendor defaults.
Key tools to check include: accounting software, practice management, document capture, payroll, and any integration middleware.
For a complete overview of the tools accounting firms commonly use, see our accounting tech stack guide.
A Data Processing Agreement is a legally binding document between you (the data controller) and each tool provider (the data processor). Under GDPR, having a DPA in place is mandatory whenever a third party processes personal data on your behalf.
Most major accounting tools (Xero, Dext, Karbon) have standard DPAs available, often accessible through their trust or legal pages. You should maintain a register of all DPAs and review them annually.
If a tool does not offer a DPA, reconsider using it for client data. The absence of a DPA is a clear compliance gap and a red flag about the provider's data protection maturity.
AI tools present unique GDPR challenges. Unlike traditional cloud software, AI tools may process data through external models and servers, sometimes in ways that are less transparent.
Is client data used to train the AI model? If so, this may not be compatible with your GDPR obligations.
Where is data processed? Confirm the geographical location and whether adequate transfer safeguards exist.
How long is data retained? Some AI tools retain prompts and outputs for extended periods.
Is data encrypted in transit and at rest? Both are essential for protecting client information.
You should also consider whether your use of AI tools needs to be disclosed in your privacy notice. If AI processes client data in any way, transparency requires that clients are informed.
For a deeper look at AI tools suitable for accounting firms, see our AI tools for accountants guide.
Use this checklist to audit your firm's data protection posture across your technology stack. Each item represents a core GDPR requirement.
Maintain an up-to-date record of processing activities (Article 30)
Have a published privacy notice covering all your technology use
Ensure DPAs are in place with every third-party tool that handles client data
Conduct a Data Protection Impact Assessment for new high-risk tools
Appoint a data protection lead (even if not required to have a formal DPO)
Have a documented breach response procedure (72-hour ICO notification)
Provide staff training on data protection at least annually
Review data retention periods and delete data when no longer needed
Ensure lawful basis for processing (likely legitimate interest or contractual necessity)
Maintain records of client consent where consent is relied upon
These are the data protection pitfalls we see most often in accounting firms. Avoid these to stay on the right side of compliance.
Using personal email accounts for client correspondence
Sharing client data via unencrypted USB drives or email attachments
Failing to update privacy notices when adding new tools
Not checking sub-processor lists when vendors change providers
Assuming cloud equals compliant without verifying DPAs
Most small accounting firms don’t need a formal DPO, but you should designate someone responsible for data protection.
Yes, but check the provider’s DPA, data retention, and whether data is used for training. Consider anonymising data where possible.
The provider should notify you per the DPA. You then assess whether to notify the ICO within 72 hours and affected clients without undue delay.
Usually not. Processing is typically necessary for your contractual obligations. But disclose the tools in your privacy notice.
At minimum annually, and whenever you add new tools, change providers, or change how you process data.
We help accounting firms audit their technology for data protection compliance and implement the right controls. Book a free discovery call.
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