How to reconcile Starling Spaces in Xero: A complete guide

Do you use Starling for your business banking with Xero? Do you use “Spaces” to move money around? If so you might have come across this problem when reconciling.

While saving “Spaces” in the Starling app allow you to move money aside, Xero has no idea about where that money has gone. This step-by-step tutorial explains how to reconciling Starling spaces in Xero.

TL;DR – I don’t want to read the article, just take me to the solution

Background – what are Starling “Spaces”?

Starling “spaces” are simply virtual jars or areas of your account that allow you to move money out of the main account. If you’ve used Monzo, these are called “Pots” and are simple way of putting money aside so you don’t spend it in the main account. When I needed to set aside some money for my tax savings, I created a “Space” called “Tax return” which I could top up throughout the year for future tax and accounting payments.

In Xero I synced my Starling Business account so it can pull in bank statements and transactions on a regular schedule.

How Xero handles Starling transfers

In the Starling app, when you move money to a space it happens instantly; you simply click “Add” in the Space, specify an amount and the money moves across. However, it’s important to understand that the money never actually leaves your account, as Spaces aren’t actual accounts themselves. If you have bank feeds enabled, Xero reports a shortfall between its own balance and your bank account once it syncs. The amount deficit will include what you’ve moved across to Spaces.

Why are Spaces problematic for accountants?

When accountingWeb wrote in their blogpost about moving money they highlighted that issues relating to traceability can happen. They found that unless clients used proper descriptions and/or utilise deposit accounts, it would be a case of trust what a client enters. Moreover, “what if a client deliberately sought to conceal drawings as expenses by titling transfers into Pots”? That could happen! So it’s very important to be descriptive and accurate for any Space transfers.

At present, Starling doesn’t let you download a statement for the Savings spaces. I learnt this the hard way when I just couldn’t work out why my account was missing money. It had been some time doing the transfer and I’d forgotten this when reconciling. The blog post above suggests creating a “dummy Bank account in the accounts in the spirit of a Deposit account”.

Similarly, in this forum post on Monzo, a member asks for advice on the best method for reconciling “Pots” (Monzo’s version of Spaces). The responses recommend creating a new account in Xero, solely for transferring money from the Pots.

How and why you should create a savings account in Xero for Spaces

Having outlined the issues above, a virtual account needs to be set up in Xero to keep these transactions separate. Let’s set this up correctly. If like me, you’ve already synced your main business bank account in Xero, you’ll see the single account listed. Mine shows “Starling Sole Trader Account”.

1. In Xero, go to Accounting > Bank Accounts.

2. From the next screen, click the Add bank account button:

3. The Find account screen lets you type the name of your bank account and click on the result that appears:

If the name of your bank doesn’t appear in the list, this means there are no feeds available. Click Add without bank feed, and Continue to add your account details manually.

Adding an account in Xero manually

At the next stage, you will have the choice to login and connect an account, or add details manually. If you’ve already added your main account in Xero, the sync button will allow you to select your bank account. In both cases, the same sort code and account number will be used as Spaces aren’t accounts in their own right.

When you choose to skip, you can enter details manually instead of logging in via the app:

Ensure the account name is something unique like “Savings space for HMRC Tax” or “Business Tax Savings”. Ensure that it’s obvious and related to the Savings space in Starling. I simply named my space the same as the account name.

In the Account type dropdown you have two options:

• Everyday (day-to-day)
• Other

I chose Everyday (day-to-day). Enter the sort code and account number for your main account. As I opted for the easier Login and Sync account button, this was pulled across for me. The full details for adding an account are available here: https://central.xero.com/s/article/Add-a-bank-account-or-credit-card-account#Addabankaccount

Once the account has been added, you’ll see your new account listed with no money in it. Ignore the message about bank feeds, this feature is not available for Spaces:

Making virtual transactions into your new account

Now that your new account has been created in Xero, you can treat this as the place to reconcile money going in and out of your saving space. Although this article focusses on Starling, it may have a crossover with a bank like Monzo.

Solution – how to properly transfer money to Starling Space

Step 1: Move money to your space in the Starling App

Let’s say in the Starling app you want to move aside £250 to a Space. You do the move and your home screen summary shows you’ve transferred £250 and your account balance has reduced accordingly. Perfect!

However, Xero has no idea of this move because Starling does not create a new statement line when you move money to a pot. You need to do a manual transfer:

Step 2: Create a manual transfer in Xero

1. In Xero, go to Accounting > Bank Accounts (This may show the slightly older interface)
2. Click the top right corner of the new account where it says Manage account and click Transfer Money under the New column heading.

3. In the next screen, select your main bank account in the “From” dropdown
4. In the “To” dropdown, choose the savings account in Xero. Don’t see it? Click here to read solution above
5. Enter the date you did the transfer in the Starling app
   • Look in your Starling app to find the exact date the transfer was made. This is important for accounting and double checking if you ever need to go back.
6. Enter the amount 250.00
7. For the “Reference”, you could name it after your Space name or something more descriptive like “Manual transfer of money to Space for tax return”.

It should look like this:

8. Finally, click the green Transfer button

What this does is tell Xero that both accounts have moved money, meaning there will be two new transactions to reconcile.

Step 3: Manually reconcile the 2 new transactions

In the summary for the Spaces account, the Statement Balance and the Balance in Xero amounts will be unmatched. This is because you will need to manually reconcile this new transaction.

Why? Because Starling does not create a new statement line when you move money to a pot. This is a very important point as is why whole process exists.

To reconcile both accounts, do the following:

1. Go to the home page by clicking Dashboard.
2. Click on the bold heading text of the account name to take you to the account transactions list
   • You’ll see the new item at the top in orange: unreconciled
   • Click anywhere on the row to go into it
   • Once in the item, click the Options button (top right) and select “Mark as reconciled”
     • Previously, I saw a warning that when manually reconciling you had to force but now it just works without a warning. 
3. Do the same on the other account following the steps above.

You will now see a match between your Xero figures and what is shown in your Starling app.

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