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.

Saving 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. Additionally, I use Xero and have synced it to 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.
Screenshot in Xero for finding the Bank Accounts dropdown in the header
  1. From the next screen, click the Add bank account button:
Screenshot of Xero bank accounts screen.
  1. The Find account screen lets you type the name of your bank account and click on the result that appears:
Modal containing a search box to find a bank account in Xero.

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.

Modal for Automatically importing transactions in Xero

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

Modal for adding account details manually in Xero

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:

Bank feeds screenshot in Xero app

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 could be done for any other bank like Monzo.

Example – Transferring £250 to a Starling Space

Let’s say in the Starling app you just moved £250 into your space. Your home screen summary shows you’ve transferred £250 and your account balance has reduced accordingly. You now need to make Xero aware of this. This is where manual transfers come in.

  1. Go to Accounting > Bank Accounts (This will 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.
Screenshot of the Xero app Manage account screen
  1. In the next screen, select your main bank account in the “From” dropdown
  2. In the “To” drodpown, choose the new account you just added in Xero
  3. Enter the date you did the transfer in the Starling app
    • Make sure you go into Starling app to find the exact date the transfer was made as this is important for accounting and double checking if you ever need to go back.
  4. Enter the amount 250.00
  5. 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:

UI for the Xero Transfer money screens
  1. 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.

Manually reconciling

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 due to the fact that Starling doesn’t create a statement line when doing transfers.

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.

Once this is completed, you should see that the business account and the Spaces account match what is shown in your Starling app.

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