Better bookkeeping for sole traders

Being a sole trader means everything’s up to you. You set your own hours, find your own clients and do your own bookkeeping.

Good preparation will make it a whole lot easier. We’re here to help you prepare by discussing a few simple things sole traders can do to improve bookkeeping.

Specifically, we’ll be looking at:

• Preparing for taxes
• Claiming expenses
• Business accounts
• Accounting software
• Credit control
• Hiring a professional accountant

Being a sole trader means taking care of your own income tax with a Self Assessment tax return. 

The first £12,570 you earn is tax-free – this is called your personal allowance.

Any money that you earn over your personal allowance will be taxed –  this is called your taxable income. The percentage you’re taxed depends on how much you earn, like this. 

Any money earned between £12,571 – £50,270 will be taxed at a rate of %20.

Any money earned between £50,270 – £150,000 will be taxed at a rate of %40.

Any money earned over £150,000 will be taxed at a rate of %45. 

As tax season only comes round once per year, it can be easy to put to the back of your mind, only to be scrambling for financial records, come April, and getting hit with a huge unexpected tax bill. 

Keep accurate records of all your income. This way, you’ll know when you’ve earned enough to start paying income tax.

Following from our previous point, there are loads of expenses that sole traders can declare as business expenses. Any expenses you claim will be deducted from your taxable income. 

There are a lot of thighs you can claim as a business expense, but some of the more common expenses include:

• Office costs, like stationery or phone bills.

• Travel costs, like fuel, parking, train or bus fares.
• Clothing expenses, like uniforms.
• Things you buy to sell on, like stock or raw materials.
• Financial costs, like insurance or bank charges.
• Costs of your business premises, like heating, lighting, business rates.
• Advertising or marketing, like website costs.

Remember, if you’re working from home, you can still claim many of these expenses because your home still counts as your business premises. 

A business account is not actually mandatory for sole traders, by law. But, it’s still a good idea. This will help give you a more complete picture of your business’ finances, separate from your own. 

When using separate accounts, avoid using your personal account for business purposes, and vice versa. 

Aside from having a clear picture of your finances, business accounts like Countingup can offer you loads of useful features that will make the whole bookkeeping process a lot easier. 

Accounting software, like the Countingup app will save you hours of admin time on your bookkeeping.

The simple app will help you keep an organised record of all your income and expenses, and give you useful insights into profits and loss. With Countingup, your accounting software is directly integrated with your business current account, giving you a tool to manage and store your accurate financial data in one place.

Credit control means making sure you’re paid on time for work you’ve done, and recording it properly in your books. Late payments in and out of your account will make it difficult to get an accurate picture of how much money is actually there. 

When making and receiving payments, practice strict deadlines. This will make sure your accounts more accurately reflect your actual finances. 

If you have to take delayed payments, consider asking for at least some of the money upfront, and introduce penalties for repeat offenders.

If you make delayed payments, at least make a clear note of it, so your books don’t display money that you technically don’t have. 

As always, knowledge is half the battle. Good credit control will ensure you’ve got an accurate picture of your finances, and you won’t be caught off-guard by that bill that you thought you’d paid but haven’t gotten round to yet. 

One of the main reasons for good bookkeeping is that it gives you the ability to build an effective accounting strategy.

It might sound difficult, but it can be a simple case of sitting down every month and reviewing your books. Then, see where your biggest expenses are and what you can do to mitigate them. 

Conversely, look at where most of the income is coming from. and prioritise cost-effective revenue streams. Every penny counts, especially for sole traders where money might be a little tight. 

Sometimes the best way to look after the books is by getting somebody else to do it. If you can hire a full-time accountant, that’s great. 

For sole traders with smaller accounts, and maybe less budget, you can hire an accountant on a one-off basis. Of course, you’ll still have to keep accurate records of all your income and expenses, but a professional accountant can give you great advice and insights into your business. 

When tax season rolls around, an accountant can prepare all your accounts much faster and more accurately than you can. It’s a short-term expense, but it’ll save you time and can prevent costly mistakes.

The Countingup business current account comes with a handy app that automates a lot of the manual parts of financial bookkeeping. It’ll help you to keep track of all your expenses and income in real time with a receipt capture tool, so you’re not scrambling to find receipts at the end of the financial year.

The app also helps you create customised invoices, gives you running tax estimates, and automatically categorises your transactions. 

Find out more here.