This information is needed for filing income tax and excise tax returns, and it also helps you understand your company’s financial activity so you can run your business effectively. Bookkeeping is the day-to-day processing of your financial transactions. It’s been around a few years now, but up until now it related to VAT. As a sole trader, you do not have to open a separate bank account if you split your personal income and expenses to the business’s transactions.
But, it is recommended that you open a business bank account; most major banks offer business banking. This will help you separate your personal and business finances for accounting purposes, making tracking expenses and income more straightforward. Xero
The Xero software offers an award-winning solution that links well with the personal, expert service delivered by our own accountants. Xero can automate lots of your conventional accounting legwork, including the distribution of invoice reminders and importing bank transactions to update your records. It is also easy to integrate with other Xero products such as Xero Payroll for seamless bookkeeping. QuickBooks
The QuickBooks platform is designed to remove the guesswork from updating and processing your firm’s records.
Do sole traders need bookkeeping software?
There can be a lot of record keeping for sole traders to stay on top of, so bookkeeping software can make keeping accurate records easier. FreshBooks is a well-designed accounting software designed for small businesses. It allows you to connect with your bank account so transactions are automatically imported.
- Note that the rollout of MTD also means that the annual self-assessment process will come to an end.
- Find out more about your bookkeeping responsibilities as a self-employed person, and what information your accountant needs from you.
- If you’re already one of the 3.1 million sole traders in the UK, you’ll know there’s a pretty overwhelming you need to learn and do as a business owner.
- FreeAgent’s accounting software is ideal for this task, with a wealth of features to help you track your day-to-day finances with minimal hassle.
This can be a one-off service, where they help you set things and systems up and do some basic training with you. Our friendly Oxford bookkeeping team will be happy to assist you with this. Now any VAT-registered business, including sole traders, must submit all VAT returns digitally and keep records with cloud accounting software. Finally, a professional accountant or bookkeeper sole trader bookkeeping can take on this task if you don’t have the time or inclination to manage your sole trader accounts. They can provide more detailed and accurate financial reports and offer advice and guidance on making tax savings. You don’t need to know everything there is to know about bookkeeping; just enough to take care of basic bookkeeping tasks, if you do them yourself.
What is the difference between sole traders and self-employed?
If you want to keep your overheads low and avoid paying accounting fees, it is possible to look after your own bookkeeping. However, there are risks as you will need to be 100% accurate with recording your income and expenses. The consequences of making mistakes with your own bookkeeping can be disastrous, particularly if this triggers an unexpected HMRC investigation. If you plan to earn income as a sole trader, it’s likely that you’ll need to pay tax on it. To do this you’ll need to tell HMRC to expect a tax return from you.
- A chart of accounts can help you decide when to credit or debit accounts.
- Digital bookkeeping and tax paying will save time and prevent mistakes.
- Keeping accounts of a business is incredibly important and it must be done right.
- Make sure that you keep all of your receipts and invoices so you are prepared when the self-assessment deadline comes around.
- You can’t claim travel between your home and your regular place of work.
Any fees you have paid for professional advice, such as accountants or solicitors. Any fees or charges incurred for business banking, such as overdraft fees or payments by credit card. It’s also important to remember that all business costs must be reasonable and necessary to run your business. HMRC will look at any excessive expenditure as a possible indication of tax avoidance. Start by asking fellow sole traders and find out what they use and what they like about it – remember thought that what is right for one sole trader might not be right for another.
Annual Self-Assessment Tax Returns
While it may seem more efficient to bang out all of your bookkeeping once a year, I guarantee you it is not. Due to the amount of time that has passed (as discussed in #1), much of the time needed for that annual review is spent researching transactions. Handling your bookkeeping on a daily, weekly, or even monthly basis is highly recommended.
It finds duplicates, inconsistencies and missing transactions—all at the click of a button, ready for you to review. To avoid being this dark, disturbed version of yourself, it’s important that you understand inheritance tax, Capital Gains Tax, (CGT), and how to make it work for you. Keep scrolling to see how you can keep what’s yours and keep it legal. If your car is the company delivery vehicle or a model for a service, that is a business expense.
Additionally, VAT registration allows you to reclaim VAT paid on business purchases, which can be financially beneficial. It’s important to keep all relevant VAT information and records for a minimum of 6 years if you are registered for VAT. Once your Self Assessment has been completed, it’s time to think about Payments on Account. Essentially, these are advance payments of Income Tax and Class 4 National Insurance Contributions (NICs) that certain individuals are required to make for future tax years. Online accounting systems are increasingly popular among small businesses due to their convenience and added functionalities. These systems eliminate duplication and offer features which will save you time and money.