13 Nov Key accountancy considerations for sole traders
Setting up as a sole trader means that you will become responsible for your own accounts, taxes and books. For many this is an unwanted side effect of turning self-employed, but it is vitally important that you get it right. Failing to manage your accounts correctly can result in significant fines and can cost you everything you worked hard to build. Here we explore the steps you should take to set your accounts up correctly.
Consider a separate account
While you’re not legally obliged to set up a separate business bank account, it is highly advisable that you do. This allows you to keep your finances separate for business and personal use and enables you to keep track of spending.
Know your tax and NI rates
When you register as a sole trader you will take on responsibility for your taxes. This means that you will need to save money as you earn in order to pay taxes at the end of the year. Knowing what level of taxation you will face is essential so that you can save enough for tax, student loan repayments and national insurance in April.
Keep your books
Bookkeeping is the everyday process of accountancy for sole traders. You should keep spreadsheets detailing everything you are earning and spending through the year with all transactions detailed separately. This level of bookkeeping is essential so that you can clearly demonstrate where the money is coming from if you are ever challenged. Simply having a figure showing incoming and outgoings is not enough.
As a sole trader you can claim for a wide range of expenses. These include stock, equipment, advertising, delivery, stationery, bank charges, travel and much more. You can claim these costs back from HMRC at the end of the year. If you’re working from home you can also claim some of your household expenditure back as tax deductible.
Complete your Self Assessment
The most important part of sole trader accountancy is submitting your Self Assessment. Failure to do so will result in fines and penalties. Every step of your bookkeeping is focused on making this step easier. Having detailed records and a good standard of bookkeeping will make this process much faster and simpler.