What should I keep for sole trader accounting?

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What should I keep for sole trader accounting?

Working as a sole trader is often a unique experience, but from an accounting perspective, you need to do much the same as any other business. This means keeping hold of your business records to accurately pay taxes.

 

Although often thought of as self-employed individuals, the term sole trader merely describes the business structure for tax purposes. In reality, a sole trader could employ multiple people.

If you’re looking for guidance regarding what records you should keep for sole trader accounting, we have compiled this guide to help.

What records should I keep for sole trader accounting?

In the UK, sole traders must keep an accurate record of their income and expenses throughout the tax year. HMRC could request these records at any time, so it is important to have them ready. The records you will want to keep for HMRC are:

• Your business income and any payments received while working as a sole trader.
• Any personal income that you have obtained through secondary sources such as investments.
• Business expenses and things you needed to buy for your trade.

You will also need to hold onto your VAT records and PAYE records if they are applicable to your business, as well as any grants you receive.

Sole traders pay tax in the same manner as employees of a company do, although they need to do some of the calculations. Sole traders also have to make payments to HMRC directly, rather than having taxes added to payslips. The taxes that sole traders are required to pay are:

• Income tax on any net profits.
• Class 2 and 4 National Insurance contributions.
• VAT where applicable.

There are a lot of nuances involved with sole trader accounting, and although this outlines the bare minimum that needs to be done for tax purposes, there are ways to improve this process. If you’re interested in claiming business expenses and receiving tailored advice regarding sole trader accounting, we recommend hiring a professional accountant.

At SQK Accountancy, we specialise in helping smaller businesses, start-ups and sole traders. Contact us today to find out more.

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