WHAT ACCOUNTS DO I NEED TO KEEP AS A SOLE TRADER?

WHAT IS A SOLE TRADER?

A sole trader is often used to describe a person working alone, such as a freelancer, contractor or just a person who runs a business independently. The truth is that sole trader covers anyone self-employed but not a registered limited company. So this covers anyone that runs a business, regardless of the size or if they work alone or employ staff that is not registered as a limited company.

WHAT ACCOUNTS DO I NEED TO KEEP AS A SOLE TRADER?

By law, you must keep records of all incoming and outgoing business transactions for a minimum of five years. No matter how small the transaction, if it is business related, there has to be a record of it in your accounts. You are required to keep a record of all transactions relating to:

  • Business income: including any invoice receipts, sales or bonuses.
  • Personal income: including any salary or income from investments.
  • Any expenses: anything that you have had to pay or purchase to operate as a business, including subcontractors.
  • PAYE records: you need to log any PAYE details for all employees.
  • Grants/Loans: Any income received via a grant or loan from a bank/person etc.

With the rise of cloud-based accounting software, keeping the records up to date and in chronological order has never been easier. Using them also helps your accountant to prepare your tax returns quicker! However, if you are still using a bin bag of receipts or shoe boxes in the loft, keep the records safe and up to date.

DO I NEED A SEPARATE BANK ACCOUNT?

As a sole trader, there are no legal requirements to have a separate bank account, but it does have its advantages.

WHAT EXPENSES SHOULD I KEEP A RECORD OF?

Sole traders can claim expenses much as a limited company can; there are some differences, however. So knowing in advance if it is claimable is an advantage, so here are the top ones that can be claimed:

  • Stock
  • Office, property and equipment
  • Travel to and from a temporary workplace
  • Clothing if it is branded in the business name or required, such as PPE
  • Training for yourself or staff
  • Legal and financial costs
  • Staff expenses
  • Office/Workshop expenses such as bills and insurance etc.

DO I NEED AN ACCOUNTANT OR BOOKKEEPER?

Hiring a bookkeeper or accountant can seem like just another expense you could do without, which is why it is very much down to you and if you feel you need one. A good accountant and bookkeeper can help keep your business finances on track and avoid fines and penalties from HMRC for missed or incorrectly filed tax returns. They can also help you expand your business, helping with forecasting, raising finance, etc. However, most importantly, they give you time from fiddling around with spreadsheets and bundles of records!

WHAT HAPPENS IF I DON’T KEEP RECORDS?

If you fail to keep the correct business accounts or records of the business transactions, you could land yourself in hot water with HMRC. Not only can they request your documents at any time to view, but they can also audit you for past SATR submissions and will require the records to show they have been filled correctly.

The cost of not keeping adequate accounts for your business could be penalties and fines, which can sometimes be more than the tax you owed in the first place. HMRC can also add on interest and late payment fees, which can run as high as £3,000 per tax year or more, meaning your small tax liability could become a hefty burden!

NEED HELP WITH YOUR SOLE TRADER ACCOUNTS?

If you are struggling to keep up with your bookkeeping and tax returns, you should speak to the team here at RJF Accounting. Our team are specialists in ensuring that your sole trader accounts are up to date and filed on time! Speak to us today about your accounting needs.

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