How Bookkeeping Works For A Sole Trader
Bookkeeping is one of the administrative priorities for any accountant. It is important to keep accurate records of your business income and expenses as they will help you understand your finances and track progress toward your goals or money needs.
The bookkeeping department also helps you provide your accountant with the information they need to complete and file your annual self-assessment tax return.
When it comes to your annual income and expenses as a sole proprietorship, it's important to keep a record of all of your bills and receipts. This will enable your accountant to reconcile your financial records faster and process your self-assessment to calculate tax liabilities or refunds. It will also help clear any questions HMRC may have about your tax affairs.
What Documents Do I Have To Keep As A Self-Employed Person?
In contrast to the rigid accounting and reporting requirements for limited partnerships, those for freelancers are more relaxed. However, this doesn't make it any less important for people to keep track of their finances. Keep asking yourself the question "Which documents do I really have to keep?"
Here is a Brief Summary as a Guide:
● All forms of income
Keep a record of your bills or other supporting documents for any income you generate from your business or self-employment, as well as any additional personal income (e.g. rental income from a property to buy or rent).
● All forms of business expenses
Keep all expenses and receipts that relate to your business or self-employment, as these can be deducted from your income when determining your income in your annual tax return for self-assessment. You don't need to include these receipts on your tax return, but digital expense records are helpful to aid in all transactions in case your accountants, HMRC, or others need additional information about your finances.
● VAT registrations (for VAT payers)
All VAT registered businesses must also document their VAT invoices collected from customers and any expenses on which VAT has been charged. This will help you fill out VAT returns and registrations.
● Bank records
All banking related to your business or self-employment must be recorded. Ideally, they should have a separate bank account so that they can be more easily identified. Your accountant can help you with this by providing you with online accounting software that is linked to most bank accounts, making bookkeeping easier.
● Any record of grants from the Self-Employment Income Support Plan (SEISS)
It is important to note that all grants that you receive from the HMRC during the term of the SEISS must also be recorded and shown as taxable income as part of your self-assessment.
How Long Do You Need To Keep A Company's Tax Records?
The UK Government states that companies must keep their tax records for at least five years after January 31 for the filing deadline of the corresponding tax year. For example, for the 2020/21 self-assessment with the final submission deadline of January 31, 2022, you should keep these documents until January 31, 2027. In case you've lost it, you should take notes now to provide figures estimated or provisional if necessary in the future. Please note that limited liability companies have additional record-keeping obligations that are not discussed here.
Do Sole Proprietorships Need To Create Accounts?
There is no legal requirement for autonomous sole proprietorships to publish formal titles. However, there are often benefits to creating formal accounts - it can help owners better understand their business performance and support banking relationships and loan/financing applications.
What is the Best Accounting Software for Sole Proprietorships?
If you are looking for proprietary accounting software that can improve the accuracy and efficiency of your accounting and help you prepare to make taxes digital, we recommend the following tax accounting software solutions as a starting point:
Xero software offers an award-winning solution that pairs well with the personal and expert service of our accountants. Xero can automate many of your traditional accounting tasks, including distributing billing reminders and importing bank transactions to update your records. It also easily integrates with other Xero products like Xero Payroll for seamless accounting.
The QuickBooks platform is designed to take the guesswork out of updating and processing your business records. Access your QuickBooks software on any device 24/7 with real-time information and reconciliation of all your active business bank accounts. You can send custom invoices and quotes via mobile device to build your brand image and reputation.
If you want to keep your overhead low and avoid bookkeeping fees, there is the option of doing your bookkeeping. However, there are risks, as you must be 100�curates in tracking your income and expenses. The consequences of making mistakes in your accounting can be disastrous, especially if they trigger an unexpected HMRC investigation.
Professional accounting can help you save time by taking the hassle out of keeping your records so you can focus on building your business and striking the right work-life balance. It also helps you understand your business finances, monitor your cash balances, plan for future tax liabilities, and spot trends to help you make important business decisions.
How Pro Tax Accountant Can Help With Your Bookkeeping
We take care of your bookkeeping on your behalf, saving you time and money so you can focus on what you do best - running and growing your business. Our prices are competitive and we can offer you software solutions to make your life easier.
As a proven and trusted accountant for sole proprietorships and corporate clients across the country, we can reduce the risk of human error, ensure accurate tax returns are filed, and improve the overall tax efficiency of your business.
We have a range of online accounting services that help with day-to-day bookkeeping and enable a smoother process for digitally filing receipts, invoices, and expenses. These intuitive platforms also allow you to make business decisions with greater foresight.