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Sole Trader and Self Employed Accounts Preparation and Advice

Do I need an accountant to prepare my self employed accounts?

If you a running a small business you may feel quite comfortable preparing your own accounts or the figures to include in the self employment pages of your tax return. However accounting and tax are specialist areas and it’s easy to make mistakes.

Using an accountant and tax adviser may not be as expensive as you think. It will save you time and give you peace of mind. We can either prepare business accounts or figures to include in your tax return. When we prepare your accounts we will and make sure that you are claiming all the deductions and reliefs you are entitled to.

We will also check that you are fully compliant – for example whether you need to watch your turnover if you are close to the VAT registration threshold.

We can also help you with the process of registering as a sole trader and starting to keep your business records.

If you would like a free no obligation meeting to discuss how we can help with your sole trader business and accounts just get in touch.

To find out more about setting up as a sole trader and how we can help read on.

Setting up as a Sole Trader

Being a sole trader is the simplest way to start in business.  You run your business as an individual and are self-employed.

There are several things that you need to do to start trading, and that we can help you with.

Register with HMRC

You will need to register with HMRC (H. M. Revenue and Customs) if any of the following apply:

  • you earned more than £1,000 from self-employment in a tax year (6 April – 5 April).
  • you need to prove you’re self-employed, for example to claim Tax-Free Childcare
  • you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits

You need to register by the 5 October in your second year of trading. Registration can be done online at

https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

Open a business bank account

We strongly recommend that you open a business bank account and use it solely for business purposes. If you want to pay using a debit or credit card use cards connected to your business bank account. This keeps your personal and business financial transactions separate and makes it much easier to do your book keeping and prepare your annual accounts. It also offers some protection if HMRC decide to enquire into your business affairs.

Register for VAT

You must register for VAT if your VAT taxable turnover is more than the registration threshold – currently £85,000. You can choose to register if it’s below this, for example to reclaim VAT on business supplies. There can find more information about VAT in our VAT page.

Record keeping and book keeping

If you are self-employed, you are responsible for reporting all your income and expenditure to H M Revenue & Customs in an accurate and honest manner. The key is keeping good records. We will always be happy to advise on ways you can set up or improve your book keeping system as it will make the preparation of your self-employed accounts and tax return easier (and cheaper). You can also read our guidance on record keeping & book keeping, although the best approach depends on you and your business.

If you would like a free no obligation meeting to discuss how we can help with your sole trader business just get in touch.

Sole Trader accounts

Accounts contain the information needed to prepare the self-employment pages of your self-assessment tax return. Accounts also give you a clear picture of how the business is performing. Is it making a profit or a loss? Is the profit growing in line with the business plan?

You can read about completing a self-assessment tax return on our Self-Assessment Sole Trader page.

Simply keeping an eye on the bank balance isn’t enough. If you run a business, you need at least a basic understanding of how to ‘read’ accounts to understand whether your business is succeeding.

We can prepare your sole trader accounts from your book keeping records, whether you use a book keeping package or excel. The accounts consist of an Income and Expenditure account that shows your total sales, expenses by category and profit (or loss) for the year. Prior year figures are also shown which provide a useful comparison.

When we prepare your accounts we will check to make sure that you are only claiming allowable business expenses and also ensure that you are claiming all of the deductions that you are entitled to.

If you have a larger business we can also include a ‘balance sheet’ in your accounts, although this is optional. The balance sheet will show any assets owned by the business (such as machinery or computer equipment), and amounts owed to and by the business. The balance sheet contains valuable information about the financial position and value of a business.

For very small businesses we can transfer the figures directly from your book keeping records to your self-assessment tax return without preparing accounts to save time and money.

If we prepare your accounts, we will always ensure that you understand what they mean. Is your business on plan? Does your balance sheet show a strong business or one with potential problems (e.g. excessive debt)?

If you would like a free no obligation meeting to discuss how we can help with your sole trader business and accounts just get in touch.

Sole Trader – Advantages and disadvantages

Sole traders benefit from the following advantages:

  • Control – Sole traders maintain full control of their business. Running it how they please without the interference of others.
  • Profit retention – Sole traders retain all the profits of their business.
  • Private data – Information about sole traders is kept private, unlike that of limited companies which is necessarily made public after registration with Companies House.
  • Specialist – Often a small business, sole traders can offer a more personal service with local roots and ties. This can be more appealing to potential customers in the local community.
  • Personal – Because there is no need to confer with other decision makers, sole traders can make decisions quickly and act on them swiftly, providing for the needs of their customers.

Just like any other form of business, being a sole trader can also have its disadvantages.

  • Liability – sole traders are not seen as a separate entity by the law. Therefore, they are subject to unlimited liability. This means if the business gets into debt, the business owner is liable. In the worst case, this may mean a person risks their home, personal savings and any other assets they have both in and outside of the business.
  • Tax – beyond a certain level of profit there will be more tax to pay if you operate as a sole trader compared to a limited company – and the more your profits increase the greater the tax difference will be.
  • Finance – sole traders often find it difficult to raise finance to fund their business. They may struggle with expansion in the future.
  • Reverse economies of scale – sole traders will be unable to take advantage of economies of scale in the same way as limited companies and larger corporations, who can afford to buy in bulk. This could mean that they must charge higher prices for their products or services to cover the costs.

We can advise you on the best form for your business, the level of profit at which you should consider forming a limited company and can also help you incorporate your sole trader business to form a limited company (or vice-versa).

You can read about the advantages and disadvantages of operating as a limited company on our statutory accounts page.

If you would like a free no obligation meeting to discuss how we can help with your sole trader business and accounts just get in touch.