Have you recently started a business as a sole trader” Or are you thinking about starting one Starting a business doesn’t come without its challenges and chores, and one of these challenges is the accounts involved with running a business. Accounts can be complicated as there needs to be meticulous record-keeping and attention to detail, and basic background knowledge of accounting if you want your accounts to balance.
A big decision that you’ll have to make regarding your business is whether you’ll do your own accounts or if you’ll hire a professional to assist you. In this article, we will look at what is expected of you as a sole trader in terms of accounts and offer advice regarding whether you should handle your accounts on your own or not.
Do I need a business account?
As a sole trader, you and your business are seen by the tax man, banks and the eyes of the law as one entity, and you do not legally need to separate your business finances from your personal finances. However, it is still recommended that you try to keep your finances separate by opening up a business account. It will make your business appear more professional when clients are depositing money, and you’ll also be able to see your business income and expenses more clearly.
Do your research to see which bank offers a business account option that suits your specific needs best.
What taxes do I need to know about?
As a sole trader, you are responsible for filing your own self-assessment at the end of your business year. In the Uk, you are allowed a personal income of £12,500. Once you start making more than that, you will be taxed on your personal income.
You’ll only need to start paying VAT when your business’s turnover exceeds £85,000 for the tax year.
What about NICs?
If you’re a sole trader, you’ll need to pay class 2 NICs and class 4 NICs when earning over a certain amount. To make things easier, you’ll probably want to set up a direct debit order. If you earn more than £6475 during the tax year as a self-employed person, you’ll need to pay a weekly amount of £3.05 every week to National Insurance Contribution. You’ll also need to pay between 9% and 11% on profits earned once you start making profits that exceed £8632.
What records do I need to keep?
Record keeping is the fundamental basis of accounting. By keeping track of all your business’s expenditure and income, you’ll get your accounts to balance, and the process of paying your taxes will become so much easier. Make sure that you keep receipts and find a record-keeping method that works for you. Keeping track of finances is a habit. It may be difficult in the beginning, but once the habit has formed, you will find it easier and perhaps even enjoyable.
Record keeping is not just beneficial for assisting with taxes. It allows you to have a clear view of your finances and see where you are potentially spending too much money, as well as where budget cuts can be made.
You could use a simple ledger and ensure that the accounts balance each day, or you could make use of the many innovative accounting apps that are available to you online. Find what works for you and your business and stick to it.
Do I need to hire an accountant?
When you’re a sole trader that is just starting out, oftentimes you can’t afford a full-time accountant, as accountancy and bookkeeping services can be expensive. If you take the time to learn about aunts, taxes, and bookkeeping, you’ll definitely be able to handle your accounts yourself. If you find yourself battling, you may want to seek assistance from a once-off accountant or financial advisor to help get you on the right track.
Mistakes to avoid when doing your own accounts
If you’re new to doing your own bookkeeping and accounts, there are dozens of rookie mistakes that you should aim to avoid. Some common beginner’s mistakes and errors that you should look out for include:
- Not doing regular bank reconciliations- If you do regular bank reconciliations to ensure that everything is adding up the way it should, you’re more likely to spot small mistakes before they become big issues.
- Leaving your accounts to the last minute- Keeping track of accounts requires almost daily work to keep things in order. When it comes to your self-assessment, it’s important to start preparing it well ahead of its due date.
- Mixing your business and personal finances- Don’t confuse your personal and business finances by only having one account. Keep things separate, and they’ll be easier to comprehend.
- Throwing away receipts- When it comes to business expenses, you’ll need proof in the form of receipts, so do not throw these away.
Hiring the right accountant or bookkeeper
If you do decide to hire an accountant or bookkeeper, you’ll need to find the right person for the job. Ensure that you hire someone with impressive credentials and experience in the industry. You may want to choose someone who has had experience with a similar business structure to your own. Make sure you understand their fee structure upfront as you don’t want to be met with unexpected costs. If you don’t know where to start looking, ask friends and family members if they have any good recommendations of accountants they trust.
When it comes to answering the question of ‘should sole traders handle their own accounts?’, it really comes down to the individual. If you have the time and skills to handle your accounts efficiently, you should definitely attempt to do so, and don’t be shy to make use of apps designed to make the process easier. But if you’re very busy with other business tasks, and you have the money available to hire a bookkeeper or accountant, you may want to look into doing so.