Keeping Books in Order: Complete Sole Trader Bookkeeping

Record templates vary in complexity, so you need to understand the differences before you go with one accounting service or another. Some, such as Patriot Software Accounting Premium, simply let you maintain descriptive product records. Others, such as Intuit QuickBooks Online, do more, like asking how many of each product you have in inventory when you create a record and at what point you should be alerted to reorder. Next, they actively track inventory levels, which provides insights into selling patterns and keeps you from running low.

Cost of goods sold equation

The most striking difference is simply the need for self-assessments and the likelihood of business owners doing their bookkeeping themselves. So, as you can see, there are plenty of options for sole traders to help keep their accounting in order. Whether you use an Excel spreadsheet, bookkeeping template or online accounting software, it’s important to ensure that all records are kept up-to-date and secure. Cloud accounting software is a great tool for sole traders wanting to stay on top of their accounts.

What do I need to keep track of as a sole trader?

A perfect fit for self-employed business owners is the Self plan, which supports one user and is $9/month with all features included. There’s a Pro plan for two users that runs $19/month, and Plus, Team, and Unlimited user plans are also offered. If you know nothing about accounting, Zoho Books is the right software for you. A great fit for self-employed accounting for sole trader individuals, Zoho Books offers three plans, all with a ton of features. Particularly well-suited for businesses that sell products and need to manage inventory, Zoho Books also works with several online payment gateways for easy customer payment. With Wave’s free accounting software, you can send invoices, scan receipts, and accept online payments.

Home Office Expense

You may also need to keep other records such as any money you are owed but have not received, your year-end bank balances, or any money you’ve taken out for your own use. Once you’re in the system and have paid your first return, you need to pay tax twice a year, on 31 January and 31 July. You need to pay your tax on this income by the following 31 January (you need to submit your tax return by this date too). Anything that’s a business cost (known as allowable expenses) can help reduce your tax bill at the end of the year. It talks about getting set up, taxes you’ll need to be aware of, what you need to do to register for VAT (if necessary), and how to stay on top of your finances. But because you’re self-employed and looking after so many aspects of the business yourself, it can be easy to let the accounts slide as other tasks frequently take priority.

Better chance of getting paid on time

The benefits of accurate record-keeping are endless, including making better financial decisions, easier tax filing, and improved financial health. By following the steps outlined in this guide, you can establish a sound bookkeeping system that will help you stay on top of your finances and ensure that your business is thriving. The income statement provides an overview of your revenue and expenses over a specific period, while the balance sheet summarises your assets, liabilities, and equity at a given point in time. The cash flow statement shows how much cash is moving in and out of your business during a specific period.

Who’s responsible for collecting/paying sales tax?

• Making Tax Digital will apply to a number of different taxes, including VAT, income tax, and corporation tax.
• Patriot Software Accounting is best for uncomplicated small businesses that probably won’t outgrow it.
• Effective record keeping ensures that all transactions are accounted for and that any discrepancies or errors are detected early on before they become costly problems.
• Assuming you have a business-only bank account, you need to import those bank and credit card transactions into Xero.
• Any insurance related to running the business, including public liability, professional indemnity and travel insurance.
• To stay ahead of the pack, many self-employed individuals attend online business courses and educational seminars.

Suppose you’re attempting to secure more financing or looking for investors. In that case, a high debt-to-equity ratio might make it more difficult to find creditors or investors willing to provide funds for your company. All basic accounting formulas discussed throughout this post highlight the importance of double-entry bookkeeping. Below, we’ll cover the fundamentals of the accounting equation and the top business formulas that businesses should know. Read end-to-end for a thorough understanding of accounting formulas or use the list to jump to an equation of your choice. We’re happy to answer your questions, clear up any confusion and get you on the right path.

• Once you have a customer record and start creating invoices, sending statements, and recording billable expenses, you can usually access historical activities within the record itself.
• Designed to make a sole trader’s financial management simpler, Countingup has automatic expense categorisation to help you keep an accurate, digital record of your business expenses.
• Discover what you need to know about doing the accounting and bookkeeping for your small business.
• For example, Countingup generates accurate and up-to-date cash flow reports in your app, so you can see how your business is doing at any time.
• Still, with a little  patience during the learning process, small businesses already in the Zoho ecosystem may enjoy working with this accounting software.

Tax estimates

If you’re looking for the most fully featured accounting software, Wave Accounting is a good bet. Wave includes expense tracking, sales tax customization, and bill payment reminders. And unlike some paid software, Wave doesn’t limit the number of clients you can invoice per month. But different free accounting options have different benefits, so we recommend looking over our list of the best free accounting software for small businesses to find the right one for you. If you’re set on using QuickBooks as your accounting software provider, we recommend QuickBooks Online over QuickBooks Self-Employed. At $25 a month, QuickBooks Online includes mileage tracking, cash flow management, and sales tax tracking.

Sole Trader and Making Tax Digitial

HMRC has the right to disallow any claims it deems excessive or unnecessary. Any fees you have paid for professional advice, such as accountants or solicitors. Any insurance related to running the business, including public liability, professional indemnity and travel insurance. It’s also important to remember that all business costs must be reasonable and necessary to run your business. HMRC will look at any excessive expenditure as a possible indication of tax avoidance. My Gold Coast startup TaxTank has seen this firsthand while working with clients such as ITP Accounting Professionals, which services over 300,000 clients across the nation.