Good habits of a Sole Trader
When you start a business in your own name as a sole trader you probably have many questions about managing your finances responsibly from the get-go.
Because you are starting a new trade in your own capacity as a natural person, instead of housing your business in a Limited Company, you will need to be on top of your finances from day one. This will in turn make life a lot easier when doing bookkeeping and filing your Self-Assessment tax return with HMRC.
Here are a few tips which will help you run a clean shop and make your accountant or tax advisor’s job easier, which in turn will help keep your accounting costs down:
Keep your personal money and your “trade’s” money separate – you should open a separate current account for your business where your clients pay into, and you pay expenses out of.
Where you have paid business expense from your personal bank account or credit card, or a client has paid into your personal account, keep track of this as a loan to/from the business to/from yourself. It’s easy to forget about these expenses and you risk losing out on valuable tax deductions if you don’t keep an eye on them.
Download your business bank statement monthly in CSV format, save it as an Excel workbook in a safe place, and make notes next to each expense what it is for and who the client is where money is paid in.
Keep invoices for any business expense in a safe place – if you are using a vehicle for business and also personal use, always keep every fuel receipt even if you are filling the tank for a personal trip. This is important when calculating your tax deduction on the vehicle.
Remember to keep a log book of your business miles traveled when also using your vehicle for personal use, this is very important when it comes to calculating your taxes.
A good habit is to keep a digital copy of your invoices and slips so scanning them or taking a clear picture and storing these it in a folder every month avoids the end of year panic and potentially lost documents.
Clearly label digital documents with the date and a useful description e.g. “091021 Petrol BP” or “October 2021 Bank statement”.
Remember to register for Self-Assessment tax returns by 5 October in your business’s second tax year and file your taxes before the 31 January deadline when filing online (31 October when filing a paper return).
If you need advice with getting set up to do your own bookkeeping or need an accountant to take the burden off your shoulders, get into contact to schedule a free consultation.