Benefits of accounting for sole traders

Of the many benefits of being a sole trader, one is relatively straightforward accounting. So why would you still need to hire an accountant?

It turns out there are some invaluable benefits to having an accountant by your side as your sole trader business takes off. Let’s look at a few of them.

What is a sole trader?

In short, a sole trader is a simple business structure ideal for one person. As a sole trader, you own and operate your own business without shareholders or directors, keeping all the profits for yourself.

A sole trader is self-employed, although they can employ staff if they wish.

It’s quick to set yourself up as a sole trader – registering as a sole trader can be done in around ten minutes online.

Why would a sole trader need an accountant?

Being a sole trader doesn’t mean you have to do everything yourself, and many sole traders choose to work with an accountant.

Benefits of having an accountant as a sole trader include:

• Saving money

Your accountant’s monthly fee is an initial outlay, but a good accountant should actually save you money in the long run. They’ll do this through what’s known as tax planning – something which requires a little skill and knowledge of tax laws – and maximise your allowances by taking advantage of tax reliefs you’re entitled to.

Sole trader accountants might even advise a shift in business structure to make your enterprise more tax efficient. Again, it can take a professional to spot that you might save thousands in tax every year by switching to a limited company model.

• No errors

Even if you’re good with numbers, it’s so easy to make mistakes on tax returns. And if you’re one of the millions of people who aren’t mathematically minded, the risk is even greater. Innocent tax return mistakes can mean you face penalties and even an investigation by HMRC.

By getting an accountant to handle your books, you’ll always have an expert in your corner. Remember, they look at tax documents each and every day and are trained to spot things you’d never notice, ensuring your returns are unproblematic and error-free.

• All allowable expenses claimed

You probably know there are countless things – from tools to train tickets – which can be claimed as tax-deductible business expenses on a sole trader’s Self-Assessment tax return, resulting in a lower tax bill. 

Most people know that anything that is solely for business use can be claimed as an expense, but there are also claims that can be made on things used partially for business use with an element of personal use.

Many sole traders, especially the inexperienced, don’t know they’re able to claim these expenses and miss out on the tax breaks as a result.

• Never miss another tax deadline

For most of us, life is hectic. If you’re self-employed, this can be especially true. When you’re juggling your own small business, family life and leisure time, those tax return deadlines can really creep up on you. 

An accountant will make sure your accounts are prepared in a timely manner, relieving you from that last-minute scramble to complete your Self-Assessment and guaranteeing you never miss a tax deadline.

• Better use of resources

Whereas accounting for sole traders is far simpler than limited company accounting requirements, it still eats into your time.

The time you spend on routine accounting could be better directed elsewhere, such as the hands-on running of your business, or tasks essential for business success such as customer care and relationship building.

• Work/life balance

Although our society can glorify work and promote a culture of constant ‘grind’ and ‘hustle’, the reality is that to achieve long-term wellbeing, we all need a work/life balance.

Whether it’s time for family, hobbies, travel or simply sitting on the sofa daydreaming, we all need time to mentally clock off. 

Burnout is the unfortunate result of taking on too much and finding yourself trying to ‘do it all’, which is why it’s smart to outsource your accounts if you can.

• Keep everything together

It’s hard to keep track of every last invoice, receipt, expense, VAT record, business transaction and bank record pertaining to your sole trader operation. An accountant will be able to help you organise business-specific records and use them in the preparation of your annual accounts. 

• Help with HR

Contrary to popular belief, a sole trader may hire employees. 

Building a strong and reliable team is great for business growth, but those staff come with a whole lot of accounting admin. From setting up a payroll, sorting PAYE tax and National Insurance contributions and working out employee benefits such as sick pay, an accountant can do it all for you.

• Use technology to help you get organised

Accountants can offer you a digital solution to the problem of how to keep accurate records. Bookkeeping is an essential part of a successful sole trader business, but traditional methods like spreadsheets can easily leave you in a pickle. 

A good sole trader accountant will provide you with cloud-based accounting software which works alongside HMRC and various banking systems. This software makes it simple to track bills, generate VAT invoices, record and reconcile financial transactions and run payroll.

• Increase your chance of getting finance

Even if you don’t need a bank loan at the moment, you never know what’s waiting for your business in the future. A period of sudden growth, or even gradual expansion, may require a loan to cover cashflow. 

You’ll be in a much better position to approach a lender with a business case if you have a clear track record of formal accounts prepared by a professional, and can prove the evidence of the performance and profitability of your business.

• Advice for the future

Last but not least, an accountant can offer a sole trader ongoing advice.

As a sole trader, you might feel like you’re all alone when it comes to planning for your business’s future. With a good accountant, this just isn’t the case. 

In fact, you’re just a phone call (or instant message) away from your accountant’s years of experience and training in business, which will prove invaluable to sole traders with an eye on growth.

You should also work with an experienced limited company accountant. They will be by your side as your company grows, taking the pressure off you by preparing statements, accounts and tax returns for you ready for filing to the relevant authority in a timely manner. If you would like to learn more about our limited company accountant services, please don’t hesitate to get in touch!