Accounting for Sole Traders 

Operating as a sole trader is very popular and brings with it numerous benefits and perks. There are duties and responsibilities that must be met for a business to operate cost effectively and tax efficiently, and that's why we're here to help with accounting for sole traders!
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Sole Trader Accounting Services

Whether you require ongoing bookkeeping to submit your accounts at the end of the year, or a simple self-assessment tax return, appointing an accountant to assist with your accounting requirements is a very effective way of operating successfully and compliantly when self-employed.

We at QAccounting offer specialist accounting services for sole traders working in almost any industry and offer tailored support to ensure that your tax deadlines and accounting requirements are met.

Sole Trader Specialists

Regardless of whether you're a tradesman, run a hairdresser, or work in IT, QAccounting has the right accountancy solution for you. Our sole trader accounting services are tailored for people like you, and we have experience and expertise in supporting sole traders up and down the country.

Why Choose QAccounting for your Sole Trader Accounting?

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Flexibility

Choosing QAccounting means choosing an accountant that offers the kind of flexibility you need as a sole trader. Whether you require a simple one-off service or a more in-depth ongoing solution, QAccounting has the right service level for you. Don’t tie yourself down to something you don’t need or that doesn’t fit, instead pick and choose what you need depending on your sole trader accounting requirements.

Personal Touch

We are an established online accountancy provider and have been operating for over 2 decades, offering support and guidance to sole traders. Despite this, we still believe in that personal, one-on-one service. We offer all clients a dedicated Client Manager and accountant for those that require a more individual service, giving clients the option to get to know us and us get to know you and your business very well.

Hassle-Free

Why even appoint an accountant? Do I really need an accounting provider when I’m a sole trader? The answer to this is quite simple, are you willing to perform your accounting requirements yourself? Do you want the added hassle and stress caused by trying to manage your books on your own? Anything from submitting your self-assessment to maintaining your books on a month-by-month basis can be performed by your accountant, and here at QAccounting we can take that hassle away from you, leaving you free to concentrate on what you do best.

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Self-Assessment Tax Return

Anyone earning an income as a self-employed sole trader is required to perform and submit a self-assessment tax return (personal tax return) once a year. Your annual self-assessment accounts for all income generated throughout the year and calculates your tax liability to HMRC. QAccounting can perform your self-assessment tax return for you, helping calculate your income, expenditure, and taxes in a timely manner to be completed and submitted by the deadline set by HMRC. Let QAccounting help you when it comes to Self-Assessment Tax Return deadline season!

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Expertise & Experience

We at QAccounting have been supporting sole traders like you for over 20 years, assisting in all things accounting and tax, making the lives of the self-employed easier. We operate via 2 offices in the UK and bring with us a wide range of experience and expertise. From award-winning software to renowned knowledge and know-how, choosing QAccounting as your sole trader accountant means choosing a trusted service provider that puts the needs of its customers front and centre.

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Low-Cost Accounting

Do you know why our customers love us? Yes, we provide valuable guidance and support for their businesses, but also, our prices are competitive, and our fixed monthly fees are highly reasonable. Having an accountant who is transparent and upfront about fees and costs is very important as it means you won’t be hit with any hidden fees or unexpected surprises throughout the year. At QAccounting, we offer fixed fee services where our clients agree on a monthly fee upfront. We are among the best premiums we’ve found on the market for sole trader accounting.

Understanding UK Tax Obligations for Sole Traders:

 

Navigating the tax landscape as a self-employed business can be challenging. Here’s a quick guide to some essential terms and concepts:

What is a Sole Trader?

 

A sole trader is a “self-employed” person who owns and runs their own business as an individual.  You can also operate on a self-employed basis with more than one person, but in these cases the business structure would be referred to as a “Partnership”.

Being self-employed effectively means you are subject to tax personally via the “self-assessment” system on the profits of the business.

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What is Unlimited Liability?

 

When you operate as a sole trader you are genuinely in business for yourself and so the “buck stops with you” in pretty much every aspect!  It is a common structure used by people who are starting off in business for the first time, or those who want to focus on the business itself, while minimising the level of business administration which is required.  It is therefore quite often the favourite structure used by tradesmen and tradeswomen.

But while this freedom is to be welcomed, it does also come with additional risk in the form of “unlimited liability”.  What this means that you are personally liable for any debts incurred by the business.  So, it is essential to manage the business responsibly!

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Setting Up as a Sole Trader

 

We have produced a detailed guide to outline the steps which must be taken to setup as a sole trader or partnership business entitled: QA Setting Up as a Self-Employed Sole Trader or Partnership Guide.

If you are seriously considering operating as a sole trader, or just interested in what is required to do so, we recommend downloading a copy of this now!

Sole Trader Responsibilities

 

In addition to following the steps necessary to setup the business correctly a self-employed person also has ongoing responsibilities including:

  • Keeping proper books and records
  • Submitting a self-assessment personal tax return every tax year
  • Paying income tax and NIC on the business “profits”

The concept of paying tax on profits instead of income is an important one and definitely different from being employed!

Genuine business expenses determined by applying the “wholly and exclusively” for the purposes of the business test can be deducted from income BEFORE profit is subject to income tax and NICs.

Therefore, there is a clear incentive to properly record all business expenses and retain evidence in full support of these!  For more information about what can be claimed as business expenses when you are self-employed we have also produced a detailed guide entitled QA Self-Employed Expenses Guide.

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So How Does Self-Assessment Work?

 

That is a very detailed subject which cannot all be included here.

But as a very high level summary of the main points:

  • A “personal tax year” runs from the 6th April in one year to the 5th April in the next.
  • In the majority of cases the financial year of the business will not correspond to this period!
  • So, there are special rules which are applied when a business starts trading called the “Opening Year Rules”, and these have been designed by HMRC to ensure that all profits are taxed “at least once” for the opening years. In practice though, this means that unless a business starts trading on the 5th April then it is normally taxed twice on a percentage of their profits in the opening few years, in line with these rules.  HMRC does allow these “tax credits” (i.e. overpayments of tax) to be carried forward for offset against periods when either the financial year changes, or the business ceases trading.  But waiting until the business ceases to obtain tax relief never seems very equitable!  There is therefore an incentive to elect to start the business at the start of a tax year were this is possible, although in the majority of cases this will unfortunately not be the case.

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  • Business profits should be recorded in the self-assessment personal tax return which must be submitted BEFORE the 31st January AFTER the end of the personal tax year in question. So, for the tax year ending 5th April 2023, you must complete and file your self-assessment personal tax return before the following 31st January 2024.
  • Payment of any associated income tax and NIC must also be made BEFORE the same date (i.e. 31st January AFTER the end of the personal tax year in question). The amount of tax payable will be the value of profits subject to tax using the opening year rules taxed at the current rates.
  • Please note that tax for future years must now also be paid in advance using the “payment on account” system. This occurs where the prior year taxation exceeded £1000.  You pay an estimate of half the current year tax (being half the tax you paid last year) on 31st January, same again on 31st July, and the balance due / receivable on the following 31st January.  Therefore going forward the payment due each 31st January is the balancing amount (under/over payment) of tax due for the current year, and half the estimated tax for next year.

This can all seem quite confusing initially, but we will be happy to provide examples of how this works in practice to help you!

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What Happens If You Work in the Construction Industry?

 

If you work in the construction industry then HMRC has created additional rules that you need to be aware of called the Construction Industry Scheme (CIS).  This scheme has been designed to try and reduce the frequency of construction workers who are either: not submitting tax returns, or failing to make self-assessment payments when they are due.

The scheme works by requiring the end client, referred to as the “Contractor”, to deduct tax at source (i.e. similar to an employer) equivalent to:

  • 20% of Invoiced Value – Where the worker, referred to as the “Sub-Contractor” HAS registered with HMRC under the scheme.
  • 30% of Invoiced Value – Where the worker, referred to as the “Sub-Contractor” HAS NOT registered with HMRC under the scheme.

Given the huge difference in tax rates it is clearly essential that workers who are sub-contractors register with HMRC in advance of starting work which is covered by the scheme, or as soon as possible afterwards, ideally before raising an invoice!

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Additionally, if your business also employs other sub-contractors then you must also register under the scheme as a “Contractor” as well, and submit monthly returns to HMRC, and pay the associated tax deducted at source to HMRC.

Invoices summarising the amount of tax deducted at source and the net payment to be made to the sub-contractor must also be supplied to them, and payments of the net amount can then be made directly to their bank account.

It is essential to understand that if you are a sub-contractor that, because HMRC have collected taxes “at source” before you have deducted expenses, in most cases you will have paid too much tax!  To correct this, you have the option to make a “CIS Reclaim” when you submit your next tax return, by recording the correct profit values for the year and the taxes already paid to HMRC at source.  HMRC will then repay this overpaid tax to the sub-contractors once they have processed the claim, which can take many months.

Unlike most other accountants who charge clients a percentage of the tax reclaimed for providing a CIS Reclaim service, QAccouting only charge a small flat rate fee making us market leaders in this space!

What “Basis” of Accounting To Use?

 

In order to accurately record the profit for the year you must also decide what accounting “basis” (or method) you are going to apply when the business commences.  And there are two methods that can be applied:

  • Cash Basis of Accounting – The cash basis of accounting is available to business with income less that £150,000. And it works by only recording income and expenses when PAYMENTS ARE RECEIVED OR MADE.  It is easy to understand and therefore frequently the method chosen by new businesses who perform their own accounting.
  • Accruals Basis of Accounting – The accrual basis of accounting is the method which must be used by larger businesses, or voluntarily by other businesses for instance who use an accountant to produce their books and records. It is also used by limited companies.  Under the accruals basis income and expenses are recorded when they are DUE.  And this is normally determined based on when the services were actually provided.  We generally use the accrual basis by default.
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What are the “Badges of Trade”?

 

Due to the potentially more favourable tax treatment of operating on a self-employed basis instead of being employed, there is a always a residual risk that HMRC may challenge a worker’s “self-employed” status at a future date, arguing that they were actually “employed”, and therefore more tax is due!

In order to make this decision they apply a number of criteria called the “Badges of Trade”.  Consideration of this areas is beyond the scope of what we can include in a short summary.  However, as specialists in the area of sole trader service provision QAccounting can provide advice and guidance to you in this area to help you if required!

Wealth Management

Wealth management becomes a very important thing to consider for anyone operating via a self-employed basis. QAccounting does not provide wealth management services directly, but partner with specialists that deal with self-employed professionals who can provide advice on your company and personal finances, as well as setting up or consolidating your pension. Investing in a business pension can be an effective way of lowering your corporation tax bracket whilst still benefitting from your finances. At QAccounting we make it very easy for customers to benefit from specialist wealth management services whilst making positive financial choices for their business keeping their accounting in mind.

Make your Sole Trader Accounting Simple with QAccounting

Don’t go it alone! QAccounting can take care of your accounting and taxation responsibilities providing you the freedom to concentrate on what is most important to you and your business.

Taking the leap into becoming self-employed can be a very daunting and intimidating undertaking. Becoming a sole trader from a previous period of employment brings with it various responsibilities and duties that wouldn’t otherwise apply. Going from a fixed income to contract-based work or project work can cause influxes of income and even periods of financial drought. It is in these cases that having an accountant onside will help massively with your duties as a sole trader, your accounting responsibilities being the most important.

There are however many advantages to ‘doing it yourself’, the allure of being your own boss and having the freedom to pick and choose work as you please being a primary draw of becoming a sole trader. We at QAccounting want to work with you as you navigate the role of a sole trader and will help in every way we can to ease the responsibility of your taxes, your finances and bookkeeping, making your sole trader journey as simple as possible.

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Attempting to take care of your own accounts can be a huge challenge to sole traders, and ensuring that you keep afloat in an ocean of receipts, invoices, letters from HMRC, and transactions can be the stuff of nightmares. Always remember, being your own boss also means that the buck stops with you, and although there are many benefits to working for yourself, you also take on all elements of responsibility yourself. It is because of this that hiring an accounting provider such as QAccounting can be so beneficial, as we will help in all accounting-related ways to make the running of your business as easy as possible.

It doesn’t matter what industry you are operating in. As a sole trader here at QAccounting, we can offer expert services from our dedicated team of client managers, VAT experts, accountants, business consultants and wealth management partners. We cover everything when it comes to accounting for sole traders. Whether you require someone to handle your bookkeeping for you, access to award-winning software platform Xero, or simply assistance when preparing and submitting a personal tax return, QAccounting has you covered. There are many ways in which you can join QAccounting. Our fixed fee services are tailored to you and the way your business works.

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If you ever need to speak to a member of our team, we are all available 5 days a week. We have done away with complicated spreadsheets, long-winded switchboards, and confusing call centres. We give our clients access to a dedicated team of Client Managers and accountants directly, meaning that you will always deal with your dedicated team member to assist with what matters most, your business.

Our ethos is to make accounting simple, and we work hard with all our customers to ensure that they operate as effectively as they can in the most simple and seamless way. Please get in touch with us if you want an easy-to-understand conversation or access to our expert team.

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Over 20 Years Experience

It's true, we're certainly not the new kids on the block, but we've been supporting sole traders like you for over 2 decades and boast unparalleled experience and expertise in sole trader accountancy. We invite anyone operating as a sole trader to get a non-obligation quote from us today. It's quick and easy!

Sole Trader Accounts for One Low Monthly Fee

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Trusted

Why should you trust QAccounting with your accounts? Well, we have twenty years experience and have hundreds of 5 star reviews.

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Compliant

Make sure that your business is operating cost effectively and tax efficiently. Compliance is key in running a successful business.

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Personalised

We believe in good systems, expert accountants and that good old fashioned personal touch!

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Recognised

We are an established sole trader accountant with recognised expertise in accountancy and tax services.

Frequently Asked Questions

Although there is no legal requirement for a sole trader to appoint an accountancy provider, it is common that someone operating as a sole trader has an accountant in place to ensure that their bookkeeping is performed correctly, and their taxes are paid on time. It is possible for a sole trader to perform their own bookkeeping and annual self-assessment tax return but having an accountant in place gives you the peace of mind that your business is being accounted for correctly, and you miss no deadlines with HMRC.

QAccounting offers accounting services to sole traders, from a one-off self-assessment to ongoing bookkeeping and accounting support.

The cost of sole trader accounts depends on what services you would like an accountant to carry out. A good accountant should be transparent about their fees from the outset to ensure that you are not hit with any hidden costs throughout the year.

We at QAccounting offer services to sole traders for very competitive premiums. You can choose a one-off service such as an accounting consultation or self-assessment filing, or you can utilise our ongoing services and even access to Xero bookkeeping software.

A sole trader is required to perform an annual self-assessment that must be prepared correctly and filed on time with HMRC. The self-assessment tax return will account for all income and profit made throughout the year and will also incorporate any expenses incurred and fees accrued. It is important for a sole trader to keep bookkeeping records throughout the year when it comes to the filing of their sole trader tax return.

We believe in keeping accounting simple, and we believe that any sole trader who appoints an accountant shouldn’t have to worry about their tax deadlines and day-to-day accounting. That’s what your accountant is for! Here at QAccounting, we specialise in making the lives of sole traders simpler, and our services have been designed specifically with sole traders in mind. We can offer one-off service or low-cost monthly solutions for any self-employed professional operating as a sole trader. Get a quote today, or feel free to contact our team of trained accounting consultants.

Of course! We can make it very simple for you to switch your business entity from a Sole Trader to a Limited Company. Should you wish to set up a company and switch from operating as a sole trader to a limited company, then we can ensure that this transition happens swiftly and seamlessly. We can assist in the set up of an LTD Company, we can perform full tax registration for you, and we can even help set up a business bank account. On an ongoing basis, we can support your business’ day-to-day accounting and bookkeeping, making your transition from sole trader to Limited Company as easy as possible.

You can submit your sole trader self-assessment tax return directly with HMRC online. You will need to have previously registered for sole trader self-assessment and must have your unique tax reference (UTR) number to log in and submit your return. Your self-assessment must be correct, and you will be required to declare all your income, as well as expenses and profits earned throughout that tax year. As an accounting provider, we can assist you in making sure your self-assessment is correct and is submitted on time. If you have any questions about self-assessment filing or would like a quote for us to perform your self-assessment, please let us know.

A sole trader is not legally required to set up a separate business bank account for their sole trader business. Despite this, setting up a separate bank account for your business is essential for bookkeeping purposes and can help when it comes to accounting for your own finances throughout the year.

The question of whether you would be better off as a limited company or a sole trader depends on numerous factors. The projected income can dictate what would be more cost-effective, as often, a higher income attracts a better take-home pay from working as a limited company. There are benefits of operating as a sole trader as opposed to setting up a limited company, many of which we have explored above. If you are wondering what avenue would be best for you to go down, then we would be very happy to discuss this with you directly. Feel free to contact our helpful team, who will assist you in making the right decision.

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