How to Choose a Sole Trader Accountant

Understanding the Importance of a Sole Trader Accountant


A dedicated sole trader accountant may seem, to some, like an unnecessary additional expense, but this is far from the case.

They can help you to manage both your business and personal finances, keeping the two separate and advising you on how best to manage your money. They will provide you with tax advice, keeping you up-to-date with which taxes you need to pay and when they need to be paid by – as well as helping you to make the most of any tax efficiencies and savings you may be missing.

They can manage your yearly accounts, keep track of your incoming and outgoing business transactions, and even help you with deciding the best way to invest your profits. The best accountants for sole traders will ensure that everything you do is by the book – and that you’re making as much profit as you can.


Different Business Structures for Sole Traders

If you’re starting a new business, there are four different business types you may want to choose from, namely:

  • Sole trader

Some choose to start off as a sole trader, and then switch to a different business structure as their business grows. Which you choose will depend on the type and size of your business, whether you plan to include employees, partners or shareholders, your expected turnover and the level of personal risk that you are willing to take.

What Defines a Sole Trader?

A sole trader is an individual who is self-employed. They work alone, with no business partner or employees: they are solely responsible for the running of their business. They benefit from all profits, but they are also personally responsible for any liabilities.

To register as a sole trader you will need to contact HMRC and let them know that you plan to start trading as a sole trader. You will need to complete a Self Assessment registration form, after which they will send your UTR (Unique Taxpayer Reference) so that you can activate your online HMRC account. You will use this account to complete your Self Assessment tax return each year.

When you register you will need to do so with a unique trading name – and inform HMRC of this trading name within the first 12 weeks of trading. This trading name must not be offensive, must not impersonate another brand, and must be easily distinguished from other businesses: you cannot trade with the same name as another business in case of breaches of intellectual property or copyright laws.


Advantages and Disadvantages of Being a Sole Trader

There are many benefits to being a sole trader. YOU are the boss: you choose your hours, your working location(s), the type of work you do. You set the rules and can make decisions instantly – without the need to gain approval from shareholders or business partners.

Setting up as a sole trader is quick and easy, and less complex than registering a limited company or a partnership. Filing your accounts is easier, and you can keep all of your profits. If you later decide you want to become a limited company then this is certainly possible – and far easier than switching from a limited company to a sole trader.

On the other hand, there are disadvantages to being a sole trader too. Working on your own means that you have full responsibility for everything your business does. This means that you have full personal (and unlimited) liability. If you fail to pay business debts, your personal assets are at risk.

Overheads as a sole trader can be high, and support can be low. You’ll be personally responsible for making business decisions: there are no shareholders or business partners to mull things over with. What’s more, business continuity can be a problem. Should you fall ill or suffer a bad accident, you may find that you are unable to work. This risks failing to fulfil existing contracts, as well as building up business debt.

What’s more, you may find that some clients would prefer to work with a limited company rather than a sole trader for a number of reasons.

When deciding which business structure to choose it’s important to weigh up the pros and cons of each – what is right for one business may not be right for another.


Tax Responsibilities for Sole Traders

As a sole trader, you are personally responsible for paying your own tax and National Insurance contributions. These include Income Tax and NI – but may also include PAYE (if you hire staff) and VAT (if applicable to your business).

As such, it is vital that you keep accurate, detailed business records. You should keep every single invoice that you send out: these invoices should include the date, the details of the person or business invoiced, the amount charged, and details of the work that was done. Each invoice should also include an order number and information about how the invoice should be paid.

You must also keep records of every payment you make. This includes bank payments, cash payments and cheques. This is vital not just for your tax return, but also so that you can keep track of where your payments are going, and so that you have evidence that they have been paid (especially in the case of cash and cheques).

Once a year, sole traders must submit an online tax return. Without having recorded all of your outgoings and incoming payments during the year, this can take an incredibly long time – and may not be accurate.

While there are plenty of guides online that can help you through the Self Assessment process, it is one area that many sole traders find challenging. For this reason, many spend time researching the best accountants for sole traders: finding the right third-party to manage their accounts for them, giving them the confidence that they are doing everything by the book.

But how can you be sure that you’re choosing the right sole trader accountant?


Essential Tips for Selecting the Right Sole Trader Accountant

Entrusting a third party with something as important as your business accounts is a big decision to make. How can you be sure that you choose the right one?

Finding the best accountants for sole traders involves plenty of research on your part. Once you’ve found a potential candidate, you’ll want to find out as much as you can about them, conducting your own background checks and verifying any client reviews – be these online reviews, or in-person recommendations from family, friends and business contacts.

These checks will include making sure that the accountant is fully qualified, and that they and their business have the necessary industry affiliations to keep you safe and to demonstrate that they work to a high standard.

Finally, their level of expertise will also determine whether they are the right choice for you. How long have they been qualified/in business? Do they have experience in your particular business sector? Do they understand sole trader needs, more specifically?

For a sole trader, “Do I need an accountant?” isn’t the only question you should be asking. It’s also important to look for the right accountant. If you’re struggling to find an accountancy partner that ticks all the boxes, we’re here to help. With over 20 years of experience, a simple sign-up process, our knowledge of sole trader accountancy practices and processes and stellar reviews, we’re here to help. Contact us here.

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