Lunfoot Business Services
What You Need to Know as a Sole Trader
Looking after your accounts when you’re a Sole Trader or Self-Employed entails you to meet specific information and requirements. We have created this page to try and give you an insight into keeping your accounts straight.
What Records Do You Need to Keep?
As a Sole Trader, there are certain records that you are required to keep throughout the year.
Information on all your sales or other sources of income such as grants. This also applies to your personal income as you are personally responsible for your business.
If you have any employees, you must keep records of their PAYE information – this includes sick days, annual leave, reports and payments to HMRC, tax code notices, expenses, what they are paid, and any deductions or benefits.
Proof of all transactions, acceptable forms of proof are all receipts for goods or stock, bank statements/slips and till rolls.
To make this more manageable we advise everyone to use a monthly filing system, this will also make your (or your accountants) job much easier when it comes to the time of year when you need do a self-assessment form.
Length of Time You Need to Keep Your Records
You must keep all your records if you’re self-employed because HMRC may come back to you at any time in order to check you’re paying the right amount of tax.
These records must be kept for five years after the 31st January submission deadline of the relevant tax year.
For example, if you submitted your 2016 to 2017 records in January 2018, you must keep these records until the end of January 2023.
When you are self-employed, there are certain expenses which can be deducted from taxable profit, these are seen as the running costs of your business.
Expenses can still include a cost that is incurred for both personal and business use for example if you use your car for business 50% of the time and personal the other half, half of the cost of the vehicle would be an expense. This is the same for your home if you work from home - you can count a percentage of your bills as an expense.
A few examples of common expenses are office costs (stationary, phone), travel costs, uniforms, staff, stock/raw materials, financial, e.g. bank, premises and marketing costs.
Claiming an expense through your company is simple enough, simply keep the receipts throughout the year and fill out the total on your yearly self-assessment tax return. HMRC recommend keeping hold of your receipts for seven years after the cost was incurred, as evidence of all business purchases.
When you are self-employed, you are taxed via the self-assessment system annually as well as paying income tax and National Insurance on their business profits and deductions.
As a sole trader, you must pay tax on your business profits as well as any monetary gain from selling business assets or the business as a whole. However, as a sole trader, you can withdraw money from your business without a tax effect.
Tax relief is given on expenses incurred exclusively from the business. See the heading above for the expenses where tax relief is given.
Income tax is calculated from the businesses profits minus expenses and the personal tax allowance that you meet the requirements for.