Smaller businesses are typically operated as sole traders which means, for all intents and purposes you are the company.
It is frequent. Being a freelancer gives you the ability to pick the most suitable jobs for your abilities, control your time and build a portfolio of clients that you are proud of.
If you don’t pay attention to your accounting obligations the dream job you’ve always wanted could quickly turn into an unattainable nightmare. But, don’t worry about it. There are some important areas to be on top of that we’ll cover in this article.
Create a separate bank account
A separate sole trader account isn’t required by law. as freelancers, you’re in essence operating as a business. But keeping your finances separate is recommended, particularly in the event that you’re determined about your work.
The fact that you manage your finances from a personal bank account is more work. You must be clear about what expenses you classify as business-related and personal. It can affect the way you track your expenses and income, and will take up more time out of your daily routine.
When you establish a separate bank account for business and a separate business bank account, you’ll be able to keep track of business expenses as well as income. Not only will this be easier to track however, it will help you complete your self-assessment tax return simply.
Maintain Healthy Books
Maintaining your bookkeeping when you are freelancers is a crucial regular task to keep on up to. Because of work being a sole-trader you’ll need to maintain good books to make the task easier and give you more time for the job.
In order to keep your books in order for a sole trader you must:
Keep track of your business’s monthly earnings and expenses
� Keep records of receipts and invoices — which include the work transaction, rent and other bills.
Record any other business expense
The way you manage this data is entirely up to youYou can make use of old-fashioned methods like spreadsheets or a paper ledger, however we recommend switching to cloud-based accounts software when you can.
A cloud-based platform, such as Xero can automate many of the tasks that have been done manually like making invoices or reconciling your bank accounts, providing you with the ability to streamline, create and cut down on your time.
As a sole-trader this isn’t an obligation however, by April 2026 the requirement will become mandatory under Making Tax Digital (MTD). If you’re VAT-registered and already have a VAT number, you’ll be using cloud-based software in accordance with these regulations.
Get your taxes under control
The self-assessment tax return you file will show how much you need to reserve for tax deductions each year if you are a sole-trader.
Know your obligations nowthis means you know the amount at which you’ll be required to pay tax on income and National Insurance contributions (NICs).
Individually, as a taxpayer you are entitled to an individual allowance on your tax-deductible earnings that is less than �12,570. You aren’t required to pay tax.
In the event that you exceed this amount, you’ll pay tax at the following rates:
- * 20% of any earnings up to �37700 Basic tax rate on income
- * 40% of any income in between �37,701 to �125,140 — higher tax on income percentage
- * 45% of any income that exceeds �125,140. Additional tax rate on income
As a sole trader you’ll also be required to pay Class 2 and Class 4 of NICs
- * Class 2 NICs can be directly payable to HMRC
The NICs for Class 4 are paid via self-assessment
You’ll need to make payments for class 2 NNICs in the amount of � 3.45 per week if your profit is at least� 6,725 annually.
In addition, you’ll have to pay class 4 tax if your earnings exceed�12,570 over the tax year 2023/24 (9 percent on profits between �12,570 and � 50270 plus 2% of earnings above � 50,270).
How can you pay for NICs? Contact HMRC directly. The most effective method to pay is typically through direct debit.
Always remember to mention
We’d say it’s a great idea to declare expenses as feasible; it’s an excellent business procedure.
The process of managing expenses in your sole trader account is easy. Simply record transactions and receipts, then add them to your taxes.
If you are a freelancer, there are many expenses that you could declare when filing your tax returns. For instance:
- * Travel
- * Costs for stock
- * Equipment
- * Advertising
- * Delivery costs
- * Heating, rent and lighting
- * Postage, stationery, books
- * Bank charges
- * Telephone use
Chat to us
Working as a freelancer can be equally rewarding and tiring. If you’re not sure of how you can manage your finances and get the most of tax deductions, we step in.
We’re experts at helping freelancers meet their goals and make their money more efficient.
Contact us today to discuss your freelance business and how we can assist you with your sole trader’s accounting.