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If you are already self-employed, you will be aware of self-assessments and your self-assessment tax bill. Many find it a stressful part of being self-employed, having to keep on top of incomings and outgoings throughout the year to ensure you submit an accurate assessment. What makes this even more difficult is if you are used to storing this information manually. As the tax return deadline approaches for the 2021 to 2022 tax year on 31st October 2022 for those completed on paper forms, and 31 January 2023 for online returns, HMRC is encouraging customers to plan ahead to give themselves the best chance to complete their Self-Assessment on time. Completing a self-assessment Self-Assessment is a process by which you inform HM Revenue & Customs of your earnings, income and expenses relevant for this tax period. This is done by filling out an income tax return, submitting your tax returns to HMRC and then calculating your tax liabilities. If you submit this information on the internet, it determines your tax obligation by itself. You are required to file a tax return if, during the previous period of taxation (6 May to April 5,) you were: self-employed as a sole trader, and earned over £1,000 (before subtracting anything you are entitled to tax relief for) A partner in the business partnership You will not usually need to send a return if your only income is from your wages or pension. But you’ll need to make sure that you have an income that is not taxed from: COVID-19 grants or support payments the money earned from renting out a house tips and commissions the income earned from investments, savings and dividends foreign income Making Tax Digital The intention of the government is to modernize the process of calculating tax-deductible income until April 2024. It will replace it with an entirely digital system called the Making Tax Digital. Making Tax Digital was first introduced at the time of the April Budget in 2015. It is designed to revolutionize how the UK taxes for individuals, entrepreneurs and self-employed companies. The goal is to make tax administration more efficient, efficient and simpler by the introduction of digital records-keeping. MTD will assist HMRC be one of most technologically advanced tax administrations. In April of 2019, all companies were also required to prepare their VAT return on an annual basis. Some were already doing it every three months this wasn’t a huge change, but these have to be recorded electronically using MTD-compliant software. Beginning in April 2022 the VAT returns are required to be recorded and submitted electronically regardless of the amount you earn. Through Making Tax Digital, HMRC intends to take in £4.8 billion in 2023. It is estimated that £9.4 billion of tax revenue gets lost due to mistakes or inaccurate tax returns, something the government hopes to reduce. Many freelancers, contractors and SME owners have kept records on paper or utilized Excel spreadsheets previously to track their invoices or expenses. This could lead to mistakes and records can get lost. We’re now at a point where VAT submissions have to conform to MTD, Gorilla can help. What exactly needs to be recorded digitally? Keeping certain information as MTD compliant digital records is now a requirement from HMRC, and they need to be as current as possible by storing and recording each transaction. Additionally, you will need to save the following data as digital records Name of the business Location of business VAT registration number Rate of VAT that is charged The items you made and then received Their value and time All of your records should be kept in a digital format for a period of 6 years. Your accounting program you are using will also be capable of showing the audit trail that runs between your the VAT returns and records. What happens if you are non-compliant with MTD? Companies must comply with MTD or else they’ll be subject to penalties. It will be applied to the very first VAT return you file and has been in effect since 1st April 2021. This is a default charge which lasts for 12 consecutive months. There is a further surcharge in the event that you do not adhere to the rules with the requirements again (applied to the VAT due on your last return) as well as an based-on points system in the event that you fail to meet your compliance. This surcharge can be calculated in a percentage of VAT not paid on deadline. The first late payment is 2.2% of the amount due in VAT. It will then increase to 5%, 10% and 15% for any subsequent payment. There is also the possibility of being punished if the VAT return is contaminated with errors it, which is why it’s essential to ensure all is in order. How can you avoid any errors? At Account-Ease, all of our clients get fully inclusive use of FreeAgent included in their monthly fee. FreeAgent is an award-winning bookkeeping software that is MTD compliant, which is cloud-based meaning you can access it anywhere, any time. Handling financial data, especially online, is something a lot of people worry about. However FreeAgent is completely secure, with all the financial data safely transferring to their backup servers several times an hour. Whether you’re a locum, contractor, sole trader or small business owner, you can submit your digital VAT returns through FreeAgent. Thousands trust FreeAgent daily to track expenses and income easily and quickly.

You probably didn’t start your business because you love bookkeeping. And you probably do your own bookkeeping to save money, but the benefits don’t end there. Regularly entering your income and costs into your financial records can give you a far better understanding of your business income and spending, so you can judge how well your business is performing and control your cash flow. Sound bookkeeping is key to running a successful business, but many small-business owners make the same bookkeeping mistakes. So, what are the seven deadly sins of bookkeeping and how can you go from sinner to saint if you’re committing them? 1. UNDERESTIMATING THE IMPORTANCE OF BOOKKEEPING Running a small business means having to “wear many hats” and with so many things vying for your attention, updating your financial records can easily slip down your to-do list – especially if you dislike doing it. But the wellbeing of your small business relies on you staying in touch with your cash flow, and updating your financial records regularly is pivotal to that. Lose track of your key numbers and your business could soon end up in serious trouble. Be sure to make updating your financial records regularly a key priority. 2. USING A PAPER-BASED SYSTEM INSTEAD OF BOOKKEEPING SOFTWARE Some small-business owners still maintain paper financial records, often because it’s what they’ve always done or they’re reluctant to use accounting software, because they lack knowledge and experience. Some simply don’t fully appreciate the many benefits accounting software brings. Using accounting software can save you lots of time and effort. It’s easier to correct mistakes and you can access your financial records wherever you are. Accounting software can also help you to quickly and almost effortlessly invoice your customers, as well as keep your expenses well-organised, so you can better manage your spending. Costs can be totalled up accurately, quickly and conveniently, while monthly subscriptions for accounting software are affordable (around a tenner a month). 3. NOT UPDATING YOUR BOOKKEEPING FIGURES REGULARLY For your financial records to be useful, you must update them regularly. Small-business owners often don’t do this because they’re short of time and busy with many other things. Sometimes they struggle with bookkeeping or avoid it because they dislike  it. Taking a “little and often” approach offers a solution. Much depends on how many sales and purchases your business makes; while a retail business owner might need to update their financial records every week, a service business might only need to do it once a month. The key is to regularly set aside enough time to concentrate on the task in hand and get it done and dusted. 4. GETTING YOUR BOOKKEEPING FIGURES WRONG Accuracy is essential if your financial records are to prove valuable. Mistakes can easily be made, and the bigger the mistake, the bigger the consequences. You need to ensure accuracy when updating your financial records. Giving yourself enough time and doing it somewhere you’ll be free from distractions can enable you to get it right the first time. Never rush when updating your financial records, because mistakes are more likely. 5. LETTING YOUR EXPENSES GET OUT OF CONTROL Many small-business owners struggle to manage their expenses, often because they don’t have a reliable system that they stick to. The results can be a huge mess, which wastes time and money when you need to work out your tax expenses as you’re completing your annual tax return. All of your expenses should be detailed and conveniently categorised within your financial records. Good organisation and updating your financial records regularly are essential. Need to know! You must retain receipts and invoices for business purchases for at least five years after the 31 January online-submission deadline of the relevant tax year. 6. FAILING TO RECONCILE YOUR BANK STATEMENTS AND YOUR ACCOUNTS Put very simply, this means making sure the balance in your business bank matches the balance you see in your financial records or accounting software. It can help you to spot errors or omissions in your financial records. If there are any mistakes, you’ll have a false impression of your cash flow, which can be very dangerous if your errors are big ones. It’s advisable to reconcile your bank statements at least every month. You should also reconcile all transactions, including credit card payments, PayPal transfers, etc. 7. NOT LISTENING TO WHAT YOUR BOOKKEEPING FIGURES ARE TELLING YOU Some small-business owners are pretty good at entering accurate figures and updating their financial records regularly. But where some fall down is they don’t take enough time or indeed any time to assess the figures within their financial records and understand what they say about business performance and development (or lack of). You should take time to look at your financial records, at least every month, to compare and better understand your costs and sales. It could enable you to make decisions that put your business on a better footing and ultimately much more successful.

Setting up as a sole trader is the most popular way of starting up a new business in the UK. It’s especially common amongst those going into business on their own for the first time. Starting your business as a sole trader has a number of advantages. These must be set against the disadvantages of the sole trader business model. The advantages of operating your business as a limited company. The positives about being a sole trader are: Full Control Being a sole-trader, you are in complete control of your company, and in the sense of ‘being your personal boss’. There is no need to consult with any other shareholders or directors, take note of their opinions, or alter your idea of what you want to achieve with the business. You are able to develop the business exactly in the way you want. Operational flexibility Since you are able to make your own choices on your own, it could be easy and fast to alter the company in order to adjust to changes in the market. For instance you could change the structure of your pricing or the services you offer by adding new products or eliminating those you don’t trust. This ability to make quick decisions and then implement them swiftly is an benefit when you are a sole-trader operating in an ever-changing, competitive market. In addition to acting as the only decision maker an individual trader will typically be in close contact with their clients. They are therefore able to be attentive to the requirements of their clients and their demands and able to respond swiftly and effectively to their needs. A few customers, particularly those seeking personal services might be turned off by the fact that it’s a small-sized company even if it’s passionate about customer service. This is especially true for local services, where a sole trader could gain trust and build confidence by relying on local roots and connections. A limited company, even if it is controlled by one person could appear unassuming and too corporate to certain. Easy and quick to start While forming a limited company is far easier that it used to be, setting up as a sole trader remains the quickest and simplest way to get your business up and running.t is not necessary to register your company through Companies House, therefore there are no Companies House forms to complete. There is a need to must inform HMRC that you are self-employed and running your business as sole trader. Low setup costs A lot of people use the services of a solicitor or a form agent to establish a limited-company (although it’s not difficult to begin a business by yourself). There’s generally less requirement for professional guidance in the event of becoming a self-employed sole trader. This means that these costs are lowered but not eliminated completely. There are no additional fees payable towards Companies House when setting out as sole trader. It is also unlikely that you will require any capital to get your company up. Running at the beginning however, it all will depend on the type of work your company will perform. In some industries, operating expenses are very excessive whatever the legal status of the company. Accounting simplified Accounting is easier for sole traders than for limited companies, and there’s no requirement for annual reports or an annual Corporation Tax return, although you’ll still have to keep the records of expenses and invoices. If you’re a sole trader, you have to file a self-assessment tax return that includes details of the earnings from trading you’ve conducted as sole trader. Since there’s less accounting tasks to do and your accountant could cost you lower than you would if were operating as a limited company. It’s easier to change your mind People starting out on their own in business for the first time often do so on a part-time basis. They may remain employed elsewhere so they retain the security of a salary. Many people dipping their toes into the water of running a business will choose to do so as a sole trader. This allows them to wait until they have more confidence in the business. Its ability to support them and their family before deciding whether a limited company might work better. With its less formal appearance, operating a separate business as a sole trader might also be easier to explain. Justify to your current employer than forming a limited company for the same purpose. If you start out as a sole trader, you can always choose to form a limited company for the business at a later point. If you form a limited company at the outset and later want to operate as a sole trader. You’ll have to go through a more formal process of closing the company first. The right business structure will depend on your individual circumstances. For many the advantages of a limited company will outweigh the potential benefits of operating as a sole trader. There are also disadvantages to operating as a sole trader, which you should consider. Professional advice from an independent professional who knows your circumstances. Such as your accountant or solicitor, is always useful if you’re unsure how best to set up a new business.

Running a business as a sole trader means taking responsibility for its operations, decisions, and functionalities, from inventory management to sales, profit and loss. It is the simplest business structure in the UK; hundreds of sole traders sprout yearly. However, only one-third of the businesses survive the competition. One of the primary reasons is the poor accounting system. Before setting up your business to fight competitors, you must learn sole trader accounting, including the crucial role played by small business tax accountants in ensuring financial success and compliance with tax regulations. Who is a sole trader? If you are thinking of starting your own company, becoming your own boss. There are many options available to you. It is possible to start a company as a sole trader or a restricted company or an alliance with another. Each of these types of structures is distinct and uses different methods for accounting and bookkeeping, particularly. When someone runs their own business as an individual and believes they are self-employed they need to set up an entity as sole trader. The term ‘sole trader’ refers to an individual who is the sole responsible person to run their own business. They must identify themselves as sole traders and file with HMRC when they earn more than £1,000 in self-employment during a tax year. You can also consult small business tax accountants to fully or voluntarily pay your Class 2 National Insurance contributions and gain benefits If you are a sole-trader, you do not have to be registered in Companies House, have no directors, shareholders, or partner, nor do you have complete control over the direction and operations of your business. What are the accounting responsibilities of a sole trader? A sole trader faced with a variety of accounting requirements. For instance, if you are looking to hire employees, you need to make sure that you have a proper payroll management. Another example is the management of inventory, revenue and so on. Here are a few of the common responsibilities for sole traders in their early years. Open a separate bank account Solo traders should segregate their personal and business accounts to prevent the mixing of costs, even though it is there is no legal requirement to do so. If you operate your business as a sole proprietor, you and your company are considered to be the same entity to be tax- and legal. Separate personal and business accounts to prevent muddled transactions, and make keeping records simple, and ensure a thorough filing of tax returns. Keep records of income and expenses The sole trader’s bookkeeping involves keeping records of expenditure and income for the business like receipts from sales and purchase bills bank statements, etc. It can help owners comprehend how much cash they have and help them set the budget in order to make sure they are able to keep cash within their wallets. Pay the correct taxes on time Taxes are a fact that no company can afford to miss. Solo-traders must be aware of their earnings tax over calendrer year, because they will not be taxed through PAYE. They need to save enough money to cover each year’s tax expense. Sole traders are required to be liable for the following tax: Tax on income from net profit Class 2 and 4, NICs (National insurance contributions) VAT, if your turnover exceeds the threshold of VAT current threshold is £85,000. Sole traders might be eligible for a variety of tax-free allowances and deductions they should take into consideration when making tax returns. It allows them to reduce their tax costs without drawing the eye of HMRC and prompting an investigation. Proper bookkeeping Bookkeeping is vital for any business. It refers to collecting, updating, evaluating, and storing financial transaction data on your books. Keeping this information handy helps you during audits, lawsuits, investigations, preparing financial statements, etc. Creating and analysing financial statements Once you have financial data, you must create monthly or yearly statements. On analysing such statements, you can deduce the areas of improvement; your profits increased from the previous year, opportunities, and risks. It helps you look into business performance over a period. Follow government regulations You cannot miss out on government regulations and tax laws at the local and federal levels. It saves you from fines and penalties that impact business goodwill and may let you shut down at its worst. If it becomes difficult to deal with business operations and stay knowledgeable about a country’s changing laws, look for a sole trader accountant near me. Can I claim business expenses? Sole traders can claim back several business expenses on their tax returns, and HMRC will pay them. It includes: Equipment cost Advertising Cost of stock Delivery charges Heating and lighting in your commercial premise Business premise rent Postage and stationery Relevant books and magazine    Bank charges and telephone usage Travel allowance Bank charges and business accounts However, there are a few expenses that you cannot claim on your tax return. It includes: Parking fines Speeding tickets Child care and school fees Client entertainment and gym membership Hairdressing cost Training courses not related to your job As a sole trader, a few household expenditures may also be included under tax deductibles if you work from home. Ask your small business tax accountants to list such expenses. What are the common accounting mistakes of sole traders? Sole traders find it tempting to do their accounting, but they must avoid a few common errors, like: Waiting for the last minute to do your bookkeeping and prepare taxes Do not have a properly updated accounting system Misplacing paper bills and invoices Mixing personal and business finances Not preparing a proper budget Trying to avoid paying the right taxes or missing deadlines You can avoid making errors in calculation and misplacing paper bills and invoices but automating the accounting system.