If you’re new to self-employment, looking after your business finances can be a daunting prospect, but if you prepare for it (seeking professional guidance, reading HMRC advice and setting up your business correctly) and revisit your business finances regularly, it can be relatively simple and straightforward, and it won’t be long before you can share the joy (and incomparable smugness) of submitting your tax return!

Here are our top tips for looking after your business finances:

Set up a business bank account

 We strongly recommend setting up a business bank account, even if you are just a ‘part time’ self-employed sole trader. A dedicated business bank account really helps when it comes to your income/expenditure calculations and makes it easier for you to access business finance, if you choose to do so in the future. Some banks also have terms and conditions for their personal accounts that state that you can’t use a personal account for business use – this could put your personal account at risk of closure (or at the very least, losing access to certain services) if you breach their terms.  Many banks offer low-cost business accounts, with free months for new customers or start-ups – a comparison website like https://smallbusinessprices.co.uk/free-business-bank-accounts/ is handy if you are looking for a new business bank account, just ensure that you contact the banks in question directly to confirm the details of their offers and any associated fees before signing up.

Consider some accounting software – i.e. Quickbooks, etc.

Online accounting software can help save you time and effort in the invoicing/collection process.  Tools like ‘Quickbooks’ – https://quickbooks.intuit.com/ – and ‘Xero’ – https://www.xero.com/ – link through to your business bank accounts and make it simple to manage income and expenditure, and really easy to invoice your customers without having to manually create an invoice from a template each time. Although you pay a monthly fee for these tools, you WILL be able to save time using these tools, which could free up some valuable hours for billable client work.

Keep track of your outgoings

Keep a record of your business expenditure by saving and documenting all relevant receipts and invoices.  If you do this regularly, I can guarantee that you will save yourself from a mad scrabble in the days before the deadline for filing your tax return! Some online tools like Quickbooks have built-in functionality (which may depend on your package level) that allows you to take pictures of paper receipts and upload them into your bookkeeping system, helping you to keep all of this relevant information in one convenient, central location.

Don’t be afraid to seek professional advice

Seek professional advice if you have ANY questions, particularly if you’re unsure whether to remain as a sole trader or set up a limited company. It could be more tax efficient to set up a Ltd company, though it comes with additional responsibilities (and paperwork)! Some also choose to set up a limited company because “unlike a sole trader a limited company has the benefit of limited liability, as incorporation forms a legal distinction between the business owner and their business. This means that personal assets aren’t exposed – you only stand to lose what you put into the company.”[1]

If you don’t understand something, or need further clarification from a trusted advisor, seek professional advice. If you try to muddle through it alone when you do have questions, you could be putting yourself at risk of a mistake (even a fine!) or paying more tax than you really need to. 

A good place to start is to read through the guidance on the HMRC’s website about self-assessment – you can find it here: https://www.gov.uk/topic/personal-tax/self-assessment

Consider outsourcing…

If, despite your best efforts, things still appear confusing, or you don’t have time to dedicate to giving your business finances the TLC they require and deserve, it’s well worth considering working with a qualified and trusted bookkeeper/accountant. The time you’ll save reading guidance/doing your own books/completing your tax return can be used for billable client work, helping you to cover the cost of this support.  However, it is difficult to put a price on peace of mind if you’re feeling overwhelmed by the prospect of managing your own business books…

Whether you decide to go it alone or seek help from a Bookkeeper/Accountant, taking care of your business finances isn’t as daunting as you might think.  If you remain as a self-employed sole trader, the self-assessment process is relatively straightforward and can be completed online quite easily as long as you have kept records of your business income/expenditure throughout the year.  Good luck!

[1] https://www.simplybusiness.co.uk/knowledge/articles/2020/06/difference-between-a-sole-trader-and-a-limited-company/