Managing your tax affairs as a sole trader may seem like an insurmountable task if you’re new to the world of business. The good news is that small business tax is easier than you might think. If you keep clear records and your business is mostly UK focused then you should find that your accounts are easy to file.

Understand the Expense Rules

As a sole trader you can expense certain things that are related to your business, and this could be a way of reducing your tax bill. It is important that you understand the rules clearly, though. If you work from home, you cannot simply “expense your electricity bill” because that bill would include powering things in your house not related to your business. You can take a fixed weekly allowance, or pro-rata your bills based on the size of your home and any rooms that you use only for business purposes.

You can expense entertaining clients for business purposes, and you can expense meals while on business travel. You can also claim a mileage rate for using your vehicle, and current rates are on the HMRC website. If you are not sure about those rules, then talk to an accountant. In any case, be sure to keep receipts (use an app to scan them to save carrying bits of paper around) to make your accounts as easy as possible.

Open a Business Bank Account

Opening a sole trader bank account is one way of making your life easier when it comes to doing your accounts. While there is no legal requirement for a sole trader to have one bank account for their business and one bank account for themselves, trying to pick out business related transactions on a personal bank account is not easy. You will find that your accounts are a lot clearer, and less time consuming if all your business banking is done from a separate account.

Do Your BookKeeping Regularly

It can be tempting to save up all your book-keeping and do it at the end of the financial year. While this seems appealing at first, when the end of the accounting period draws close you’ll find yourself faced with an awful lot of boring work to pour through and that’s where mistakes start to get made. It’s much, much easier to just think about your accounts today.

Try entering your income and expenditure on a regular basis, to make it a habit. Regular could mean daily, weekly or monthly depending on the volume of business you do, but whatever you do try to make it consistent so that you don’t end up in a panic at the end of the financial year.

The HMRC are there to help, and they are usually happy to work with people who are trying to do things right. If you have any concerns, be proactive and get in touch as early as possible for advice.

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