Sole trader accounting tips for freelancers

Small businesses are often run as sole traders — that means that, to all intents and purposes, you are the business.

For freelancers, this is very common. Working for yourself gives you the flexibility to pick the right jobs that suit your skillset, manage your own time, and grow a client portfolio that you can be proud of.

However, if you neglect your accounting responsibilities, your dream job could soon become a nightmare. But don’t worry, there are a few key areas to stay on top of, which we will cover in this blog.


Set up a separate bank account

A dedicated sole trader bank account isn’t legally required; as a freelancer, you’re essentially the business. But separating your finances is advisable, especially if you’re serious about what you do.

Running your finances from one personal bank account means more work — you have to be very explicit about which expenses are classed as personal versus business-related. It will affect how you record your expenses and income and take more time out of your day.

By creating a separate business bank account, you’ll easily be able to record business expenses and income. Not only is this far simpler to manage, but it will also make completing your self-assessment tax return easy.


Maintain healthy books

Looking after your bookkeeping as a freelancer is a vital routine task to stay on top of. And due to the nature of your business as a sole trader, you’ll want to keep healthy books to make life much easier and have more time for your work.

To keep good books as a sole trader, you need to:

  • track your monthly business income and expenditure
  • keep records of invoices and receipts — including work transactions, rent and bills
  • record any other business expenses

How you track this data is up to you — you can use old-fashioned methods like a spreadsheet or paper ledger, but we’d advise moving over to cloud accounting software as soon as possible.

A cloud platform, like Xero, automates lots of the routine tasks that would have to be done manually — such as creating invoices or reconciling your bank statements — giving you the power to automate, innovate and save hours of your time.

As a sole trader, this isn’t a necessity — but by April 2026, it will be, as part of Making Tax Digital (MTD). And if you’re VAT registered, you’ll already be using cloud software under these rules.


Get your taxes under control

Your self-assessment tax return will record how much money you have to set aside for taxes each year as a sole trader.

Understand your obligations now — that means knowing the threshold at which you’ll pay income tax and make National Insurance contributions (NICs).

As an individual, you receive a personal allowance on your taxable income — anything below £12,570, and you won’t have to pay any tax.

Go above this, and you’ll be taxed at the following bands:

  • 20% on any income up to £37,700 — basic income tax rate
  • 40% on any income between £37,701 and £125,140 — higher income tax rate
  • 45% on any income over £125,140 — additional income tax rate

As a sole trader, you’ll also pay class 2 and class 4 NICs:

  • class 2 NICs are payable directly to HMRC
  • class 4 NICs are payable through self-assessment

You’ll be required to pay class 2 NICs of £3.45 a week if your profits are £6,725 or more yearly.

And you’ll pay class 4 if your profits are £12,570 or more over the course of the 2022/23 tax year (9% on profits between £12,570 and £50,270 and 2% on profits over £50,270).

How do you pay your NICs? Contact HMRC directly — the best way to pay is usually through a direct debit.


Always remember to claim 

We’d argue it’s a good idea to claim expenses wherever possible; it’s just good business practice.

Running expenses through your sole trader accounts is relatively straightforward. Just record your receipts and transactions, and include them in your tax return.

As a freelancer, there are lots of expenses you can claim on your tax return, for example:

  • travel
  • stock costs
  • equipment
  • advertising
  • delivery charges
  • rent, heating and lighting
  • postage, stationery, books
  • bank charges
  • telephone use

And If you’re a sole trader working from home, some of your household expenditure may also be tax deductible.


Chat to us

Working as a freelancer is both rewarding and time-consuming. If you’re unsure about how to navigate your finances and make the most of your tax deductions, that’s where we come in.

We’re experts in helping freelancers achieve their goals and manage their finances more efficiently.

Get in touch with us today — we’ll talk about your freelancer business and how we can help you with your sole trader accounting.

Ready to go? We’re excited to hear from you.

Let’s get started, as soon as you’re ready. We’re always up for a chat about how we can support you and your business.

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