The majority of people who work for themselves will start out as a sole trader. It’s the simplest way to begin working for yourself and the route that calls for the least amount of admin and legal requirements. However, that doesn’t completely remove the need to keep good and proper records.

Here we’ll run through the requirements, the records that need to be kept and the information that needs to be sent to HMRC to not only keep your sole trader business efficient, but compliant with government requirements.

Keeping it simple.

So, you’ve decided to operate as a sole trader rather than a limited company – that undeniably means fewer filing requirements for you! But there are still rules and expectations around the paperwork that you do need to keep, so start off on the right foot and you can ensure the smooth running of your business.

Keeping your business admin as simple and streamlined as possible is going to help free up more time for your core business activities, as well as helping to remove stress.

You’ll need to keep good and proper records of your business’ income and expenses. Not only do you need these to report your profit to HMRC, but they must be available for inspection by HMRC at any given time.

One of the best ways to keep your bookkeeping/record keeping simple is to use bookkeeping software. Once linked to your bank account, it will automatically import your transactions for you to analyse. You would also be able to raise your invoices and send them directly to your clients from the software.

So, what accounts DO I need to keep?

As a legal requirement you must keep a record of your income and expenditure and hold onto these for five years after the submission for that period (for example, you must keep your records for the 2023/24 tax until 01/02/2030, being 5 years after the 31/01/2025 submission date). If HMRC request those figures for whatever reason, you need to have them. They include:

• Your business income: that is, any income you have received as a sole trader through services and/or sales
• Your business expenditure: that is, anything you have paid for that you need to run your business
• VAT records: this will only apply if you are VAT registered (either by necessity or choice, you can find out more in our guide to VAT). These records must be held for six years
• PAYE records: this will only apply if you have any employees, and is the record of their wages paid through HMRC’s PAYE system
• Grants: this is simply the information regarding the amounts you may have received through any grants
• Your personal income: this is any income received through other sources, such as property or investments as these could affect the amount of tax that you pay

Anything else you should be keeping records of?

Yes… and it’s to your advantage!

Before working out the tax and national insurance you owe for the year, we must calculate what your business profit is. This is your turnover, less the costs incurred to run the business. There are a number of expenses that you can claim in order to reduce your profit. Make sure that you do claim what you are entitled to, as it can make a big difference to what you owe at the end of the year. Just make sure that you keep any receipts for everything that you claim, as HMRC may well ask to see them.

HMRC has listed valid expense claims as:

• Stock – e.g. the material you need to produce goods and/or the goods that you are selling on
• Business premises – very often sole traders will work from home and a portion of relevant expenses can be claimed. If you have a separate office, then rent, insurance and bills are all valid
• Property and equipment – whether it is additional premises (i.e. rent etc) or the equipment, computer software or stationery that is needed for you to run your business
• Legal and financial costs – any costs associated with your business – be that your accountant, a surveyor or solicitor – are all valid, unless they are needed because you have broken the law in which case this doesn’t apply
• Marketing and other subscriptions – these can be to market your business such as website and advertising costs, or to belong to associated industries that will be beneficial to your success such as trade memberships
• Clothing – this applies if uniforms or protective clothing are needed, or something specific to the industry that you are in
• Travel – this is only travel related to your business needs, such as fuel to get to meetings, parking, public transport and insurance
• Training courses – once you have set your business up, courses for further training and/or qualifications can be claimed, so long as they are relevant to you carrying out your business
• Staff expenses – for those sole traders who employ others, expenses that can be claimed include staff pay, their national insurance contributions, training, benefits, pensions and any payments to subcontractors.

Make it easy on yourself.

It is not a requirement for you to have a separate business account, but it will certainly make your life easier if you do.

As a sole trader (unlike when running a Ltd company), there is no legal separation between you and your business, but if you separate the bank accounts for admin purposes, you won’t have to sort through your personal account to work out what was a business expense and what wasn’t. A separate business account will mean that all transactions are business expenses, reducing hours of sorting through numbers and trying to remember what certain amounts were for. We would always recommend that you set up a separate business account – this’ll make your bookkeeping so much simpler. This will also help you with your MTD requirements – more on this below!

What is MTD?

MTD, short for Making Tax Digital, is what the government believes to be the future of accurate business reporting. Rather than keeping paper records or spreadsheets, you should prepare and keep your accounting records using HMRC approved software.

Reporting under MTD has been part of the VAT regime for many years already and will become a mandatory part of the self-assessment system in 2026.

Whether mandatory or not, we would always recommend using bookkeeping software as this is a much easier way of seeing how your business is performing at any point in time – giving you more opportunities to see how the finances are looking and whether you need to reduce costs or potentially increase income.

Now you know what records to keep… what do you have to pay?

The amount of tax and national insurance you owe will depend on the level of profit you have made, together with any other income sources you may have. You will be liable to income tax and classes 2 & 4 national insurance on the profits made. Any amounts due for the year are payable by the 31st January following the end of the tax year. For those with tax liabilities over £1,000, you will also need to make payments on account for the current year by 31st January and the following 31st July. Both payments will be 50% of the amount due, but they can be reduced if you expect your income to be reduced significantly in the next tax year.

Can I maintain my sole trader accounts myself?

Absolutely – the introduction of pieces of software like FreeAgent have made it much, much easier to maintain and report your accounting records to HMRC. However, many people want to concentrate on what they’re good at (which is why they went self-employed in the first place!) and leave the accounting…well, to an accountant.

Here at Integro Accounting we can tailor all our packages to suit your needs. Whether you are looking for an accountant to just file your return each year or something a bit more regular, we can support you and your business, helping to take away the stress of looking after your accounting records.

If you’d like further information about our sole trader accountancy packages, you can find more information in our accountancy services for SME’s page, or if you’s like to chat through you’re requirements, we’d be delighted to talk to you – submit a call back request and we’ll give you a call . Likewise, if you’d like more information on many aspects of being a sole trader, take a look at our Sole Trader hub for lots of useful information.