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Sole trader accountant - Do you need one?

Posted on 23rd September 2022

Self employment is hugely popular in the UK. According to available data, there are 5.6 million private sector businesses in the UK, of which 3.2 million are sole trades.

These statistics are impressive considering the requirements placed on taxpayers that choose to operate in this way.

What is a sole trader?

Firstly, let’s understand what 'sole trader' means.

A sole trader is a person trading in their own name, otherwise known as self- employment. One person will usually be donning various hats: the business, the boss, accountant, marketing manager, sales executive, and every other hat needed to run the business.

That person will also take all the business profits after paying the tax. It is what makes sole trades unique. However, that one person is also liable for any losses and will bear them alone.

A sole trader is one of the simplest business structures. However, the tax rules are not. If you are self-employed, it is recommended to get expert advice from a sole trade accountant to help you ensure that you follow all the rules.

Does a sole trader need an accountant?

A sole trader manages every aspect of their business, which is likely to create significant pressure on their time. Also, if that person isn’t good with numbers, they run a high risk of errors in their work, and they can’t afford that. It is one of the reasons why it is recommended to engage a specialist accountant.

A specialist accountants for sole traders can offer tailor-made services, as this is their area of their expertise. Delegating these tasks if you are self-employed, will give you peace of mind. You are then free to work on your business, without the distraction of having to prepare your own set of accounts or your tax bill.

If you are planning to go for a sole proprietorship, then make sure to read this entire article for guidance.

1. Get the basics right

Thanks to the internet, you can find out everything about starting a business, but what about the taxes and the business jargon that you don't understand? The internet has made all types of information accessible easily, but it is often quite conflicting and can be confusing, especially for startup businesses and first-time entrepreneurs.

An experienced accountant can help you get the basics right and keep track of your finances. They can also help you follow the particular procedures to register as a sole trader.

2. Recording the transactions

Once you are set up as a sole trader, it is time to start your new business. Managing your cash flow will be essential for staying afloat and scaling your business.

You must record cash inflow and outflow accurately. There are two common methods available for recording transactions, accrual and cash accounting.

Under the cash method, you record transactions when cash is paid or received, whereas under the accrual method, you record transactions when they occur e.g. invoice date. It is possible to use one method for your accounting and another method for your VAT returns.

Whichever method you use, you have to apply the correct accounting treatment. One mistake in your tax filing can result in huge penalties. This is not something that most sole traders can afford, especially if they are new to self-employment.

On top of this, you must ensure that you file taxes before the deadlines set by HMRC, or else you will face self assessment tax penalties and interest.

Although you may try and keep up with all the transactions, filing taxes won’t be easy. It is important to understand that tax is a complicated subject, and that the UK has one of the most complicated tax frameworks in the world. Accountants spend years understanding these tax concepts and ensure they keep up to date with the accounting and tax rules.

They are professionals with a clear idea of what to do and what not to do. Investing in a sole trader accounting and tax expert is the best and, of course, the easiest way to get your taxes done.

3. Save yourself time

Understanding financial documents is challenging and time-consuming if you are not from a financial background. You would have to do lots of extra work in the little spare time you have. An accountant is already familiar with all of these terms and documentation. They can fill out the paperwork quickly and even help you understand these terms, without a lot of research.

A chartered certified accountant is a qualified professional, with a clear idea of what to do and what not to do. Investing in a sole trade accounting and tax expert is the best and, of course, the easiest way to get your taxes done.

4. Reduce your taxes with deductible expenses and tax reliefs

Did you know you can get a tax deduction for your accounting fee if you are self-employed? Yes, HMRC has provided tax deductions on certain expenses, and one such expense is an accountant.

HMRC provides tax deductions on various expenses for small businesses, and having an accountant will help you understand when you can and can't claim your expenses. If you wrongly claim expenses, HMRC may fine you for the mistake you have made on your self assessment tax return. It will also cost more in taxes if you do not claim a legitimate expense. The benefits of using an accountant should exceed the cost of your investment.

How do you choose an accountant?

Choosing the right accountant is essential for your business. Remember that anyone can call themselves an accountant, but you can only be certain of professional qualifications when using accountants that are 'chartered certified' (ACCA) or 'chartered'.

Price is important but there is a risk of false economy, if you end up paying too much tax, getting a penalty for late filing, or being investigated by HMRC due to errors with your accounts and tax returns.

Consider the value of having an approachable accountant on hand to help with your questions, a reliable expert and trusted advisor. You can check for references, reviews and testimonials before proceeding to the next stage. Remember that you need someone who has experience as a sole trader accountant to understand your business and provide you with the best advice.

Can Sherwin Currid help with my accounts and tax?

Establishing and maintaining a business alone is not an easy task. There are various parts of running a business where you will need help from professional experts, and finance is one of them.

If you hire Sherwin Currid, you will be able to offload time-consuming tasks and they can help you with all the matters related to your numbers and beyond.

For example we can help you find the best accounting software for a sole trader, such as FreeAgent, Quickbooks or Sage. This software can help you with bookkeeping and understanding your business performance.