Tips for sole traders
We had a fun meeting with a number of local sole traders this week - the gist of the meeting was to give them some bookkeeping tips to help them keep on top of their numbers and also explain some common tax issues.
Below are some notes from the meeting which capture most of what we discussed
Technology that takes the pain out of bookkeeping
These days we seem to have a love hate relationship with Smart Phones but for small businesses and sole traders, they can be a boon because of the great apps now available to help your bookkeeping.
Invoicing
It sounds obvious, but invoicing your customers is so important – if you are slow invoicing or there are mistakes on your invoice it is going to take you longer to get paid. Make sure you have a process you stick to.
Believe it or not the easiest way to send invoices is to use an accounting system and there are free packages that do this like Wave.
With Wave you can create bulk and repeating invoices with BACS and PayPal payment options. The invoices can have your logo and terms and conditions on and can be created and emailed to your client straight from your phone.
Expenses
Make sure you are capturing all of your expenses otherwise you’ll be paying more tax than you need to!
The easiest way to capture data from expense receipts is by photographing them with your phone with apps like Wave (free), Everlance (free – but only good for very small businesses), or Receiptbank (starts at £9.99/mnth). You can then throw the hard copies away. HMRC requires you keep the digital information for 7 years.
You can leave your digital copies in the ‘app’, stored in the cloud, or download them to your own computer or onto a memory stick.
What can you expense?
You can expense anything that is wholly and exclusively for business – so if you incur costs chasing a sale, making a sale or undertaking business admin (eg driving to bank to make a deposit) it’s allowable.
A common question that comes up is subsistence – basically, can you claim your lunch? In most circumstances, no, but if you are working away from home for one or more days, you can expense your meals.
Another food related query that often comes up is whether having lunch with a prospective client would be an allowable expense. Sadly not, meals with customers is considered to be entertaining so not allowable against your tax bill.
Mobile phones are often overlooked. For sole traders the cost of your phone and phone call (less a percentage which reflects your personal calls) is allowable against your taxable profits; limited companies can claim for full use of mobile phones.
If you work from home, you should include the cost of your ‘home office’ in your tax return. This is a percentage of the running costs of you home (utility bills, insurance etc). The percentage depends very much what you are doing – for example, if you use 1 room exclusively for work and you have 4 rooms in your house, you could claim 25% of the utility bills.
Mileage
Sole traders with sales below £85,000 can calculate a mileage expense to include in their tax return. The rate is 45p per mile for business trips for the first 10,000 miles (mileage for combined business and personal trips can’t be expensed).
One of the easiest ways to keep a track of your mileage is to use a mileage app. One of the better free ones you can use is the Everlance app, it runs in the background of your phone and records all your car journeys without you having to do a thing. When you get to your destination it the app asks you to confirm if it was a business or personal journey – very easy indeed.
If you are only now realising you can claim mileage, not to worry! To find your history of car journeys you can look up your timeline on Google maps on your phone (open maps > menu button > timeline > select date).
Separate Business Bank Account
If you’re a sole trader, you don’t have to have a separate account, but it makes it much easier for your accountant if you keep your business and personal banking separate. Just be careful when you’re buying items online that you’re using the appropriate account.
When choosing a bank make sure you understand their pricing structure. Banks often charge fees for services on business accounts that you wouldn’t pay for on a personal account. If you need a counter service, consider which branch network is convenient for you (e.g. MetroBank are open on Saturday and Sunday).
There is a new generation of app-based current accounts now available for freelances, sole traders and small business which, if you live your life on your phone, can really make things a lot easier eg Tide, Coconut and CountingUp.
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