While there’s no legal requirement for a sole trader to hire an accountant, making this investment can be one of the smartest decisions for your business. With 3.1 million sole proprietorships operating in the UK representing 56% of all UK businesses the question of whether to hire professional accounting help is relevant to millions of self-employed individuals.
Most sole traders find they’re financially better off after hiring an accountant. The money they save through optimised tax planning, claiming all available reliefs, and avoiding penalties typically exceeds the accountant’s fees. Beyond the financial benefits, there’s also invaluable peace of mind knowing your tax affairs are handled correctly.
Key takeaways
- No legal mandate: UK sole traders need no accountant by law, yet it’s wise for 3.1M businesses (56% of total).
- Financial upside: Saves more via tax optimization and penalty avoidance than £30-£130 monthly fees, plus peace of mind.
- Personal liability: You’re fully liable for business debts with no separation from personal assets.
- Strict record-keeping: Track income/expenses 5+ years, register with HMRC fast, use separate bank account for “wholly business” claims.
- 2025/26 tax basics: £12,570 tax-free; 20% to £50k; Class 4 NICs 6%/2%; VAT over £90k turnover.
- Accountant value-add: Ensures compliance, VAT/MTD via Xero, real-time insights – often tax-deductible.
- DIY viable but limited: Feasible simply, but pros maximize savings amid Making Tax Digital complexities over £50k income.
What is a Sole Trader?
A sole trader is a self-employed person who runs their own business as an individual. This is the most common business structure in the UK, with sole proprietorships making up the majority of the 5.7 million private sector businesses operating across the country.
Common sole trader professions include tradespeople, IT contractors, consultants, hairdressers, and various service providers. However, there’s an important consideration: there’s no legal distinction between you and your business. This means you’re personally liable for any business debts.
As a sole trader, you pay taxes through Self-Assessment rather than PAYE, and you pay income tax on your profits rather than corporation tax.
What Records Should I Keep as a Sole Trader?
Record-keeping standards for sole traders are rigorous. By law, you must report all income that isn’t taxed at source to HMRC, and your records must be accurate and transparent.
Registration and Tax Returns
The first step is to register with HMRC. From registration, you’re obliged to submit an annual Self Assessment tax return and pay any tax you owe even if you haven’t made a profit.
Your profit is calculated as turnover minus expenses. For example, if your turnover is £50,000 and your expenses are £20,000, your profit is £30,000 this is what you’ll pay income tax and National Insurance on.
Maintaining Sole Trader Accounts
Keep precise records of your sales, income, and business expenses. If your turnover exceeds £90,000 in any 12-month period, you must register for VAT and keep additional records.
Important considerations:
- Records must be kept for at least five years
- Business expenses must be incurred wholly, exclusively and necessarily for your business (see HMRC’s guidance)
- Open a separate business bank account to keep finances transparent
- Your business name should appear on all official documents
What Taxes Does a Sole Trader Pay?
Sole traders pay income tax and National Insurance contributions (NICs) on their profits.
Income Tax Rates for 2025/26
Income tax for sole traders is calculated after deducting the personal allowance:
- Personal Allowance: £12,570 (tax-free)
- Basic rate (20%): £12,571 to £50,270
- Higher rate (40%): £50,271 to £125,140
- Additional rate (45%): Over £125,140
National Insurance Contributions for 2025/26
Class 2 NICs:
- From April 2024, Class 2 NICs are no longer mandatory
- If profits exceed £6,845, you automatically receive National Insurance credits for State Pension
- Below £6,845, you can pay voluntary Class 2 NICs at £3.50 per week
Class 4 NICs:
- 6% on profits between £12,570 and £50,270
- 2% on profits above £50,270
What Does a Sole Trader Accountant Do?
A specialist accountant for sole traders provides far more value than simply filling in forms.
Tax Compliance and Optimisation
A good accountant ensures you’re 100% compliant with tax laws while legally minimising your tax liability. They’ll make sure you claim every allowable expense and benefit from all available tax reliefs.
Modern Digital Accounting
Today’s online accountants use cloud-based technology to streamline your finances. Digital accounting automates routine tasks, provides real-time financial information, and gives accountants more time for strategic advice. The fees are typically tax-deductible and often result in net savings that exceed the cost.
Services Provided
Accountants can handle:
- Recording all income and expenses
- Creating and managing invoices
- Reconciling bank statements
- Managing payroll (if applicable)
- Handling VAT returns (if VAT-registered)
- Completing and filing your Self Assessment tax return by 31 January
- Calculating your exact tax liability
- Identifying tax savings for future years
VAT Management
If your annual turnover exceeds £90,000, you must register for VAT. VAT is complex, and mistakes are costly. An accountant will handle registration, prepare quarterly VAT returns, and ensure compliance to avoid penalties.
Cloud-Based Accounting with Xero
Xero is cloud-based accounting software that’s transforming how sole traders manage their finances. With Xero, you can:
- Create invoices and track when they’re opened
- Connect your bank account to automatically match transactions
- Monitor cash flow in real-time
- Handle VAT accounts and submit returns directly to HMRC
- Track expenses efficiently
Xero is HMRC-approved for Making Tax Digital and is user-friendly with free online support. At CloudCo, we offer Xero Cloud Accounting Services specifically for sole traders.
How Much Does an Accountant Cost?
Accountancy fees for sole traders typically range from £30 to £130 per month, depending on:
- Whether you handle your own bookkeeping
- Business complexity and transaction volume
- VAT registration status
- Payroll needs
- Additional income sources
Hiring an online accountant using cloud-based software is cost-effective, and the investment often pays for itself through tax savings and time saved.
Can I Do My Own Accounts as a Sole Trader?
Yes, you can. Unlike limited companies, sole trader accounts don’t need auditing or filing with Companies House. However, while you might be organised and good with figures, doing your own accounts is time-consuming. An accountant’s expertise in the UK tax system will likely result in you keeping more money through legitimate tax planning.
Grow smarter, not harder. Contact CloudCo sole trader accountants for tailored support – book a consultation.
FAQs
Do I need a business bank account as a sole trader?
While not legally required, a separate business bank account is highly recommended. It keeps finances separate, makes bookkeeping easier, provides clearer records for HMRC, and helps track business performance accurately.
Do I need an accountant for my small business?
Most small business owners benefit significantly from professional accounting support. An accountant saves money through tax optimisation, saves time, reduces stress, ensures compliance, and helps your business grow.
How much do self-employed accountants charge?
Self-employed accountants typically charge sole traders between £30 and £130 per month, depending on services required. Basic Self Assessment preparation might cost £150-£300, while comprehensive bookkeeping and VAT services cost more.
When do I need to register as a sole trader?
Register with HMRC as soon as you start working for yourself, with a deadline of 5 October following the end of the tax year in which you became self-employed. Late registration may result in penalties.
What expenses can I claim as a sole trader?
You can claim expenses incurred “wholly, exclusively and necessarily” for your business, including office costs, travel, equipment, professional fees, and marketing. Keep all receipts to support your claims. See HMRC’s detailed guidance.
Does a sole trader need an accountant for Making Tax Digital?
Making Tax Digital requires sole traders with income over £50,000 to keep digital records and submit quarterly updates using compatible software. While you can manage this yourself, many find working with an accountant makes MTD compliance simpler.