Do I Need An Accountant As A Sole Trader? - CloudCo Accountants

Do I Need An Accountant As A Sole Trader?

do i need an accountant as a sole trader

There is no legal requirement for a sole trader to hire an accountant. Although it isn’t mandatory to hire one, if you want to ensure that all your tax affairs are absolutely to-the-letter correct, then hiring an accountant is a good idea.

For one, a specialist accountant for sole traders with the knowledge, expertise and training is more likely to know their way around the complex UK tax system. They will make sure that you make full use of any tax reliefs and allowances you are entitled to, and can make sure that you are managing your expenses properly.

Plus, most self-employed sole traders find that they’re quids in after hiring an accountant, and that the fees they pay amount to less than the money they save in tax (not to mention penalties, e.g. for late filing).

If you are a sole trader and want to understand how hiring an accountant could benefit you, then take a look at our article below.

What is a sole trader?

A sole trader is a self-employed person, sometimes also referred to as a contractor. The business they run is an enterprise owned and run by one person.

Although there are many benefits to being in control of your own business, the downside of being a sole trader is that there is no legal distinction between the individual and their business – which can be an issue in certain circumstances. Being a sole enterprise like this puts you at personal financial risk for any debts, meaning that creditors could pursue you personally if there are any outstanding bills as you are not seen as a separate legal entity.

Tradespeople, performers, editors, authors, hairdressers, IT contractors, and other service providers commonly operate their business in this mode.

Being self-employed means that you pay your taxes via self-assessment rather than via PAYE and that you pay income tax rather than corporation tax as a limited company would.

What records should I keep as sole trader?

The records kept by someone who is self-employed should pretty much match up to the standard expected of a limited company. By law, everyone must report any income that is not taxed at source to Her Majesty’s Customs and Excise (HMRC). The records you keep must be accurate and transparent and up to scrutiny.

Registration process

The first thing a new self-employed person must do is to register their business with HMRC. From the moment you register you are obliged to submit a self-assessment tax return and to pay any tax you owe. Even if you have not made a profit, you must still submit a tax return.

Your tax return shows turnover less expenses, along with any other income received from other sources (e.g. interest on shares, from property letting etc). Profit is calculated from the difference between turnover and expenses; so, your profit is the money left over after all your business expenses have been accounted for.

As an example, if your turnover is £50,000 in a tax year (April 5 to April 6) and your business expenses are £20,000, your profit is £30,000, which is what you will pay tax and national insurance contributions (NICs) on.

Sole trader accounts

To be able to submit an accurate tax return, you must keep a precise record of your sales, income and business expenses (these are your books). Bookkeeping is about keeping a tally of all the money that is coming in (which you have invoiced) and all the money that is going out (which will be incoming invoices and receipts).

Some sole traders are VAT registered, so you may also have to keep records for this as well and pay what you owe on time (quarterly). If you employ people, you must keep records for this also.

If you claimed any of the five self-employed income support scheme (SEISS) grants over the period 2019–2021, you must include any money you received on your tax returns for the two relevant years.

You must be able to show that your invoices match your income, and that your receipts match what you have spent as expenses. It is important that what you put through your books as claimed business expenses, have been incurred wholly, exclusively and necessarily in the performance of your business. See HMRC’s useful page here.

Two other things:

  1. You must keep your records for five years. Opening a separate business bank account is a very good idea, in as much as it is good practice to keep money coming in from your business separate from your personal finances. It is also much easier to keep transparent and easily identifiable records if you do so.
  2. The name of your business should appear on your letterhead, on your invoices, on your website if you have one, and if you have a business account the name of the account should match your business name. You should use your own name on the records too, if it is not your business name.

What taxes does a sole trader pay?

The main taxes someone who is self-employed will owe (depending on profit) are income tax and national insurance contributions (NICs).

These are paid at the following rates:

  • Basic rate income tax (20%): £1.00–£37,500 (less personal allowance rising in 2021/22 to £12,570)
  • Higher rate (40%): taxable income over £37,500
  • Additional rate (45%): taxable income over £150,000
  • Class 2 NICs: For the 2021/22 tax year, for profit over £6,515 (the “small profits threshold”), someone who is self-employed will pay the equivalent of £3.05 a week (£158.60 per year).
  • Class 4 NICs: If your profit is over £9,500 in the 2020/21 tax year, you will have to pay 9% on any profit up to £50,000; and another 2% on profit over this.

These thresholds will increase again on 6th April 2022: from £9,500 to £9,568 and from £50,000 to £50,270 a year.

What does a sole trader accountant do?

First and foremost, a good accountant will make sure that you are 100% compliant (that is, that you do not try to evade tax), but will legally seek to help you reduce the amount of tax you have to pay (legal tax avoidance).

An accountant will make sure you claim back every allowable expense you have incurred, while running your business, and will ensure that you benefit from any allowances and tax reliefs you are eligible for.

A good online accountant will meet you in real time remotely! Digital accounting saves time and makes businesses more efficient. It is win-win for those who are in self employment, as the automation of routine bookkeeping and accounting tasks by technology and digitisation, means that real time information is available immediately and accountants have more time to practice their expertise.

The fees paid for a good online accountant can be very manageable financially, will provide peace of mind and may well mean you earn more income. Accountancy fees are also fully tax deductible.

Not only that, but an accountant will save you time so that you can spend more time running your business and save you stress.

You may choose to look after your own bookkeeping if you’re confident, but an accountant will gladly look after this element too.


Bookkeeping is an essential component of accounting.

It involves keeping a record and taking on some tasks regularly (once a month):

  • Recording all forms of income
  • Recording all forms of business expenses and receipts
  • Invoicing
  • Bank records, checking statements against invoices
  • If applicable, payroll
  • If applicable, any records related to any of the SEISS grants you may have received
  • If applicable, VAT invoices charged to customers / and VAT charged to you

Automated bookkeeping software tailored to meet the specific requirements of a business has revolutionised these tasks.

The more transactions you need to record, the more invoices you issue and the more business expenses you have to deal with. This can make bookkeeping seem a complex task, so you may want to hand the job over to an accountant. Likewise, your accountant may encourage and support you to take some control and do your bookkeeping regularly using a bookkeeping app.

A good accountant will advise you. One thing is not negotiable: you must be 100% accurate with your bookkeeping. Book a free accounting consultation today.

Self assessment tax return

A self assessment tax return must be submitted by anyone with other income or income not taxed at source by 31st January each year. You need to pay what you owe then; plus pay a sum on account (if applicable) by 31st July.

An accountant will not only complete your tax return accurately, but also calculate your tax liability and file your return online on your behalf, informing you of what you may owe.

Apart from peace of mind that comes with knowing everything is up to scrutiny, the professional analytical eye of an accountant will mean that any anomalies will have been spotted and tax savings will have been suggested. Plus, what you could do to make further savings in future years can be discussed.

VAT threshold

VAT-registered sole traders will need to deal with Value Added Tax (VAT).

As VAT is complicated, it is best looked after by someone who really knows what they’re doing. VAT is added to the cost of a lot of different things in the UK. Sole traders whose annual turnover is over £85,000 p.a. must register for VAT and start charging their customers VAT.

Anyone who is VAT-registered must prepare, submit and pay quarterly VAT returns to HMRC. Late VAT registration, returns, and payments lead to penalties with interest. Errors cost dearly too, so hiring an accountant to look after your VAT affairs is probably a good idea, unless you are confident you know what you’re doing.

Xero – cloud-based accounting software

It is so true: “Xero is fast, simple software that’s changing the way the world does the books.”

With Xero you can:

  • Create invoices and receive notes when they’ve been received and opened by the recipient
  • Connect your bank account so that you can match bank statements with invoices and business expenses in order to see what money you have available
  • Pay your employees and manage payroll, if applicable
  • See how your business is performing from the dashboard, see money in (business income) and money out (business expenses) and keep an eagle eye on the balance
  • Manage your VAT account and send your VAT return, if applicable
  • Manage business bills and expenses

Xero is secure and reliable and favoured by most accountants. User-friendly, it handles tasks to do with expenses and income management, bookkeeping and accounting automatically, and comes with free online support.

The great news is that HMRC likes it too, so whether you choose to do your own bookkeeping or ask an accountant to do it, Xero can help you run your business more efficiently. At Cloudco we offer Xero Cloud Accounting Services to sole traders, learn more here.


How much is an accountant for a sole trader,UK?

The range of fees you can pay an accountant in the UK averages from £30 per month to £130 per month, which is quite a wide range. What you will pay an accountant very much depends on what you are requiring them to do.

You may decide to do your own bookkeeping or alternatively ask your accountant to do it for you. You may have other income in addition to your business’s, need to be VAT-registered or require an external source to run your payroll. One thing is certain however, hiring an online accountant that uses cloud-software is a cost-effective and very efficient way to manage your bookkeeping and accounts.

Can I do my own accounts as a sole trader?

Yes, you can do your own accounts as a sole trader – a sole trader’s accounts can be relatively simple in some cases and do not need to be audited or filed with Companies House as they do for a limited company. However, what you can do and what you should do are two things to consider here.

It’s fine to do your own bookkeeping so long as you’re organised, methodical and quite good with figures, but doing your own accounts is time-consuming. Accuracy is paramount, but hiring an accountant who is not only trained to be accurate but also has expert knowledge regarding the UK tax system and tax law is a huge benefit and will probably mean that you come out with more of what you have earned in your pocket.

Do sole traders get audited?

A big benefit of being self-employed is that there is less hassle in terms of filing company accounts and other documentation. Audits do not apply to the accounts of sole traders, but all businesses must be certain that their books and accounts and, therefore, the information they file on any statutory returns is accurate. HMRC have extensive powers to inspect the records of businesses and the fines and penalties for inaccuracies, late filing and late payments can be very hard-hitting if you fall foul.

Contact CloudCo Sole trader accountants

Running a small business as a sole trader can be burdensome, particularly when the business starts to grow. CloudCo offers comprehensive bookkeeping and accounting services that are tailored to the needs of sole traders. Businesses run better with CloudCo and win back some valuable time too.

When you are looking to hire a bookkeeper or accountant, finding the right one can be quite a job. At the very least, hire someone who is a member of the Chartered Institute of Management Accountants (CIMA) and who has impressive credentials and preferably with experience in your industry.

Make sure you understand the fee structure so that you are not met with unexpected costs. If you don’t know where to start looking, ask friends, colleagues, or family for recommendations.

Take a look online: for example, CloudCo is rated 5 out of 5 based on 10 Google reviews.

When it comes down to whether you should handle you own business bookkeeping and accounts, it really comes down to the individual and the size of the business. If you have the skill and time to handle your accounts efficiently, maybe you should do so and take advantage of some of the very good bookkeeping/accounts apps designed to make the process easier. But if your business is busy and you want it to grow, hiring a bookkeeper or accountant is money well spent and could help you see more growth and more profit.

Give us a call today 01908 041755 or email us at [email protected] 

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CloudCo Group is a Chartered Management Accountancy Firm offering premium accounting services to a range of businesses and individuals.

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