Sole trader tax

Kaster_2

Hopefully this is pretty straightforward to answer, although it feels quite specific and it was hard to narrow down a search online to find one.

I’m a sole trader and I’ve read different advice that you should/shouldn’t have a separate bank account. I do not have a separate business account. 

I’m a few years behind in my accounting/tax and am now putting it together using Sage online. I’ve always used my normal bank account to accept my incomings (I have hardly any outgoings as a writer) and my bank balance on Sage obviously won’t match my real bank account as I’m not inputting household bills and general lifestyle spending into the system (although I know I can make some claims on rent/internet/elec/phone bills etc).

So, do I need to worry about bank reconciliation, or just input all my business related incomings/outgoings? I have every invoice should I ever have to undergo a tax audit. 

LippyDoodle

Kaster_2 said:

Hopefully this is pretty straightforward to answer, although it feels quite specific and it was hard to narrow down a search online to find one.

I’m a sole trader and I’ve read different advice that you should/shouldn’t have a separate bank account. I do not have a separate business account. 

I’m a few years behind in my accounting/tax and am now putting it together using Sage online. I’ve always used my normal bank account to accept my incomings (I have hardly any outgoings as a writer) and my bank balance on Sage obviously won’t match my real bank account as I’m not inputting household bills and general lifestyle spending into the system (although I know I can make some claims on rent/internet/elec/phone bills etc).

So, do I need to worry about bank reconciliation, or just input all my business related incomings/outgoings? I have every invoice should I ever have to undergo a tax audit. 

You need to either read your terms and conditions or contact your bank to see if they will allow you to use your personal bank account for your business too because a lot don't. 

There are/were some business accounts that are free for the first 1 year. Just do a google search. 

Jeremy535897

You have two options:

• treat the bank account as a business bank account, which means that in Sage you record all transactions. Personal transactions you treat as drawings or capital introduced, depending on what they are and whether they are receipts (non-business income) or payments (personal expenditure). This has the advantage that the bank balance will be able to be reconciled
• treat the bank account as a personal bank account, so just record the business transactions. That account will end up with a balance that has nothing to do with the real bank balance, but simply reflects the difference between business receipts and payments. This is easier, but makes it impossible to reconcile

It is your choice which to do. If most of the transactions are personal, the second option is easier.

Grumpy_chap

Kaster_2 said:

Hopefully this is pretty straightforward to answer, although it feels quite specific and it was hard to narrow down a search online to find one.

I’m a sole trader and I’ve read different advice that you should/shouldn’t have a separate bank account. I do not have a separate business account. 

I’m a few years behind in my accounting/tax and am now putting it together using Sage online. I’ve always used my normal bank account to accept my incomings (I have hardly any outgoings as a writer) and my bank balance on Sage obviously won’t match my real bank account as I’m not inputting household bills and general lifestyle spending into the system (although I know I can make some claims on rent/internet/elec/phone bills etc).

So, do I need to worry about bank reconciliation, or just input all my business related incomings/outgoings? I have every invoice should I ever have to undergo a tax audit. 

Going forwards, it is probably a lot easier overall to have a separate business account and separate personal account as it makes the accounting more straightforward plus creates a clear divide between work and pleasure.

Kaster_2

LippyDoodle said:

Kaster_2 said:

Hopefully this is pretty straightforward to answer, although it feels quite specific and it was hard to narrow down a search online to find one.

I’m a sole trader and I’ve read different advice that you should/shouldn’t have a separate bank account. I do not have a separate business account. 

I’m a few years behind in my accounting/tax and am now putting it together using Sage online. I’ve always used my normal bank account to accept my incomings (I have hardly any outgoings as a writer) and my bank balance on Sage obviously won’t match my real bank account as I’m not inputting household bills and general lifestyle spending into the system (although I know I can make some claims on rent/internet/elec/phone bills etc).

So, do I need to worry about bank reconciliation, or just input all my business related incomings/outgoings? I have every invoice should I ever have to undergo a tax audit. 

You need to either read your terms and conditions or contact your bank to see if they will allow you to use your personal bank account for your business too because a lot don't. 

There are/were some business accounts that are free for the first 1 year. Just do a google search. 

Thanks for this. I did check and just found out my account doesn’t allow it. So going to have to separate the two ASAP (or at least once I get my all figures into Sage). Will probably need to get an accountant/bookkeeper involved to help me figure out what to do about moving money around etc.

Kaster_2

Jeremy535897 said:

You have two options:

• treat the bank account as a business bank account, which means that in Sage you record all transactions. Personal transactions you treat as drawings or capital introduced, depending on what they are and whether they are receipts (non-business income) or payments (personal expenditure). This has the advantage that the bank balance will be able to be reconciled
• treat the bank account as a personal bank account, so just record the business transactions. That account will end up with a balance that has nothing to do with the real bank balance, but simply reflects the difference between business receipts and payments. This is easier, but makes it impossible to reconcile

It is your choice which to do. If most of the transactions are personal, the second option is easier.

Thank you. Second option would be ideal, but having just discovered I shouldn’t be using my account as I am, I’ll need to set up a separate business one. Most of my transactions are personal, so the first option would be a nightmare to account for without any professional help (and additional costs).

LippyDoodle

Kaster_2 said:

LippyDoodle said:

Kaster_2 said:

Hopefully this is pretty straightforward to answer, although it feels quite specific and it was hard to narrow down a search online to find one.

I’m a sole trader and I’ve read different advice that you should/shouldn’t have a separate bank account. I do not have a separate business account. 

I’m a few years behind in my accounting/tax and am now putting it together using Sage online. I’ve always used my normal bank account to accept my incomings (I have hardly any outgoings as a writer) and my bank balance on Sage obviously won’t match my real bank account as I’m not inputting household bills and general lifestyle spending into the system (although I know I can make some claims on rent/internet/elec/phone bills etc).

So, do I need to worry about bank reconciliation, or just input all my business related incomings/outgoings? I have every invoice should I ever have to undergo a tax audit. 

You need to either read your terms and conditions or contact your bank to see if they will allow you to use your personal bank account for your business too because a lot don't. 

There are/were some business accounts that are free for the first 1 year. Just do a google search. 

Thanks for this. I did check and just found out my account doesn’t allow it. So going to have to separate the two ASAP (or at least once I get my all figures into Sage). Will probably need to get an accountant/bookkeeper involved to help me figure out what to do about moving money around etc.

Happy to help. 

All business related incomings & out goings should be used with your business account. So for eg. anything you purchase for your business, tools, machinary, renewables such as paper for invoices, letters, advertising etc. If you pay yourself a wage, it comes from your business account and goes into your personal account. Bills for your buisness are taking from your business accout ect. 
Keep your personal comings and goings, home bills, etc to your personal account. 

It would be good to speak to an accountant because you can claim tax relief on certain things you buy/pay for your business. They can put you on the right track. 

Also remember that as a sole trader you are responsible for any debt your business my occur and you would have to pay these from your own personal assets. You have no protection like a Ltd company does. 

Kaster_2

LippyDoodle said:

Kaster_2 said:

LippyDoodle said:

Kaster_2 said:

Hopefully this is pretty straightforward to answer, although it feels quite specific and it was hard to narrow down a search online to find one.

I’m a sole trader and I’ve read different advice that you should/shouldn’t have a separate bank account. I do not have a separate business account. 

I’m a few years behind in my accounting/tax and am now putting it together using Sage online. I’ve always used my normal bank account to accept my incomings (I have hardly any outgoings as a writer) and my bank balance on Sage obviously won’t match my real bank account as I’m not inputting household bills and general lifestyle spending into the system (although I know I can make some claims on rent/internet/elec/phone bills etc).

So, do I need to worry about bank reconciliation, or just input all my business related incomings/outgoings? I have every invoice should I ever have to undergo a tax audit. 

You need to either read your terms and conditions or contact your bank to see if they will allow you to use your personal bank account for your business too because a lot don't. 

There are/were some business accounts that are free for the first 1 year. Just do a google search. 

Thanks for this. I did check and just found out my account doesn’t allow it. So going to have to separate the two ASAP (or at least once I get my all figures into Sage). Will probably need to get an accountant/bookkeeper involved to help me figure out what to do about moving money around etc.

Happy to help. 

All business related incomings & out goings should be used with your business account. So for eg. anything you purchase for your business, tools, machinary, renewables such as paper for invoices, letters, advertising etc. If you pay yourself a wage, it comes from your business account and goes into your personal account. Bills for your buisness are taking from your business accout ect. 
Keep your personal comings and goings, home bills, etc to your personal account. 

It would be good to speak to an accountant because you can claim tax relief on certain things you buy/pay for your business. They can put you on the right track. 

Also remember that as a sole trader you are responsible for any debt your business my occur and you would have to pay these from your own personal assets. You have no protection like a Ltd company does. 

Thanks. I have next to no outgoings as writer, so the chances of incurring any business-related debt is incredibly small. But yes, will separate the two once I get my figures straight and then talk to an accountant about next steps.

LippyDoodle

Kaster_2 said:

LippyDoodle said:

Kaster_2 said:

LippyDoodle said:

Kaster_2 said:

Hopefully this is pretty straightforward to answer, although it feels quite specific and it was hard to narrow down a search online to find one.

I’m a sole trader and I’ve read different advice that you should/shouldn’t have a separate bank account. I do not have a separate business account. 

I’m a few years behind in my accounting/tax and am now putting it together using Sage online. I’ve always used my normal bank account to accept my incomings (I have hardly any outgoings as a writer) and my bank balance on Sage obviously won’t match my real bank account as I’m not inputting household bills and general lifestyle spending into the system (although I know I can make some claims on rent/internet/elec/phone bills etc).

So, do I need to worry about bank reconciliation, or just input all my business related incomings/outgoings? I have every invoice should I ever have to undergo a tax audit. 

You need to either read your terms and conditions or contact your bank to see if they will allow you to use your personal bank account for your business too because a lot don't. 

There are/were some business accounts that are free for the first 1 year. Just do a google search. 

Thanks for this. I did check and just found out my account doesn’t allow it. So going to have to separate the two ASAP (or at least once I get my all figures into Sage). Will probably need to get an accountant/bookkeeper involved to help me figure out what to do about moving money around etc.

Happy to help. 

All business related incomings & out goings should be used with your business account. So for eg. anything you purchase for your business, tools, machinary, renewables such as paper for invoices, letters, advertising etc. If you pay yourself a wage, it comes from your business account and goes into your personal account. Bills for your buisness are taking from your business accout ect. 
Keep your personal comings and goings, home bills, etc to your personal account. 

It would be good to speak to an accountant because you can claim tax relief on certain things you buy/pay for your business. They can put you on the right track. 

Also remember that as a sole trader you are responsible for any debt your business my occur and you would have to pay these from your own personal assets. You have no protection like a Ltd company does. 

Thanks. I have next to no outgoings as writer, so the chances of incurring any business-related debt is incredibly small. But yes, will separate the two once I get my figures straight and then talk to an accountant about next steps.

What kinds of things do you write? 

Jeremy535897

Have you actually registered with HMRC as a sole trader? If you have, I'm surprised they haven't been chasing you, or issuing penalty notices, if you are "a few years behind". If you haven't, see:
https://www.litrg.org.uk/tax-guides/self-employment/how-do-i-register-tax-and-national-insurance

Remember that if your expenses are below £1,000 in a tax year, you can claim the trading allowance of £1,000 instead. That may save you a lot of work as all you then need to record are your receipts.

Remember also that it can sometimes be beneficial to average earnings. See:
https://www.gov.uk/government/publications/averaging-for-creators-of-literary-or-artistic-works-hs234-self-assessment-helpsheet/hs234-averaging-for-creators-of-literary-or-artistic-works-2019

Pennywise

There are some new generation business bank accounts for simple businesses, such as Mettle, Starling, Wave, etc.  Some come with their own in built book-keeping, such as Wave, others such as Mettle give a free subscription to book-keeping software (freeagent).  Using a simple bank account only for business transactions and then using the bank feeds into book-keeping software takes the donkey work out of the book-keeping.  Most of these are free banking for simple/small numbers of transactions.