A Quick Guide to Sole Trader Bookkeeping

So, you’re starting out as a sole trader. Exciting times. There’s a lot to think about when you go it alone and set up your own business, but among your top priorities should be bookkeeping. 

Why? Well, bookkeeping is an essential part of running a business. In a nutshell, it involves recording financial transactions that a business is involved in, whether it’s spending money or receiving it. Bookkeeping comes under the umbrella of accounting and focuses solely on the day-to-day operation of the business (as opposed to financial forecasts and strategic planning).

No matter its size or specialism, every business needs accurate bookkeeping. Each and every transaction must be correctly recorded, dated, organised and categorised – because if it’s not, the consequences can be serious. Inaccurate bookkeeping can lead to errors in your tax self-assessments, potentially landing you and your business in hot water.

To help you avoid HMRC fines and remain on the straight and narrow, we’re outlining a selection of top tips for sole traders in this blog. Below, we’ll cover your key responsibilities when it comes to bookkeeping, explain which records you need to keep and provide a list of top tips to help you get started.

What are my responsibilities?

As a sole trader, you’ll have to complete a self-assessment tax return at the end of the tax year. Once you set up your business, you’ll need to register for a self-assessment form and complete this a minimum of 20 working days before the end-of-year deadline.

You’ll have to pay National Insurance as a sole trader too, and if your business generates more than £85,000 in a year, you’ll have to register for VAT. All of these processes rely on accurate record-keeping; if you don’t correctly record and catalogue your financial activity, you won’t be paying the right amount of tax or National Insurance.

That’s a problem. If you’re not paying your way, HMRC won’t let that slide – and you could end up with a hefty fine. In short, it pays to keep accurate records of each and every transaction.

Which records will I need to keep?

Bookkeeping typically involves recording and maintaining records of the following:

  • Receipts for business expenses
  • Business-related banking activity
  • VAT records
  • Grants that have been issued by the Self-Employment Income Support Scheme (SEISS)
  • …and anything else that relates to taxable income

Keeping these records for a minimum of five years is considered best practice – and you’ll need to be compliant with Making Tax Digital if you’re VAT-registered. If you’re not, it’s still worth complying with the new rules anyway; from April 2026, all sole traders (VAT-registered or not) will have to use bookkeeping software instead of old-school paper records.

Bookkeeping & accounting top tips for a sole trader

To conclude our introductory guide to bookkeeping, we’ve put together a list of top tips to help you get started.

  • Open a dedicated business bank account to streamline the bookkeeping process as much as possible.
  • Make sure you thoroughly understand your responsibilities and National Insurance requirements – you don’t want to over or under-pay!
  • It’s always worth keeping paper receipts as a backup,  just in case you encounter issues with your accounting software.
  • Shop around, ask for recommendations and choose your software carefully.
  • Always try to stay one step ahead of the game and keep your records up to date. If you fall behind, it can be tough to catch up again.
  • Consider speaking to a professional. Hiring a bookkeeper will save you time and hassle, freeing you up to focus on running your business. 

Find out how Stonehouse can help your business

Interested in outsourcing your bookkeeping to experts who really know their stuff? Speak to the team at Stonehouse. With more than 40 years of experience in bookkeeping, VAT, PAYE and CIS, we’re here to help with all your bookkeeping and accounting needs – no matter how small or large your business. Discover more about our bookkeeping services today.