BOOKKEEPING FOR SOLE TRADERS · UK
Bookkeeping for sole traders, done every working day.
Wenzo keeps your income and expenses recorded on the cash basis in the software you already use, every UK working day, so your records are ready for Self Assessment and for Making Tax Digital for Income Tax.
Why sole trader bookkeeping slips behind
Most sole traders do the books in the evening or at the weekend, after the paid work is done. A few busy weeks and the receipts pile up. By January there is a year of bank lines to sort and a box of paper to match.
That is also when mistakes happen. Costs get left out, personal spending gets mixed in and income is counted twice. We record your transactions as they come in, so the books stay current and you are not rebuilding a year from memory.
Cash basis records, kept the standard way
GOV.UK describes the cash basis as the standard way for a sole trader to record income and expenses. You record income when the money reaches you and expenses when you pay the bill. Your profit for Self Assessment is worked out from those records, so you do not pay Income Tax on money you have not received yet.
You can choose traditional accounting instead, where income and expenses are recorded by the date you invoiced or were billed. If you do, you must say so on your Self Assessment return. Limited companies, limited liability partnerships and partnerships with a corporate partner cannot use the cash basis at all.
Which method you use is a decision for you or your accountant. Once it is agreed, we record everything the same way every month. Our guide on cash basis or traditional accounting explains the difference in more detail.
What a cash basis record needs
On the cash basis, the bank is the heart of the records. Each day we work through your bank feed and record:
- Money in. Customer payments by transfer, card or cash, matched to the right customer and, where you raise invoices, to the right invoice.
- Money out. Business costs posted to the right expense category, with the receipt or bill attached where your software allows it.
- Personal items. Many sole traders use one account for everything. We separate personal spending from business costs, so only allowable expenses reach your profit figure.
- Cash. Cash takings and cash purchases are recorded too, so the books reflect what really happened and not just what passed through the bank.
Where a payment has no receipt or the purpose is unclear, we list it and ask you about it, rather than guessing.
Getting ready for Making Tax Digital for Income Tax
Making Tax Digital for Income Tax changes how many sole traders report to HMRC. It is based on your qualifying income, which is your self-employment and property income before expenses. Employment pay, pensions and dividends do not count towards it.
- From 6 April 2026 if your qualifying income was over £50,000 in the 2024/25 tax year.
- From 6 April 2027 if your qualifying income is over £30,000 in the 2025/26 tax year.
- From 6 April 2028 if your qualifying income is over £20,000 in the 2026/27 tax year.
HMRC checks your Self Assessment return each tax year and writes to you if you need to start.
What changes day to day
Under Making Tax Digital you keep digital records of your business income and expenses in compatible software. Each record needs the amount, the date and a category. If your turnover from a self-employment is under £90,000, you can use simpler categories and just record whether each item is income or an expense.
Records should be created as close to the date of the transaction as possible. They must exist before you send the quarterly update for that period. That suits daily bookkeeping well, because the records are already there when the update is due.
Quarterly update deadlines. Each update covers the tax year so far and contains totals for each income and expense category, not individual receipts. Using the standard periods, the deadlines are 7 August (to 5 July), 7 November (to 5 October), 7 February (to 5 January) and 7 May (to 5 April, in the following tax year).
We keep the records in your software complete and categorised, so the quarterly totals are ready when the deadline comes round. Sending quarterly updates and your tax return to HMRC are filings, and they are quoted separately. Our guides on what Making Tax Digital means for the self-employed and how to sign up for MTD with HMRC cover the steps.
Working in the software you already use
You keep your own software and your own subscription. Where the software supports it, we join as an invited user, so you can see every change we make. We work in Xero, QuickBooks, Sage, FreeAgent, Zoho Books, Clear Books, KashFlow, Pandle, QuickFile, FreshBooks and VT Transaction+, and with receipt tools such as Dext, Hubdoc and AutoEntry.
If you are still on a spreadsheet, HMRC's guidance says you can keep records in a spreadsheet for Making Tax Digital, as long as it is digitally linked to compatible software. If you are choosing software for the first time, GOV.UK has a guide to finding software that works with Making Tax Digital for Income Tax. We can talk through what you have on a free call.
Why the Essentials plan usually fits
Our prices are set by annual turnover. Most sole traders fall within the Essentials plan, which covers turnover up to £150,000 for £295 a month. If your business turns over more, Plus and Managed cover the higher bands.
Every plan includes the same daily work:
- Bookkeeping every UK working day in your existing software.
- Bank reconciliation and receipt matching, so the books agree with the bank. See our guide on what bank reconciliation is.
- Finance inbox monitoring, so bills and receipts sent by email are picked up.
- Missing invoices and receipts followed up with you.
- A monthly financial summary in plain English.
We agree one fixed monthly fee after reviewing your records. There is no hourly billing. If your books are behind, we can bring them up to date first with catch-up bookkeeping, which is quoted separately.
VAT, CIS and other things we take into account
Some sole traders are VAT registered. You must register if your taxable turnover for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days. If you are registered, we post each sale and cost with the right VAT code so the figures are ready for your return. Submitting the VAT return is quoted separately.
If you work in construction and are paid under the Construction Industry Scheme, we record sales at the full amount invoiced and the deduction separately, so the tax already paid is not lost. Our page on bookkeeping for trades explains how we handle this.
Keeping records for long enough
As a sole trader you must keep records of all sales and income and all business expenses, plus VAT records if you are registered and PAYE records if you employ people. Records must be kept for at least 5 years after the 31 January submission deadline of the tax year they relate to. Because we keep everything in your own software, the records stay with you.