Bookkeeping Basics for Sole Traders

Keeping track of your income, expenses and cash flow isn’t the most exciting aspect of being a sole trader - but it’s essential to the health of your business. No matter what type of work you do, you’ll need to keep on top of your books to make sure you’re getting paid on time by customers, covering your own business expenses properly, and meeting all your tax obligations.

This guide covers some important bookkeeping basics for UK sole traders. We’ll also touch briefly on Wise Business which offers powerful international accounts you can use to hold, send, spend and exchange 40+ currencies. You can also get account details in currencies like GBP, EUR and USD to receive foreign currency payments quickly *, with low or no fees.

🔍 In this article:
Key Bookkeeping Tasks for Sole Traders Recording income Tracking expenses Managing cash flow Recordkeeping and documentation Tax obligations for Sole Traders Tools and Resources for Sole Traders Manage your international company's finances with Wise Business

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Key Bookkeeping Tasks for Sole Traders

Let’s get straight into the details. Bear in mind that there’s lots of help out there if you’re unsure about how to manage your business finances as a sole trader. You may need to pay for the support of some accounting services, but it can help you avoid stress, hassle and unnecessary costs if you’re not familiar with managing your own books.

Recording income

In order to measure the financial health of your business - and pay your taxes correctly - it’s vital to record all sources of income, including sales, invoices and payments received.

These days, many sole traders find that the easiest way of accurately tracking income streams and maintaining detailed records is to work digitally. By opening a dedicated business account and syncing it with your preferred accounting software, you can get all the information you need instantly and with minimum effort. For example, with a Wise Business account you can sync with popular cloud accounting solutions seamlessly, for a full 360 view of all your business finances in multiple currencies, ensuring you're always up to date.

There’s a huge range of accounting software available, which can offer different features and fees to suit the needs of businesses of different sizes and stages. There are also free accounting software options if you want a no risk way to test out digital bookkeeping for yourself.

Tracking expenses

Categorising and recording business expenses is important for analysing and improving your company profit - and also to make sure you don’t end up paying unnecessary taxes.

Expenses can cover a broad range of things such as rent of an office or co-working space, supplies, equipment and subscription purchases. To be able to use your expenses to offset any potential taxes you’ll have to have proper documentation and expense tracking methods, and you could be asked to prove your essential outgoings.

There are a few ways to make business expenses easier, such as using a dedicated business account from Wise to get a Wise business debit card. You can then use your Wise debit card for overseas spending, or paying subscriptions in different currencies with mid-market exchange rates and transparent low fees. Because you can sync your Wise account with your cloud accounting software, all the relevant details are captured conveniently for you while you save on currency conversion.

How to track business expenses

Managing cash flow

You’ll need to monitor your business cash flow to ensure you always have sufficient funds for business operations and expenses. Keeping on top of cash flow is an ongoing task, so being close to the detail is important.

The good news is that a Wise Business account can make managing cash flow in multiple currencies easier. You’ll be able to view your business account with nothing more than your phone, get instant transaction alerts and account updates, and use your Wise Business account statement as a solution to find out what your business cash flow looks like at any given time.

Managing multiple currencies

Recordkeeping and documentation

We’ve covered the importance of tracking income, expenses and cash flow on an ongoing basis. To make this process less demanding, it’s important to have a proactive approach to organising financial records, including invoices, receipts, statements, and tax documents.

Using accounting software - including free cloud accounting options - can save you lots of time compared to manually keeping and updating a spreadsheet. You also reduce the chance of human error creeping in significantly. Popular accounting software is available from many different providers including Xero, QuickBooks and FreeAgent. By picking a provider like this and syncing with a business account from a service like Wise Business, you’ve got a simple and streamlined solution to recordkeeping, in EUR or USD, and a whole range of other currencies.

Tax obligations for Sole Traders

One of the first things you’ll need to do as a UK sole trader is to register for tax¹, and possibly also for VAT. As a sole trader you must complete a self assessment tax return, which is passed to HMRC. This details your taxable income, which is usually your business income minus your allowable business expenses. You’ll be responsible for paying your own tax, and also National Insurance contributions.

For the tax year 2024-25, UK income tax must be paid by anyone earning a taxable income of over 12,570 GBP annually. You’ll pay the basic rate of 20% on income from 12,571 GBP to 50,270 GBP, then the higher rate of 40% on any income earned from 50,271 GBP to 125,140 GBP. Above this income level, the tax you pay is set at 45%².

Learn more about allowable expenses as a self-employed person in the UK and how to pay taxes on the HMRC website through open banking. Bear in mind that Wise does not offer tax advice, so the guides offered here are for information only. Seek a professional tax accountant if you need individual support.

Tools and Resources for Sole Traders

There are lots of tools and resources out there to help sole traders manage their business finances with ease. Popular accounting software options suitable for sole traders include:

• QuickBooks - offers tools such as invoicing and expenses, help with HMRC self assessment, and specific onboarding tools for sole traders in the UK
• FreshBooks - lots of accounting solutions as well as time tracking and project management tools, with a customer base of over 30 million people already
• Xero - get invoicing, expense management and VAT returns, with a selection of different account plans depending on the features you need
• FreeAgent - create estimates and invoices, chase bills, reconcile your books, and manage projects, all with a handy dashboard overview for at a glance reviews

Compare the key features and benefits of a few different services to help you choose the best tool for your personal preferences and needs.

Learn how to sync accounting software with a Wise Business account in a few simple steps.

Manage your international company's finances with Wise Business

For most sole traders, managing and chasing invoices, reconciling accounts and keeping an eye on the company cashflow isn’t the most exciting task. A Wise Business international business account could help, with smart ways to save both time and money when you manage your business finances across borders.

Streamling your cash flow with accounting integrations for QuickBooks, FreeAgent and more, plus batch payments to send money to multiple contractors or suppliers in a few clicks, and multi-user access so you can add your accountant or a team member to your Wise account. And save money when you pay internationally, with mid-market exchange rates and low transparent fees.

Here are a few of the other smart Wise Business features you can enjoy:
No ongoing fees: no monthly fee and no minimum balance requirement Hold and exchange multiple currencies in one account Send fast payments to 160+ countries Business debit expense cards for you and your team: up to three digital cards per team member, and spending limits you can set according to your business needs Local account details in 9+ currencies including GBP, EUR or USD

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Conclusion

Using proper bookkeeping practises right from day one can help sole traders to achieve financial stability and business success.

The good news is that there are loads of solutions out there to help UK sole traders to manage their business finances without too much time lost to admin, like Wise Business which you can sync with your preferred cloud accounting service for easy reconciliation. Use this guide to help you understand the day to day bookkeeping tasks you’ll need to deal with, and do your own research to cover any possible gaps in your financial management skills.

*Transaction speed claimed depends on individual circumstances and may not be available for all transactions.

1. UK government - Set up as a sole trader
2. UK government income tax rates