FreeAgent accounting software is fab. It is available for free with certain business bank accounts and is really user friendly. As a sole trader, you can do it all yourself! However, you still need some knowledge of the UK tax system and accounts in general to ensure your tax return is correct.
So, in this article I’m sharing 5 mistakes I’ve seen when sole traders use FreeAgent without the help of an accountant or bookkeeper.
1. Entering drawings as net salary. As a sole trader, your pay IS NOT an expense. It is “drawings” which are shown on the P&L after profit… to ensure you are taxed. I have lost count of how many sole traders I’ve seen showing their pay as net salary expense and then reporting very low or no profit… if you do this, you are not alone but you also need to make the change to how you are preparing your tax returns. I advise speaking with an accountant to get some help and advice. You don’t want to be under-declaring your profits, get a random investigation then have to pay years of tax on your drawings.
2. Not having the year end set correctly as the tax year…. this could mean that your tax has been either over or under declared previoisly. In the past, you could submit a tax return with accounts to any month as the year end but going forward ALL sole trader accounts will be expected to run alongside the tax year. I love this new rule as its the way I work with all clients, it just makes sense to me to keep it simple and not worry about overlap relief when the year end is different to the tax year.
3. Duplicating expenses by adding them to “out of pocket expenses” and also categorising them as payments in bank transactions…. resulting in double counting expenses and so under declaring profit on tax returns.
4. Not checking and reconciling the balance sheet – is the bank balance correct? Do you have fixed assets? Are trade debtors and creditors correct? Do you have any stock? None of these figures need to go into your tax return if your turnover is under £85k but it’s still important that they are correct because if they aren’t, the P&L is unlikely to be correct either.
5. Sending sales invoices outside of FreeAgent and so not having trade debtors showing correctly at any given time. When you send an invoice from FreeAgent, the double entry is DR debtors, CR sales. Then when the customer pays the double entry is DR Bank CR debtors. The sales figure is recognised at the correct time and trade debtors will always be correct too.
If you are worried that you’ve done any of these and need some help and advice, please get in touch with an accountant or bookkeeper for some advice.
I run regular FreeAgent training sessions each Feb, April, June, September and November with my account manager at FreeAgent. They are free to attend and there’s always lots of open discussion and all questions are very much welcomed.
(At time of writing the next one is 27th of February 2023 at 10am). Sign up to my newsletter to receive up to date info of training days www.carolineboardmanconsulting.co.uk/newsletter
Get in touch to join my Spring waiting list. Sole traders prices start at £45 per month (inclusive of VAT) by email firstname.lastname@example.org or via my website www.carolineboardmanconsulting.co.uk/contact-us