The Benefits of Sole Trader Accounting Software

If you’re operating as a sole trader you’ll be benefitting from the reduced amount of business admin you have to do. With personal ownership things are relatively simple and you don’t need to worry about filing annual accounts, director’s meetings, Corporation Tax or confirmation statements.

This enables you to focus more of your time on core activities such as winning new work, doing your day-to-day providing an excellent service to your clients. There is also a benefit when it comes to your work/life balance.

Despite the reduced admin requirement, accounting software can still make a huge business difference for sole traders. It makes record-keeping and self-assessment much easier, quicker and more accurate but also offers a host of other benefits that go way beyond bookkeeping and taxes.

The Government’s Making Tax Digital (MTD) initiative is another factor to consider. HMRC are in the process of digitising the UK tax system to mandate the use of accounting software for record-keeping and to calculate and file tax returns. MTD is already in effect for VAT but it’s estimated that only around 15% of sole traders are VAT-registered so many will not currently be using accounting software or be aware of how it can help them. 

In this post we’ll explore Making Tax Digital and the many ways accounting software can benefit sole traders.

Making Tax Digital (MTD) for Income Tax Self-Assessment

Making Tax Digital is undergoing a phased rollout and the next stage – Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) – will impact sole traders. 

• Sole traders with a taxable income over £50,000 must be compliant with MTD for ITSA regulations from April 2026
• Sole traders with a taxable income over £30,000 must be compliant with MTD for ITSA regulations from April 2027

Although not yet confirmed, it’s likely that the next phase of the rollout will be that all sole traders have to be MTD for ITSA compliant from April 2028.

When MTD for ITSA is in-effect, sole traders will have to:

• Do their bookkeeping digitally using HMRC-approved software
• File updates every quarter with HMRC
• File an End of Period Statement (EOPS) and Final Declaration with HMRC annually

In addition to mandating the use of software, this is a huge shakeup of the tax process and in time the traditional annual self-assessment will be no more, replaced by quarterly updates, the EOPS and Final Declaration.

The MTD for ITSA deadlines may seem a long way off and it’s understandable that sole traders may be wary of the transition to accounting software but it pays to be an early adopter in more ways than one.

If you leave it to the last minute to start using accounting software you risk non-compliance with the MTD regulations which can result in fines and penalties. But if you start using accounting software now, you ensure a smooth transition to MTD and you will also start reaping the benefits of the software earlier. Let’s explore further how it can make a business difference for you.

Sole Trader Record-Keeping Made Easy

Record-keeping is one of the main admin tasks sole traders have to contend with. It’s important that it’s both accurate and comprehensive so that your taxes are calculated on correct and complete data and so you don’t miss any allowable expenses. 

Here’s how sole trader accounting software can help:

• Bookkeeping in Real-Time: It’s important to choose accounting software that comes with a mobile app such as FreeAgent. Using an app means you can scan and upload receipts and log income & expenses as you go. This helps to stay on top of things and avoid any backlogs which is important, especially when quarterly updates have to be filed.
• Digital Backup: Having all your records stored digitally gives peace of mind that even if you lost your hardcopies, you still have your records backed up through your accounting software and you won’t lose any important documentation.
• Keep Things Organised: Accounting software can categorise your records ensuring that everything is organised, that you can easily track income and expenses and quickly find a specific record should you need it. 
• Automation:  Good accounting software can automatically categorise your records and will also integrate with your bank account to import and categorise your transactions to ensure that your bank reconciliation is accurate without the need for any time-consuming manual intervention.

Accounting software helps to ensure consistency and accuracy in your bookkeeping, gives you the protection and reassurance of having a digital backup and can also save you time thanks to automation. Comprehensive and accurate record-keeping is vital to help ensure that your tax calculations are correct. 

Your Taxes Simplified

Inbuilt automation functionality massively simplifies your taxes, both now for self-assessments and when MTD for ITSA is mandatory and you need to file quarterly updates. 

• Automated Tax Calculation: A key benefit of accounting software is that it will calculate your tax returns in the background while you work saving you a lot of time and stress. 
• Digital Filing: Once they’ve been validated, you can digitally file your tax return which means you get real-time confirmation that it’s submitted and don’t have to post a paper tax return.
• Improved Accuracy: Automated tax return calculation takes human error out of the equation and by improving accuracy you reduce the chances of HMRC fines and penalties.
• Deadline Reminders and Projections: Accounting software will notify you when a filing deadline is approaching so you never miss one and it can also give you real-time projections of your tax position throughout the year so you know exactly where you stand and can budget accordingly.

Accounting software streamlines the management of your tax affairs, saves you lots of time and makes everything more accurate as well as future-proofing you from an MTD perspective.

What are the Additional Benefits of Sole Trader Accounting Software?

The benefits of accounting software go way beyond MTD-compliance and tax returns. Let’s look at some more.

Financial Insights & Reporting

• Key financial reports including balance sheets, profit & loss, cash flow statements and projections are generated in real time.
• This ensures you have an at-a-glance view of the current financial health of your business.

Track Invoices and Payments

• Branded invoices can be sent to clients automatically when contracts are complete and unpaid invoices can also be chased automatically.
• This streamlines the invoicing process and helps with your cash flow.

Time Tracking

• Time tracking functionality enables you to log the time you spend on your projects.
• This ensures accurate and timely billing for you clients.

Powerful Automation

• Comprehensive and powerful automation reduces the amount of manual admin you need to do.
• Automated bank feeds and reconciliation, payment matching, recurring invoices, payment reminders, expense tracking can make a huge business difference.

Sole Trader Accounting with Gorilla and FreeAgent

We are FreeAgent Platinum Partners and are huge advocates of the benefits of this industry standard accounting software. This is why all our clients receive full FreeAgent access inclusive with our great value fixed-fee accountancy packages saving them up to £330 a year.

FreeAgent is designed for sole traders and small businesses and is trusted by over 150,000 users. It’s fully MTD-compliant so you’ll be ready for and compliant with MTD for ITSA and any other MTD developments in the future.

You’ll benefit from all the accounting software advantages outlined in this post and you can also grant collaborative access to your dedicated accountant who will be on hand to provide you with unlimited advice and support including onboarding you with FreeAgent helping you to maximise the benefits of this award-winning software.

They will expertly manage all your business and personal accounting needs with a guaranteed same working day response to your queries guaranteed no matter how many times you contact us.

To learn more about FreeAgent, MTD and our sole trader accountancy service, request a callback today to speak to an accountant.