{"id":5342,"date":"2018-08-29T17:38:09","date_gmt":"2018-08-29T16:38:09","guid":{"rendered":"https:\/\/sagestaging.wpengine.com\/en-gb\/blog\/?p=5218"},"modified":"2026-01-29T10:32:24","modified_gmt":"2026-01-29T10:32:24","slug":"self-employed-manage-finances","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/self-employed-manage-finances\/","title":{"rendered":"How to set up and manage finances for the self-employed"},"content":{"rendered":"
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\n\t\t\t\t\t\t\tMoney Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
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\n\t\t\t\t\t\tHow to set up and manage finances for the self-employed\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\n\t\t\t\t\"\"\t\t\t\tKeir Thomas-Bryant<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

Setting up your accounts is one of the first jobs on your list when you become self-employed, and most even do it before they quit their day job.<\/p>\n\n\n\n

Early organisation lets you stay ahead of the tax man and means you\u2019ll benefit from the independence of being your own boss.<\/p>\n\n\n\n

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There are a number of things to consider for your accounting, which we\u2019ll go through in more detail in throughout this article, including the need to set up a business bank account, record income and expenses, and deal with self-assessment tax returns.<\/p>\n

Accounting for the self-employed is the simplest form of accounting, as it just concerns income and expenses.<\/p>\n

There are many resources available to help you too, from the HMRC self-assessment tax return portal, the Gov.uk website and online accounting software<\/a>.<\/p>\n<\/div>\n\n\n\n

Cash basis vs traditional accounting<\/strong><\/h2>\n\n\n\n

When you first set up your business, you\u2019ll need to decide what kind of accounting system to use. It all depends upon your income and how you\u2019d like to pay income tax on it.<\/p>\n\n\n\n

This is a good way to organise your accounts if you run a small sole trader or self-employed business, or are part of a partnership. There is a threshold for cash-basis accounting<\/a> and your income must not exceed this.<\/p>\n\n\n\n

Traditional accounting requires you to declare what you are owed but have not received yet and what you\u2019ve chosen to spend on but haven\u2019t paid for yet. This refers to unpaid invoices and invoices you\u2019ve not yet paid for.<\/p>\n\n\n\n

Your tax return<\/a> will also include the value of stock, your year-end bank balances, money taken out of the business for yourself and investments in the business. This type of accounting is better suited if you have high levels of stock, require business finance or want to offset any losses.<\/p>\n\n\n\n

Setting up a business bank account<\/strong><\/h2>\n\n\n\n

Keeping your business and personal finances separate helps you keep track of your incomings at a glance and see any expenses clearly<\/mark>.<\/p>\n\n\n\n

If you need to invest in equipment, travel or training, taking money from your business account is much simpler than getting mixed up with your personal account.<\/p>\n\n\n\n

Most banks and building societies offer a simple business current account for sole traders and the self-employed. These include the usual services such as internet banking and debit or credit cards.<\/p>\n\n\n\n

Recording income and expenses<\/strong><\/h2>\n\n\n\n

Accounting for the self-employed can be relatively straightforward if you keep track of your income and expenses on a regular basis<\/mark>. Record any payments from sales, invoices and recurring work using accounting software<\/a>.<\/p>\n\n\n\n

The same goes for expenses \u2013 you must record purchases made for your business, including equipment, supplies and travel expenses such as train tickets. Keep hold of your receipts too, you don\u2019t need to send them to HMRC but it may want to check them.<\/p>\n\n\n\n

If you are using cash basis accounting, there are allowable expenses<\/a> you can claim for against your income tax. These include:<\/p>\n\n\n\n