All You Need to Know for Managing Your Accounts as a Sole Trader

Being a sole trader is like being a jack-of-all-trades.

You are the only one responsible for running every single aspect of your business, from inventory and sales to accounting and budgeting.

Below is all you need to know about managing your finances as a sole trader so that you can achieve your business goals with ease.

How Is Sole Trader Accounting Different?

The main difference has to do with tax.

Sole traders are taxed in the same ways as individuals which means you are required to report your business income in your annual tax return.

Your individual tax file number (TFN) will be used to submit a single tax return which will be taxed at the personal income tax rate.

For comparison, larger companies have to submit a yearly tax return and pay tax on their profits at a higher tax rate of 30%.


As a sole trader, having a budget is essential to managing your cash flow and running your business efficiently.

It gives you an outline of all your accounts, expenses and incomes so that you can plan for future expenses and maximise your profits.

A good budget will allow you to:

  • Have an idea of how much profit you need to make within a certain duration
  • Set sustainable financial targets
  • Plan for future expenses
  • Share your income goals with your employees

A proper budget will consist of a profit and loss report with a balance sheet.


It’s extremely important that you understand your tax obligations as a sole trader business.

As mentioned, you will be taxed the same as individual taxpayers, so you won’t have to do a separate business tax return.

At the time of writing, the tax-free threshold for sole traders is $18,200 annually – so if you make less than that, you don’t need to pay tax on your income.

If you earn more than $75,000 annually you will need to register for Goods and Services Tax (GST).

When it comes to claiming back on your business purchases and expenses, you can claim back on the following:

  • Business tools and equipment purchased (as well as leases and repairs)
  • Vehicle expenses, like parking, tolls, fuel and running expenses
  • Protective gear purchased (such as safety boots, sunglasses and even sunscreen)

You will need to make sure you keep excellent, organised records if you want to maximise your tax returns.

National Insurance

If you are a sole trader, you will know that you are responsible for pretty much everything in your business. And if you don’t work, you won’t bring in any income.

That’s where insurance comes in. If, for some reason, you are not able to work, (for example illness or injuries) income protection insurance will pay benefits to you so that you are still receiving some form of an income.

Another reason why insurance is important for sole traders is that they have unlimited liability. This means that if the business falls into debt that can’t be paid back, your personal assets will be taken to repay it.

You will need to let HMRC know within 3 months of setting up as a sole trader to register for national insurance.

personal finances
personal finances

Sole Trader Bookkeeping Tips

Becoming a sole trader comes with a lot of learning. Here are some helpful tips to make things easier:

Keep your business finances separate from your personal finances

  • Even though you’ll be running your business by yourself, mixing your personal and business statements can lead to a lot of unnecessary confusion.
    Consider opening a separate business bank account. Your annual tax returns will be a whole lot easier.
  • Hire a professional to help out
    If you don’t know much about bookkeeping or accounting, getting assistance from a qualified professional will take your business to the next level and give you peace of mind.
    The best accountant for tradies will have the necessary expertise and credentials to streamline your finances.
  • Use an online accounting software
    Using an online platform not only saves on paper and space in your office but will also help you to keep more accurate records in real-time.
    If you hire a professional down the line or a team of staff, it will make it easy for them to access your financial records – all in one place.

The Bottom Line

Don’t let the accounting and financial side of things scare you away from fulfilling your dreams of being a sole trader.

With the right knowledge and professional assistance, you can ensure that your small business thrives!

The information contained on this page is provided on an “as is” basis with no guarantees of completeness, accuracy, usefulness, or timeliness. As the information contained on this page is provided by an independent third-party content provider and hence there are no warranties or representations in connection therewith.

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