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Published 11 June 2024
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DIY Accounting? Here’s What you Need to Remember

If you’re a sole trader – even if your business is only a side hustle – you’ll need to file a self-assessment tax return if you exceed the annual earnings allowance of £1,000. Here, we help you weigh up the benefits of DIY accounting as compared to hiring an accountant.

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Some traders still prefer to enlist professional support with their self-assessment tax return, but with a multitude of apps and easy access to software, doing your own accounting has never been so easy. In fact, accounting software comes free with some business bank accounts, simplifying this aspect of small business ownership.

So, if you’ve been meaning to give it a go yourself, there’s no better time than now to take the DIY accounting route. Here’s what you need to consider.

1. You don’t need a maths degree, but you need to know your numbers

Completing your tax return online can be straightforward if your finances aren’t too complicated and you’ve kept accurate records. Essentially, the form from HM Revenue & Customs (HMRC) does the calculations for you, so there’s no need to be intimidated if maths wasn’t your strongest subject at school. 

“It’s really easy to do yourself. All you need is the total amount of money you spent and the total you earned. The form works everything out for you,” says business coach and mentor Aly Davidson.

However, for some business owners, tracking income and expenditure feels far from simple, particularly with multiple income streams, for example by selling on platforms such as Etsy and eBay. 

“We’ve seen a real increase [in sole traders] because HMRC has now been given access to certain platforms such as Etsy, eBay, Airbnb,” says Shelley Thomas, marketing manager at Crunch, an online accountancy firm. Where private sellers were previously able to trade under the radar, HMRC now has visibility of the money they’re making, even on TikTok. “A lot more people panicked and thought, actually, it’s time for me to look for an accountant,” Thomas explains.

Accounting software can help, making it easier to keep tabs on the cash coming in and out of your business bank account, and some banks offer this for free. If yours doesn’t, most software providers let you try before you buy, offering free trials of either 14 or 30 days, so check which plan suits your business needs before you commit.

Once you’ve found the accounting software that’s right for you, it’s worth familiarising yourself with the tax section of the platform – even if you won’t need to complete a self-assessment for this tax year. Knowing in advance which numbers you’ll need to provide can help you feel more confident about the process.

2. You may be able to expense more than you realise

If you run your business from home, untangling business expenses from personal expenses can be tricky, but the potential savings could make it worth the effort. Maximising what you can claim as allowable expenses can reduce the amount you owe HMRC. 

Thomas says that sole traders are often surprised to learn they can expense a portion of their household bills. “There are loads of things that people just might presume and they have to fork out [for] themselves,” she says. “You don’t technically get the money back, but it offsets any tax that you pay.” For example, if 20% of the calls you make on your mobile phone are for business purposes, you can claim 20% of your bills as a business expense.

Separating personal and business expenses is something a professional accountant can help with. But, armed with a comprehensive list of allowable expenses, which is available on gov.uk, you may feel confident to file your return yourself. You could also pick up tips from other sole traders by attending networking events.

Gareth Ellis, owner and lead copywriter at Cloud Nine Writing, is aware he could expense some homeworking costs, but doesn’t know how to work it out. To get help, Ellis plans to try a ‘skills swap’ with an accountant he met on the NatWest Accelerator programme. 

Ellis hasn’t ruled out paying for accountancy support in the future, though, and told NerdWallet he’d prioritise this over outsourcing social media. “As I grow, I think it will be one of the first things I add,” he says. “I’m a strong believer in paying someone to do something that you’re not brilliant at,” he adds.

3. DIY accounting may not leave you instantly better off 

Sole traders starting out may be put off by the idea of paying an accountant and see DIY accounting as a way to save money. However, software that lets you file your self-assessment online through the Making Tax Digital system could cost over £400 per year. It’s therefore worth considering switching your business banking account to one that includes accounting software for free.

In some circumstances, paying for guidance from an accountant can help you maximise what you can claim in expenses, potentially reducing your income tax bill (or even resulting in a tax rebate). Hiring an accountant to file your tax return might make financial sense if your expenses and capital allowances are complex. 

However, it’s also possible to do all these things by yourself and HMRC’s guidance on how to fill in your tax return is a good place to start. If you’d prefer to keep the cash you’d pay an accountant, be prepared that the DIY route may take longer. 

Accountancy costs can usually be claimed as a business expense where services directly relate to running your business. However, technically your personal tax return doesn’t count as a business expense and fees for a one-off self-assessment vary widely, up to £300. 

4. Becoming a DIY pro takes time

If you’ve done your research and meticulously recorded your expenses, you could breeze through your first self-assessment and quickly get back to doing what you love. Though self-assessments can be time-consuming, ‘learning by doing’ can give you a huge boost of confidence as a business owner. 

If you make a mistake and pay too much tax it’s possible to claim money back from HMRC, though trying to claim back any overpayments isn’t a quick process, warns Thomas. “It takes them a lot longer for that [money] to come back to you than if you owe them money,” she adds. 

If you’re filing as a first-timer this year, setting aside more time than you think you’ll need could increase your chances of getting it right first time. You may find that each time you go through the process it gets quicker and easier, particularly if you find accounting software that suits you.

Image source: Getty Images

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