Handling your accounts is just one aspect of running a business when you’re self-employed.

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If you’re a sole trader and find bookkeeping overwhelming, or you struggle with setting up spreadsheets and aren’t sure what to include, this guide is here to help.

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In this guide, I’ll walk you through the basics of bookkeeping for self-employed individuals. We’ll cover what information you need to track (and why), review different platforms you can use, and provide tips to help you choose the platform that suits your needs.

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Finally, I’ll provide an example of how to manage your accounts using a spreadsheet when you’re self-employed.

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If you have questions about this guide or any others, you can find me in my Facebook group – The Self-Employed Club.

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Table of Contents

• Bookkeeping for Self-Employed Individuals

• How to Do Your Own Bookkeeping

• Spreadsheet or Accounting Software: Which is Better?

• How to Manage Your Accounts When You’re Self-Employed (Including an Example)

Note: This article may contain affiliate links. If you make a purchase through these links, I may earn a small commission at no extra cost to you.

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Bookkeeping for Self-Employed Individuals

Before diving into the “how,” it’s important to understand the “why” behind bookkeeping.

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What is Bookkeeping?

In simple terms, bookkeeping involves recording all the money flowing in and out of your business, with everything organized to:

• Make tax returns easier to complete.

• Keep records that support the figures on your tax return.

• Track how much tax you owe.

• Understand the financial health of your business.

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From a legal perspective, as a self-employed person, you’re not required to submit your accounts to HMRC. You simply enter details of your income and expenses on your tax return.

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How to Do Your Own Bookkeeping

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When managing your accounts, you have two main options:

1. Use a spreadsheet.

2. Sign up for accounting software.

Currently, unless you’re VAT registered, you can choose either method. However, from 6 April 2026, self-employed  business turnover of £50,000 or more will be required by HMRC to use accounting software and submit quarterly tax returns. The threshold will lower to £30,000 from 6 April 2027.

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Using a Spreadsheet for Your Accounts

Spreadsheets are a popular choice because they have no subscription costs and are straightforward to use.

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Using Accounting Software for Your Accounts

While some free options exist, most accounting software comes with a subscription fee. Tools like Xero provide a range of features, from invoicing and currency handling to automatic transaction imports from your bank.

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Spreadsheet or Accounting Software: Which is Better?

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Spreadsheets are a good starting point for tracking income and expenses, especially for those new to self-employment. However, as your business grows, managing large datasets in a spreadsheet can become cumbersome.

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If you’re confident in your business’s growth or need more advanced features, accounting software might be the better option. For example, I use Xero, which covers invoicing, foreign currency transactions, and automatically pulls in transactions from my business account.

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Remember, from April 2026, depending on your business turnover, switching to accounting software may be mandatory. Starting with a spreadsheet is a simple way to ease into business finance if you’re new to self-employment.

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Managing Your Accounts: An Example

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You’ll want to set up a spreadsheet for each tax year so that all your information is organized for your tax return.

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Steps to Set Up Your Spreadsheet:

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1. Open a Business Bank Account
   If you don’t already have one, a separate business account simplifies your bookkeeping by keeping all business-related transactions in one place.

2. Open Google Sheets or Excel
   Set up tabs to track your income and expenses with columns for:

   • Date

   • Details

   • Type of Income/Expense

   • Amount (£)

3. Categorize Your Income and Expenses
   Grouping similar transactions together helps you see where your money is coming from and where it’s going. Keep categories simple and relevant to your business to avoid complicating your tax return.

4. Choose Your Start Date
   Aligning with the tax year (6 April to 5 April) is usually easiest. HMRC also accepts 1 April to 31 March as equivalent, which may be simpler.

5. Enter Your Transactions
   Transfer data from your bank statements into your spreadsheet, categorizing each entry as you go. Ensure the spreadsheet totals your income and expenses.

6. Include Any Additional Expenses
   Remember to account for tax-deductible expenses not reflected in your bank statements, such as mileage or home office expenses. Store receipts for these.

7. Calculate Your Profit and Estimate Taxes
   Subtract your expenses from your income to calculate profit, which determines your taxable amount. Set aside the estimated tax amount to avoid future issues.

 

Key Takeaways

• Start simple with a spreadsheet if you’re new to self-employment.

• Regularly set aside time for bookkeeping.

• Estimate your taxes and save accordingly.

Looking for a ready-to-use bookkeeping spreadsheet? I’ve created one tailored to UK self-employed professionals that simplifies tax calculations and organizes your finances.

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