Overview
A sole trader is taxed on business profit rather than drawings. Good records should show sales, other business income, purchases, expenses, assets, liabilities and private-use adjustments. Some costs are fully allowable, some require an apportionment and others are capital or not deductible.
Who this applies to
Sole traders and self-employed individuals.
Key points
- Use a separate bank account where practical.
- Retain invoices and evidence of business purpose.
- Separate capital purchases from day-to-day costs.
- Record mileage, home-working and mixed-use expenses consistently.
- Drawings are not a business expense.
Important dates and deadlines
Records must support the annual Self Assessment return and should be retained for the statutory period. Making Tax Digital for Income Tax may add digital-record and quarterly-update obligations for people within the phased thresholds.
Practical checklist
- Reconcile bank and cash activity.
- Number sales invoices and record all income.
- Keep purchase receipts digitally.
- Maintain mileage and asset records.
- Review debtors, creditors and stock at year end.
Frequently asked questions
Can I claim every cost paid from the business account?
No. The tax treatment depends on purpose and the specific rules.
Are drawings taxed?
Tax is based on profit, not the amount withdrawn.
How Accountants4All can help
Support matched to your circumstances
Accountants4All can set up a bookkeeping process, review expense categories and prepare the annual accounts and tax return.
Official sources and further reading
This page is general guidance and does not create an adviser/client relationship. Tax rules and official guidance can change. Use the official sources above and obtain advice based on your circumstances.
Read the full tax disclaimer