How do I prepare accounts if my business income is under £10,000?

Understanding what “income under 10,000” really means

When people say their business income is under 10,000, they often mean one of two things: either their total sales (turnover) for the year are under 10,000, or the profit they made after expenses is under 10,000. Those are very different numbers, and it matters for how you prepare your accounts. Turnover is the total amount you invoiced or took through card payments and cash sales. Profit is what’s left after subtracting allowable business expenses (and sometimes certain adjustments, depending on the accounting basis you use).

Before you begin preparing accounts, decide which figure you are talking about. If your turnover is under 10,000, your bookkeeping may be relatively simple, but you still need to keep adequate records. If your profit is under 10,000 but your turnover is higher, you may have more transactions to track, and you will need to pay close attention to expense categories, receipts, and timing. Either way, the goal of “preparing accounts” is the same: to create a clear summary of your business activity over a period (usually a tax year), showing income, expenses, and the resulting profit or loss.

What “accounts” typically include for a very small business

For a micro-business or side hustle, accounts usually mean a straightforward set of figures rather than a glossy formal report. In practical terms, you are creating:

1) A summary of income (sales, fees, takings).

2) A summary of expenses (allowable costs used to run the business).

3) A calculation of profit or loss (income minus expenses).

4) Supporting records (invoices, receipts, bank statements, mileage logs, and notes that explain any unusual items).

Some businesses also prepare a simple balance sheet (what the business owns and owes at year end), especially if they have stock, equipment, unpaid invoices, or business debts. Even if you don’t produce a balance sheet, you should still keep track of money owed to you (debtors), money you owe (creditors), and any significant assets you use for the business (like a laptop or specialist tools).

Do you need to prepare accounts if your income is small?

Yes, you still need records and a clear income-and-expenses summary. The size of the business changes the complexity, not the obligation to keep accurate information. Even if the numbers are small, properly prepared accounts help you:

- Understand whether you are actually making a profit.

- Spot patterns (busy seasons, slow months, costs that are creeping up).

- Provide figures for a tax return (where relevant).

- Apply for a loan, mortgage, rental agreement, or grant if asked for proof of income.

- Avoid stress if you are ever asked to explain your figures.

Think of your accounts as a tidy story of your business year. A small story still needs to be coherent.

Choose your accounting approach: cash basis vs accruals

One of the biggest early decisions is whether you will prepare your accounts on a cash basis or an accruals basis. If your business is small and simple, the cash basis is often more straightforward: you record income when you receive the money and record expenses when you pay them. This tends to align closely with your bank account activity, which makes reconciliation easier.

Accruals accounting is more “formal” and records income when you earn it (for example, when you issue an invoice) and expenses when you incur them (for example, when you receive a bill), regardless of when money changes hands. Accruals can provide a more accurate picture if you regularly invoice clients, hold stock, or have significant timing differences around year end.

For income under 10,000, many people find the cash basis easier to maintain, but there are situations where accruals may still be appropriate. The key is consistency. Once you choose a basis, apply it consistently so your results are meaningful and comparable year to year.

Set a clear accounting period and stick to it

Preparing accounts is much easier when you know exactly what dates you are covering. Most small businesses prepare accounts for a tax year or for a 12-month period that matches their reporting requirements. Decide your start date and end date, and make sure every transaction you include falls within that window.

Common pitfalls happen around boundaries. For example, you may receive payment in April for work completed in March, or you may buy supplies in March that you don’t use until May. If you use cash basis, you follow the money. If you use accruals, you follow the economic reality. Whichever basis you use, document it, and apply it reliably.

Open a separate business bank account (or create clear separation)

Even for tiny businesses, separating business and personal transactions can save hours. A dedicated business bank account is ideal, but if you don’t have one, you can still prepare accurate accounts by being disciplined:

- Keep business income deposited into one account as much as possible.

- Use a single card or payment method for business purchases.

- If you pay business expenses personally, mark them clearly and keep the receipts.

- Avoid mixing personal spending into the business stream.

When your income is under 10,000, it’s tempting to “just eyeball it,” but small, frequent transactions add up, and confusion grows quickly. Clear separation makes bookkeeping predictable and helps you defend your figures if you ever need to explain them.

Create a simple bookkeeping system you will actually use

Your bookkeeping system can be as simple as a spreadsheet or as structured as accounting software. The best choice is the one you can maintain consistently. If your transactions are minimal, a spreadsheet may be enough. If you issue invoices, accept card payments, or have multiple expense categories, software may be easier.

A workable system should let you:

- Record each income transaction with date, customer/source, description, and amount.

- Record each expense transaction with date, supplier, category, description, and amount.

- Attach or store supporting evidence (receipts, invoices, bank records).

- Reconcile to bank statements (so you know nothing is missing).

Whatever you use, create a habit: set a weekly or monthly “money admin” session. Even 20 minutes a week can prevent the dreaded year-end scramble.

Collect and organize your income records

To prepare accounts, you need a complete list of business income. The easiest way is to pull together all sources and ensure none are forgotten. Income can include:

- Sales invoices paid by clients.

- Cash sales.

- Card payments through a terminal or online platform.

- Payments received via PayPal or other processors.

- Tips or service charges if applicable.

- Refund reversals or adjustments (these matter too).

Start by looking at your bank statements and payment processor reports. If you use a marketplace platform, download annual summaries or monthly statements. If you receive cash, keep a simple cash log. A cash log can be a notebook or spreadsheet where you record daily takings, with notes about what the cash was for.

The main objective is completeness. Missing income is one of the most common errors for small businesses, not always through intent, but through messy record-keeping.

Collect and organize your expense records

Expenses are often where micro-business accounts become confusing because people forget what counts as a business cost. Generally, an expense should be incurred wholly and exclusively for the business to be allowable. In everyday terms: it should be a cost you needed to run the business, not a personal cost with a business “spin.”

Typical expense categories for very small businesses include:

- Materials and stock (items you sell or use to produce what you sell).

- Tools and equipment (sometimes treated differently if long-lasting).

- Software subscriptions and online services.

- Advertising and marketing (including website hosting, domain fees, ads).

- Business insurance (if you have it).

- Professional fees (accountant, bookkeeper, legal advice).

- Travel and mileage for business journeys.

- Phone and internet (business proportion).

- Office supplies (paper, ink, postage).

- Training (where it relates to your current business activities).

- Bank fees and payment processor fees.

Gather receipts, invoices, and statements. If you have digital receipts, store them in a folder system such as “2025-2026 Expenses,” then subfolders by month. Name files consistently (for example: “2025-06-14_SupplierName_Amount_Category”). Small habits like this make accounts preparation dramatically easier.

Understand the difference between expenses and equipment

One area that trips people up is buying items that last longer than a year, such as a laptop, camera, or tools. In casual speech, you might call everything an “expense,” but in accounts, it can matter whether something is a day-to-day running cost or a longer-term asset.

For a small business with low income, you don’t need to become an accounting expert, but you should treat major purchases thoughtfully. A £30 printer cartridge is clearly a running cost. A £900 laptop is a longer-term item that you use over several years. Depending on the rules that apply to your situation and the accounting approach you’re using, these purchases may be handled differently.

Practically, the safest approach is to keep a short list of significant equipment purchases with the date, cost, and what it’s used for. That way, if you later need to treat the purchase differently, you have the necessary information ready.

Track mileage and travel properly

Travel costs are another common area of confusion. If you drive for business, keep a mileage log. Your log should record the date, start location, destination, purpose of the trip, and miles driven. A simple note on your phone can work temporarily, but a consistent log is better.

Only business journeys count. Commuting to a regular workplace is usually treated differently from travel to visit clients, attend business meetings, or go to the post office to send orders. If you mix personal and business travel, keep your records clean so you can justify what you’ve claimed.

If you use public transport, keep tickets and receipts where possible, or at least record the date, route, and purpose of travel.

Handle mixed-use costs: phone, internet, and home working

If you work from home or use personal services for business, you may have mixed-use costs. Common examples are phone bills, broadband, and utilities. The principle is that you should only include the business proportion of the cost.

For phone and internet, one practical method is to estimate based on usage. If you know you use your phone about 30% for business calls and data, you can apply that percentage consistently. For home working, you may be able to claim a reasonable portion of household costs or use a simplified method, depending on what rules apply to your context.

The most important thing is to be reasonable and consistent, and to keep a note explaining how you calculated the business portion. A short note like “Broadband claimed at 40% based on business hours and device usage” can be enough to explain your rationale later.

Reconcile your records to bank statements

Reconciliation is the process of checking that your bookkeeping matches your bank and payment processor records. This is where accuracy comes from. Even if your income is under 10,000, reconciliation matters because it catches:

- Missing transactions (you forgot to record a purchase or a payment).

- Duplicate entries (you recorded something twice).

- Bank charges or processor fees you didn’t notice.

- Refunds and chargebacks that reduce income.

Start with your bank statement for the period and tick off each business-related item against your records. If you use PayPal, Stripe, Square, or a marketplace platform, reconcile those statements too. Some processors show gross sales and then separate out fees; others pay you net amounts. Make sure you are not accidentally double-counting or missing fees.

Deal with cash correctly

Cash can make small-business accounts messy, especially if you receive occasional cash payments. If you take cash, treat it like any other income. Record it with the date and what it was for. If you then spend that cash on business items, record that expense too and keep the receipt.

A simple method is to keep a “cash tin” approach: cash goes into a dedicated place, and you record any cash paid in or out. If you later deposit cash into the bank, record it as moving money, not as new income (because the income was already recorded when you received it).

Calculate your total income

Once your income transactions are complete and reconciled, add them up to get total income for the period. If you offer refunds, deduct refunds from income rather than treating them as expenses, so your revenue figure reflects reality.

Be clear whether your income figures are gross or net of fees. Many small businesses mistakenly record only the net amounts paid out by a platform, forgetting that platform fees were deducted. Either approach can work as long as you are consistent and your expenses include the fees if you record gross income. For clarity, many people find it easier to record gross income and record fees as an expense category, because it shows the true cost of taking payments.

Calculate your total expenses

Add up expenses by category. Categorizing makes your accounts more useful because you can see where your money goes. Don’t overcomplicate the categories; a small business might only need 8–12 categories.

As you total your expenses, watch for these common issues:

- Personal spending accidentally included as business costs.

- Missing receipts, especially for small purchases and online subscriptions.

- Annual payments recorded twice (for example, a yearly insurance policy plus a direct debit that looks similar).

- Big equipment purchases mixed in with day-to-day supplies without any note.

Work out your profit or loss

Your profit (or loss) is simply total income minus total allowable expenses. If the result is positive, you made a profit. If it’s negative, you made a loss. Even if the profit is small, calculating it properly is important because it shows whether the business is sustainable, and it provides the basis for any reporting or tax calculation you may need to do.

When your income is under 10,000, it is common for the profit to be modest, and you might even be operating at a loss while building the business. That’s not automatically a problem, but accurate accounts help you understand whether the loss is temporary investment (like buying tools or advertising) or a sign that pricing or costs need adjustment.

Consider year-end adjustments if you use accruals

If you use accruals accounting, you may need year-end adjustments such as:

- Unpaid sales invoices (money owed to you at year end).

- Unpaid bills (money you owe suppliers).

- Prepayments (you paid for something that covers a future period, like annual insurance).

- Stock on hand (if you hold items for resale or materials that will be used later).

For a tiny business, these adjustments can still matter, especially if you have a few large invoices around the year end. Keep a list of unpaid invoices and bills at the end date, and note any subscriptions or annual costs that span across periods.

Prepare a simple profit and loss statement

A profit and loss statement (sometimes called an income statement) is the core “account” for many very small businesses. You can create it in a spreadsheet with a simple layout:

- Income (broken down by type if useful)

- Less: expenses (broken down by category)

- Equals: net profit or loss

Even if you are not required to produce formal accounts, this statement gives you a clear summary you can refer to and update each year. It also helps you answer practical questions like: “How much did I spend on marketing compared to last year?” or “Are my payment processing fees becoming significant?”

Prepare a basic balance sheet (optional but useful)

A balance sheet is a snapshot of what the business owns and owes at a specific date. For a very small business, a basic version might include:

- Cash at bank (and cash on hand)

- Money owed to you (unpaid invoices)

- Equipment used for the business (if significant)

- Money you owe (unpaid bills, credit cards used for business)

- Any loans (even informal ones)

If you don’t have these items, your balance sheet may be extremely simple. Still, it can be helpful for clarity, especially if you are using business credit or if clients pay you late.

Keep supporting evidence and notes

Your accounts are only as good as the records behind them. Keep evidence for income and expenses and also keep short notes for anything unusual. For example:

- If you bought a laptop and claim a business proportion, note the percentage and why.

- If you had a one-off large refund, note what happened.

- If you received a grant or a non-standard payment, note what it was for.

These notes don’t need to be long. A sentence or two is enough. The point is to make your accounts understandable to “future you” who might not remember the details a year from now.

Watch out for the most common mistakes in micro-business accounts

When income is under 10,000, mistakes tend to come from informality rather than complexity. The most common issues include:

- Not recording cash income properly.

- Forgetting platform fees and recording only net deposits.

- Mixing personal and business expenses.

- Claiming 100% of mixed-use costs without a reasonable basis.

- Losing receipts for small purchases that add up over time.

- Not reconciling, leading to missing transactions.

- Misunderstanding the difference between turnover and profit.

Fixing these issues usually doesn’t require advanced knowledge—just better habits and a tidy system.

How to keep it simple: a practical step-by-step workflow

If you want a straightforward process to prepare accounts when your income is under 10,000, follow this workflow:

Step 1: Gather statements and reports. Download bank statements, card processor reports, and marketplace summaries for the period.

Step 2: Gather receipts and invoices. Create folders by month and put everything in one place (digital or paper).

Step 3: Record income. Enter each income item with date, source, and amount. Include cash logs and refunds.

Step 4: Record expenses. Enter each expense with date, supplier, category, and amount. Note mixed-use percentages.

Step 5: Reconcile. Tick everything against statements and investigate any differences.

Step 6: Total income and expenses. Summarize by category and calculate profit or loss.

Step 7: Add year-end notes. Record unpaid invoices/bills (if relevant) and list any significant equipment purchases.

Step 8: Produce your final summary. Create a profit and loss statement and, if helpful, a simple balance sheet.

Step 9: Save and back up. Store your accounts summary and supporting documents securely.

When you might want professional help even with low income

Having income under 10,000 does not automatically mean you never need help. You might consider using a bookkeeper or accountant if:

- You have multiple income streams and you’re losing track.

- You regularly invoice and have unpaid invoices at year end.

- You’re unsure what expenses are allowable or how to treat equipment.

- You are planning to grow and want clean records from day one.

- You have been mixing personal and business transactions and need to untangle them.

- You feel anxious about getting things wrong and want peace of mind.

Professional help doesn’t have to be expensive. Some people use an accountant only for a year-end review while doing their own bookkeeping during the year.

How to make next year easier than this year

The easiest way to prepare accounts is to avoid preparing them in a panic. For a micro-business, small routines have a big impact. Consider these habits:

- Weekly: record transactions and photograph or upload receipts.

- Monthly: reconcile bank statements and payment processor activity.

- Quarterly: review expense categories and check pricing vs costs.

- Year-end: produce your profit and loss statement and finalize notes.

Also, keep a running list of “questions for later.” If you’re not sure whether a cost is allowable or how to treat something, write it down when it happens. Then resolve it when you have time, rather than guessing during a busy week.

What to do if your records are incomplete

If you are preparing accounts and realize you’re missing information, don’t give up. Start with what you can verify and rebuild from there:

- Use bank statements to identify purchases and income deposits.

- Check email for invoices and subscription receipts.

- Download transaction histories from platforms and marketplaces.

- Contact suppliers for duplicate receipts if necessary.

- Create a “missing receipts” list and note the reason if you cannot obtain them.

Be honest with your records. If you cannot support a claim, be cautious. The goal is accuracy and defensibility, not perfection based on memory.

Using your finished accounts to improve the business

Once your accounts are prepared, you can use them for more than compliance. Even a small set of numbers can guide better decisions. Look at:

- Your effective hourly rate (profit divided by hours worked).

- Your biggest expense categories and whether they are delivering value.

- Payment fees as a percentage of income.

- Advertising spend vs sales generated.

- Trends across months (seasonality and cash flow).

These insights can help you adjust pricing, reduce unnecessary costs, and focus on the work that actually pays.

Final checklist before you consider your accounts “done”

Before you finalize your accounts, run through this checklist:

- Have you included all income sources (bank, cash, platforms)?

- Are refunds and chargebacks handled properly?

- Are all expenses supported by receipts or reliable records?

- Are mixed-use costs only claimed proportionally, with a note explaining how?

- Have you included payment processor fees somewhere (either netted off income or as expenses)?

- Have you reconciled your records to statements?

- Does your profit figure make sense compared to your experience of the year?

- Have you saved a copy of your profit and loss statement (and balance sheet if prepared)?

- Are your documents backed up securely?

When all the answers are yes, your accounts are in good shape—even if your business income is under 10,000. Small businesses deserve clear numbers. The good news is that with a simple system, consistent habits, and a little attention to detail, preparing accounts can be a manageable routine rather than an annual headache.