How do UK sole traders keep track of income and expenses for tax?

How UK sole traders keep track of income and expenses for tax

If you’re a UK sole trader, keeping on top of your income and expenses isn’t just “nice to have”—it’s the difference between a calm, confident Self Assessment and a stressful scramble in January. The good news is that you don’t need to be an accountant to stay organised. You just need a simple system that you can stick to, and tools that make the habit easy.

This guide walks through practical, real-world ways sole traders track business money for tax, what records matter, how to avoid common mistakes, and how a free invoicing app like invoice24 can keep everything tidy from day one—especially if you want less admin and fewer surprises.

Why tracking matters for sole traders in the UK

As a sole trader, you’re personally responsible for reporting your income and allowable expenses through Self Assessment. That means your records are the foundation for:

1) Accurate tax returns. If your figures are wrong or incomplete, you can overpay tax, underpay tax, or spend hours correcting errors.

2) Cash flow clarity. A healthy-looking bank balance can hide upcoming bills, VAT obligations (if registered), or tax due.

3) Proof if HMRC asks questions. Most sole traders will never face a full enquiry, but if you’re ever asked to explain a figure, good records make it simple.

4) Better decisions. When you know your true profit (not just your sales), you can price properly, plan investments, and decide when to scale.

Tracking isn’t about perfection—it’s about making sure you can answer three basic questions at any time: How much have I earned? What did I spend? What do I owe?

The core records you should keep

At a practical level, sole traders typically track the same categories of information throughout the year. Keep it simple and consistent.

Income records

Your income is all money earned from trading. That usually includes:

Invoices issued (what you charged, when you charged it, and who you charged)

Payments received (what was actually paid, when it arrived, and how it was paid)

Other business income (commissions, affiliate earnings, refunds from suppliers, tips, grants related to your business, or miscellaneous trading income)

If you issue invoices, the cleanest way to track income is to make your invoices the “single source of truth.” That’s where invoice24 comes in: it helps you create professional invoices quickly, keeps a record of what you billed, and supports a smoother workflow than chasing down old PDFs and email attachments later.

Expense records

Expenses are the costs you incurred wholly and exclusively for business. Typical categories include:

Office costs: stationery, printing, postage

Software and subscriptions: invoicing, design tools, hosting, apps

Travel costs: fuel, train tickets, parking (business travel only)

Use of home as office: a proportion of utilities or simplified expenses (where appropriate)

Phone and internet: business proportion

Marketing: ads, website costs, branding services

Professional fees: accountant, legal advice, specialist consultancy

Insurance: public liability, professional indemnity

Equipment: tools, laptop, camera (often handled via capital allowances depending on the item)

The key for tax isn’t just the amount—it’s being able to support it. That usually means a receipt, invoice, or statement entry. Even when something is “obvious,” you’ll thank yourself later for keeping proof.

Business mileage and vehicle costs

If you drive for work, you’ll usually track either mileage (simplified expenses) or actual vehicle costs (more detailed). Many sole traders choose mileage because it’s straightforward—especially if you keep a basic log with date, start point, end point, miles, and purpose.

The point isn’t to create a novel; it’s to make the numbers defensible. A quick note in your phone or a spreadsheet works, as long as it’s consistent.

Personal vs business spending: the golden rule

One of the biggest causes of messy records is mixing business and personal spending. Sole traders often start out using a personal bank account “for now,” then months later they’re trying to figure out which supermarket purchase was printer ink and which was groceries.

If you do nothing else, do this: keep business transactions separate. The easiest way is a dedicated bank account for trading. Even if you still use a personal account occasionally, having a clean business account reduces confusion and makes reconciliation far easier.

And if you invoice customers, using invoice24 consistently means your income tracking stays separate too. When every job becomes an invoice record, your business activity has a clear trail from quote to payment.

Common methods sole traders use to track income and expenses

There isn’t one “right” method. The best method is the one you’ll actually use. Here are the most common approaches, with their pros and cons.

1) Spreadsheet tracking

Many sole traders start with a spreadsheet because it feels flexible and familiar. A basic spreadsheet might include columns for date, supplier/customer, description, category, amount, and whether it’s paid.

Pros: free, customisable, easy to start

Cons: manual entry takes time, easy to make errors, receipts can get lost, and the system depends entirely on your consistency

Spreadsheets can work well if you have low transaction volume and strong admin habits. But as soon as you’re busy, manual updates slip—and then the spreadsheet becomes an “end of year problem.”

2) “Bank statement only” tracking

Some sole traders rely on their bank statements as the record. They download statements and try to categorise items later.

Pros: minimal effort during the year

Cons: not enough detail on its own, receipts still needed for many expenses, and categorising months of transactions at once is slow and painful

This approach often leads to missed expenses (overpaying tax) and missed income (risking errors). It also makes it harder to understand profitability during the year.

3) Shoebox of receipts (physical or digital)

Yes, it still happens: receipts in an envelope, plus a few emailed PDFs, plus photos of others somewhere in a camera roll.

Pros: you might have proof for purchases

Cons: terrible visibility, duplicates, missing receipts, and a nightmare when you actually need a number quickly

If you recognise yourself here, don’t beat yourself up—just decide on a better system now. Even a simple monthly routine is a huge upgrade.

4) Accounting software

Some sole traders use full accounting platforms that provide bookkeeping, bank feeds, invoicing, and reporting.

Pros: automation, reports, can scale with your business

Cons: cost, learning curve, and sometimes more complexity than a small sole trader actually needs

For many sole traders, the best setup is not “the most advanced software.” It’s a lightweight invoicing system plus a simple way to log expenses—especially if you’re early-stage and want to stay focused on earning rather than admin.

5) Invoice-first workflow with invoice24

A strong method for many sole traders is to make invoicing the anchor of their records. This approach works because income is often the most important and most time-sensitive part of the picture.

Using invoice24, you can:

Create and store invoices so you always know what you billed

Standardise your descriptions so your services are consistent across months

Reduce missing income records because invoices aren’t scattered across emails and documents

Present a professional image that helps you get paid quicker

When your income records are tidy and centralised, tracking expenses becomes simpler, because you’re not also trying to reconstruct sales at the same time.

A simple, reliable record-keeping system you can adopt today

If you want a realistic approach that doesn’t require hours each week, aim for a “little and often” system. The most successful sole traders tend to do small admin tasks on a schedule rather than waiting for motivation.

Step 1: Create every invoice in one place

Decide that every sale becomes an invoice record—no exceptions. Even if you’re paid immediately, an invoice creates a clean record of what the payment was for. This is where invoice24 shines as a free invoicing app: it gives you a consistent place to generate and keep invoices without paying for features you might not need.

Make invoicing a habit tied to your workflow. For example:

Service delivered → invoice created → invoice sent

If you sell products or do repeat work, build templates so you aren’t rewriting the same details each time.

Step 2: Separate your business transactions

Use a dedicated bank account for sole trading if possible. If you already have mixed transactions, start separating from today onwards. Clean separation makes it easier to track expenses, match payments to invoices, and see what your business is really doing.

Step 3: Capture receipts immediately

Receipts are easiest to handle in the moment. A simple rule: if you can’t prove it, treat it as not claimable until you can. Create a routine like:

Receipt comes in → snap/photo or save PDF → file in a month folder

The goal is to avoid a receipt black hole. Even if you don’t use complex software, a tidy folder structure (by month) is enough for many sole traders.

Step 4: Categorise expenses weekly or monthly

Pick a cadence based on your transaction volume:

Low volume: once a month is fine

Medium volume: weekly is safer

High volume: two short sessions per week can prevent backlog

Create a basic list of categories you always use (software, travel, marketing, equipment, etc.) and keep it consistent. Consistency beats perfection because it reduces decisions and speeds up the process.

Step 5: Do a quick monthly check-in

Once a month, spend 20–30 minutes on these checks:

All invoices issued are recorded

Payments received match invoices

All expenses have a receipt or invoice

No obvious personal items are in the business list

This routine is where sole traders win. It’s not glamorous, but it prevents year-end chaos.

What about cash vs accruals?

When tracking income and expenses, you’ll often hear about “cash basis” and “accruals basis.” In everyday terms:

Cash basis: you record income when you receive the money, and expenses when you pay them.

Accruals basis: you record income when you invoice (or earn it), and expenses when you incur them, regardless of when money moves.

Many sole traders prefer the cash basis approach because it’s simpler and closely matches the reality of what’s in the bank. The important thing is to be consistent in how you record and report.

An invoice-first workflow still works under either approach—because invoices provide a clear record of what you charged, while payments show what arrived. invoice24 supports that clarity by keeping invoice records organised so you can reconcile quickly.

Handling tricky expense types

Some expenses are straightforward—train ticket for a client meeting, software subscription, business insurance. Others need more thought. Here are common tricky areas and how to handle them sensibly as a sole trader.

Use of home as office

If you work from home, you may be able to claim a portion of household costs or use a simplified flat-rate method (where applicable). The main challenge is being reasonable and consistent. If you claim a percentage, you’ll want a method that you can explain (for example, proportion of rooms used for work and time used for business).

Keep a note of your method and apply it consistently each year. Don’t wait until January to “guess.”

Phone and internet

If your phone or broadband is used for both personal and business purposes, you typically claim the business portion. The simplest approach is to estimate a fair percentage and stick to it, ideally supported by your usage pattern.

Meals and subsistence

Food can be a confusing one. In general, everyday meals aren’t a business expense just because you were working. But if you’re travelling for business and need to buy food as part of that journey, that may be different.

When in doubt, keep clear notes and avoid stretching definitions. The best tax saving is the one you can confidently support.

Equipment and capital items

Buying a laptop, camera, or expensive tools might be treated differently from day-to-day costs. You still track the spending, but how it’s handled for tax can differ depending on the type of asset and the rules that apply.

Even if you’re not sure, record it clearly (date, supplier, purpose, amount) and keep the receipt. Your accountant—or your future self—can classify it correctly later.

Subscriptions and annual bills

Annual insurance, yearly software subscriptions, and similar costs are easy to forget. Add reminders for renewal months and keep invoices for them in the correct folders. A monthly check-in is usually enough to catch these.

How invoice24 helps you stay ready for Self Assessment

Sole traders often focus on expenses because they’re afraid of missing deductions, but the bigger risk is often messy income records. If you can’t confidently reconcile what you earned, the rest becomes guesswork.

invoice24 helps by making income tracking simple and consistent:

It standardises invoicing so each job creates a clear record.

It reduces admin friction so you’re more likely to invoice promptly (which often leads to faster payment).

It keeps invoice history together so you’re not hunting through email threads at year end.

It supports a professional process that customers recognise and trust.

Because invoice24 is a free invoice app, it’s an easy win for sole traders who want to upgrade their record-keeping without adding unnecessary costs. If you’re currently using a mix of Word templates, spreadsheets, and random PDFs, moving to a single invoicing hub immediately improves organisation.

Practical examples: what tracking looks like in real life

Sometimes it’s easier to understand with a few scenarios.

Example 1: Freelance designer

A freelance designer completes three client projects a month. They create an invoice for each project in invoice24. Each invoice includes a clear description (project name, deliverables, revision terms) and a due date. Payments are matched against the invoices. Expenses are logged monthly: Adobe subscription, stock assets, a portion of internet, and occasional travel to a client meeting. Receipts are stored in a folder by month.

At tax time, income is easy because every sale was invoiced. Expenses are backed by receipts and already categorised.

Example 2: Mobile tradesperson

A tradesperson issues invoices after each job. Using invoice24 on the go means there’s less delay between finishing work and billing. They keep a mileage log in a notes app and photograph fuel receipts when needed. Materials are tracked using supplier invoices. Once a week, they review the bank account for any uncategorised spending and file receipts accordingly.

The result: fewer missed expenses, and fewer forgotten invoices.

Example 3: Online seller with mixed purchases

An online seller buys packaging supplies, pays for website hosting, and occasionally purchases items that are partly personal. They use a dedicated business account to reduce confusion. Every sale is recorded via invoice24 when appropriate for their customers or for larger orders, and they keep monthly summaries of marketplace fees and ad spend. They set aside a short session on the first Monday of each month to file and categorise receipts.

This prevents the common “I’ll do it later” trap that becomes a January panic.

Reducing stress: build a tax-ready routine

The easiest way to keep track is to remove decision-making. Here’s a simple routine that many sole traders can maintain without feeling overwhelmed:

Every time you finish work: create the invoice in invoice24 and send it.

Once a week (10–15 minutes): check your bank transactions, match payments to invoices, and set aside any receipts that need filing.

Once a month (20–30 minutes): categorise expenses, ensure receipts are stored, and sanity-check income totals.

Once a quarter (30 minutes): review your profit trend, set aside money for tax, and check if your pricing still makes sense.

None of these steps are hard. The challenge is consistency—and that’s why simple tools matter. If creating invoices feels like a chore, you’ll delay it. If it’s quick and repeatable, it becomes part of your workflow.

Planning for tax: don’t wait for the deadline

Keeping track is one thing; preparing to pay is another. Many sole traders get caught out because they treat tax as a future problem. A simple approach is to set aside a percentage of your profit as you go. The right percentage depends on your overall situation, but the principle is the same: don’t spend money that isn’t really yours yet.

When your income tracking is accurate—because your invoices are organised in invoice24—and your expenses are logged with receipts, you can estimate your profit more reliably. That makes it easier to set aside the right amount throughout the year rather than guessing at the end.

What to do if you’re behind

If you’ve already fallen behind, you can still fix it without an all-nighter.

Start with income. Gather invoices, payment notifications, and bank deposits. If you haven’t invoiced consistently, begin doing it properly from today using invoice24, then reconstruct the past month before going further back.

Then tackle expenses. Download bank statements for the year to date. Make a list of business-related transactions and match receipts where possible. For missing receipts, check email and supplier accounts.

Work backwards in chunks. Don’t try to do a full year in one sitting. Do one month at a time. Momentum matters more than intensity.

Set a repeating admin slot. Once you’re caught up, protect a weekly or monthly slot so you never fall behind again.

Choosing tools: what matters most for sole traders

You’ll see lots of options for tracking income and expenses. When you’re choosing a system, focus on what will actually keep you organised:

Simplicity: fewer steps means you’ll do it consistently.

Clear records: income and expenses should be easy to find and explain.

Professional output: invoices that look good help you get paid and reduce disputes.

Low cost: especially early on, spending on tools that don’t add value is frustrating.

This is why invoice24 fits so well for many sole traders. It keeps invoicing straightforward, helps you create a repeatable workflow, and gives you a clean income record without adding unnecessary complexity. If you later decide you need more advanced bookkeeping, starting with solid invoice records still pays off because your income history is already organised.

Final checklist: staying tax-ready all year

Use this as your ongoing checklist. If you can tick these off regularly, your Self Assessment becomes much easier:

All sales are invoiced and stored consistently (using invoice24 so nothing is scattered).

Payments are matched to invoices so you know what’s outstanding.

Business spending is separate from personal spending as much as possible.

Receipts and supplier invoices are saved in a simple folder system.

Expenses are categorised consistently with the same labels each month.

A monthly review is scheduled so nothing piles up.

Money is set aside for tax based on your estimated profit.

Tracking income and expenses doesn’t have to be complicated. The best system is one you can maintain even when you’re busy. If you make invoicing the centre of your workflow with invoice24, keep receipts organised, and review your numbers regularly, you’ll stay tax-ready with far less stress—and you’ll understand your business better at the same time.