Keeping Track of Your Finances as a Sole Trader or Contractor

For many people, contracting or working as a sole trader provides their first opportunity to run their own business. When you are an employee, tax and national insurance are deducted from your gross salary (by your employer) and the bit that's left (the net) is paid to you. This is known as PAYE - Pay As You Earn. When you're a contractor or sole trader though, the amount that your client/customer pays you is the gross amount. In other words, you are responsible for ensuring that the correct amount of income tax and national insurance is paid.

Keeping track of what you, or your company, has earned, how much tax you have paid, or still have to pay, the amount of VAT that is due, the amount of money you and the other shareholders (if there are any) can extract from the company, and so on, can be tricky. Relying on a pile of receipts and other bits of paper stashed in a box file just won't be sufficient. At the very least, you'll get into a right mess and won't know what's what, but you could also land yourself in trouble with Her Majesty's Customs & Excise (HMRC) as you are obliged when running a business to carry out a certain amount of bookkeeping / accounting.

For me, keeping track of my revenue and spending has never really been too much of a problem. This is because I enjoy doing it. Sure, I make mistakes sometimes and my accountant has to explain what I should or shouldn't be doing, but generally, I think I keep pretty much on top of my bookkeeping duties fairly well.

If you're running a one man band, you don't need to use a sophisticated accounting application that is capable of handling the accounts of a large multi-national. In fact, in many cases, a simple free bank account / bookkeeping spreadsheet will suffice. This will enable you to keep track of exactly what funds are going into or out of your company's bank account.

You might also find it useful to use simple bookkeeping software such as MyBookkeepingManager. I developed MyBookkeepingManager for my own use, and have been using it ever since. The software suits my needs perfectly, but then again I suppose it would do - after all, I developed it for myself. I'm a contractor though, so it may well be that MyBookkeepingManager is right for you as well.

Of course, there are loads of good accounting / bookkeeping software applications out there and I'm sure many of them are more sophisticated than MyBookkeepingManager. The main thing is to make sure that you don't rely on the "oh I'll shove it all in a box and my accountant can sort it out" approach!

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