Whatever type of business you are operating, from freelancing, running an online store through to a simple side hustle to make ends meet, you need to keep on top of your business finances, pay yourself from the profits and, of course, set aside enough to settle your tax bill.

To be able to do all of this the stark reality is that you need to know a bit about accounting and tax. Keeping the books and filing tax returns are never going to be the most thrilling of tasks.

It’s something that just needs to be done! There’s are no magic tricks to make it interesting but there are many things that can be done to make it quick, easy and simple.

The thing about accounting and tax

During our life time most of us will pay tax. In the UK our tax system is one of self assessment which means that the responsibility of all this falls upon the shoulders of the individual. Of course someone can appoint an accountant to help them with their obligations but ultimately the individual remains responsible for anything which is filed.

So in reality, with ignorance being no defence, this means that the individual must have at least some idea of their accounting and tax responsibilities.

The problem is that looking after the finances of your business is something which is not taught. Anyone can set up a business – it’s very quick and easy to do so. Once you’ve done that there’s no training given on the responsibilities that you’ve just signed up for. You’re just expected to know this stuff.

Of course the internet is full of articles, guidance and advice; much of it useful but some full of errors or out of date. So unless you have deep pockets to pay for an accountant to do all this for you it really is important to have a least a basic understanding of what is required.

Once you start in all likelihood you’re surprise yourself as it will be easier than you thought.

It really is just a matter of being shown what to do, how and when to do it.

Accountancy – the back story

For those of you who like a bit of trivia the system of double entry accounting that we recognise today was credited as being invented by an Italian mathematician, Luca Pacioli, through his first published book way back in 1494.

But you don’t need to know any of that.

What you do need to be aware of is that until recently the world of accounting was shrouded in secrecy with grey suited accountants weaving some magic over your invoices, receipts and bank statements which you’d drop off at their offices some time between the end of the tax year and when your tax return was due. Then the shocker of an invoice and the tax bill was delivered to you along with the realisation that you had been spending beyond your means for ages and hadn’t got enough left to pay HMRC.

Luckily all of that is in the past and the world has moved on from this historical approach to keeping your books.

Accounting is no longer purely left to accountants nor is it done months and months after the fact. The use of technology has made plenty of easy to use tools available for business owners so that they can keep on top of their business finances as they go. Not only do these tools allow you to easily capture your transactions but they also provide a dashboard overview of the financial position of the business including an estimate of the taxes which will need to be paid at some point.

What is accounting?

Put very simply accounting records the monetary value attached to your business transactions – the very things that you do in the business with the intention of making a profit.

In reality accounting is easy because it’s made up of just a few types of transactions.

When you start your business you may put some money into it for your start up costs – this is known as capital introduced or you could loan money to the business with the intention of it being repaid at some point once the business has generated some funds.

You’ll probably buy some things for your business paying for these items from the business bank account or your personal funds, bank or credit cards. These are known as costs or assets for things that have long term use.

In reality most straight forward businesses and certainly freelancers will just record their outgoings as costs having little in the way of assets.

If you pay for your costs later you will create a liability which is cleared when you settle the amount owed. Costs also include your out of pocket expenses which are usually incidental costs that you may incur as part of doing business such as mileage and small items paid for from your own funds. When referring to total costs this will also include expenses.

You’ll sell something – either products or services. Sales are generally known as turnover, sales or business income. If you allow your customers time to pay you have a debtor which is someone who owes you (the business) money.


Tax is paid on profits – anything left is the amount that you can take out of the business for yourself.

For a sole trader amounts withdrawn are known as drawings whereas amounts taken out of the business in a limited company would need to be done by way of dividends & salary. It is important to remember that additional income tax, such as dividend tax, could be due on the money taken out of a limited company.

That’s all there is too it really!

OK there are a couple more rules to follow and things can get slightly more complex but for the vast majority of straight forward freelancers, creatives, contractors and self employed one person businesses this really is as hard as it gets.

There’s simply no need to make things any more complicated.

The right tools for the job

Of course getting the right tools for the job, such as an accounting system like FreeAgent (which you can get free with a Mettle, NatWest, Royal Bank of Scotland or Ulster Bank NI business bank account), helps enormously. After a tiny bit of set up it will mean that your accounting is literally done in moments. It really will be simple and something that you just incorporate in your day-to-day business activities.

Just 5 things

There’s just five things that you need to crack to get your business accounting on track:

  1. Use a system
  2. Get a business bank account and only put business transactions through the business account – no personal stuff
  3. Avoid paying for anything for the business out of your own funds – use the business bank account
  4. Be organised and do the books regularly – a few minutes a couple of times a week will be enough in most cases
  5. Don’t spend your tax money

Dispelling the myths

Over the years accounting has been enveloped in myths most of which are simply not true. So let’s dispel a few of them right now:

  • You DON’T have to be good at maths to do accounting – all of the sums are done by your tools (bank account and accounting system) and in fact accounting and tax only require a bit of adding up, subtraction and a percentage for your tax bill

  • There’s no need to know double entry bookkeeping – again your tools take care of the technical entries done behind the scenes

  • Tools, systems and Apps make accounting simple and done as part of your usual business routines being done on the go rather than once a year in the offices of accountants

  • Your tax bill isn’t something you think about once a year – you set aside money for it as you go the same as would happen if you received a salary or wage slip with the tax deducted out of your gross pay before your money arrives into your bank account

  • Not all of the cash in your business bank account belongs to you – some of it needs to be set aside to pay people that you owe money to like suppliers and HMRC

  • Profit after allowing for all taxes is the most important figure you need to know – this is what you can take out of the business. Anything else is “borrowing from the tax man” and spending money that isn’t yours!

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