Accounting software for sole traders

As a sole trader you are the sales team, the buyer and the accounts department. Accounting software for sole traders earns its place if it takes the third job off your evenings: every invoice, receipt and bank line recorded once, with the paperwork attached, so that the figures for your tax return are simply there when you need them. This page sets out what the self-employed need from software, what HMRC expects, and what you can do in Nexbal, which is launching in the UK as a beta.

What HMRC expects a sole trader to keep

You must keep records of your business income and expenses for your Self Assessment return. HMRC lists:

• all sales and income
• all business expenses
• VAT records if you are registered for VAT
• PAYE records if you employ people
• records of your personal income

along with the proof behind them: receipts, bank statements, sales invoices and paying-in slips. Those records have to be kept for at least 5 years after the 31 January submission deadline of the tax year they belong to.

Nothing in that list requires software. A spreadsheet and a folder of receipts are still lawful for many sole traders. The reasons people move are practical: the folder goes missing, the spreadsheet does not chase late payers, and the January scramble costs a weekend every year.

The sole trader’s year, and what software should do at each point

Invoices and getting paid

Late payment hurts a one-person business more than any other. Look for invoices that go out by email as PDFs, reminders you can send when the due date passes, and credit notes for when a job changes. If you quote before you start, the quote should turn into the invoice without retyping. Our guide to how to write an invoice lists what a sole trader’s invoice must show.

Receipts and allowable expenses

You pay tax on profit, so every missed receipt is tax paid for nothing. The habit that works is capturing the receipt on the day: forward the email, or photograph the paper and upload it. In Nexbal the document is read by AI, the entry is prefilled, and nothing is recorded until you approve it. The receipt stays attached to the entry, which is the proof HMRC asks for. For what you can claim, see HMRC’s list of expenses if you are self-employed and our guide to claiming home office expenses.

Mileage

If you use your own car or van, you can usually claim either the actual running costs or a flat rate per business mile under simplified expenses, where HMRC publishes the current rates. Either way you need a record of each business journey. A mileage log kept as you go is far easier than reconstructing the year from a diary; Nexbal includes a driving log for this.

The bank account

A separate account for the business is not a legal requirement for a sole trader, but it makes every other step simpler, because every line on the statement is then a business line. With Nexbal you upload the statement PDF from any bank; lines the AI can match are posted and the rest are listed for you to review.

Cash basis or traditional accounting

Since the 2024 to 2025 tax year, the cash basis has been the default for sole traders: you count income when it is received and expenses when they are paid, unless you opt for traditional (accruals) accounting. Software helps under both, but check that the reports you take your tax figures from match the basis you use. Our comparison of cash basis and accruals explains who is better off opting out.

Making Tax Digital for Income Tax

This is the change that turns software from a convenience into a requirement for many sole traders. Under Making Tax Digital for Income Tax:

Qualifying income is gross income from self-employment and property before expenses, not profit. Those in scope keep digital records, send HMRC an update every quarter and finish the year with a final declaration, all through compatible software.

Two practical points follow:

1. Digital records start with the documents. Invoices raised in software and receipts captured as they arise are digital records from the first day, which is the hard part of the change.
2. Decide who sends the updates. Many sole traders will have their accountant submit. With Nexbal you keep the day-to-day books in Nexbal, and the quarterly updates and final declaration are submitted through MTD-compatible software or by your accountant, using the figures from your books.

The detail is in MTD for Income Tax explained.

A worked month

Take a self-employed electrician in a typical month, with generic figures:

At the end of the month the profit figure is real, the unpaid invoices are on one list, and nothing is waiting in a carrier bag for January.

How to choose

Sole traders are often sold more than they need. Before paying for anything:

• Try it with a real week. Send one invoice, forward five receipts, upload one statement.
• Check it suits one person. You should not need training to raise an invoice.
• Look at the cost of the plan you would really use, not the introductory offer. Nexbal’s plans are on the pricing page.
• Think one step ahead. If you may register for VAT, take on a subcontractor or become a limited company, check you will not have to start again.

For a fuller set of tests, see choosing accounting software, and for the bookkeeping itself, sole trader bookkeeping basics.

Try Nexbal as a sole trader

Nexbal is launching in the UK and the beta is free for 30 days. From the first day you can send quotes, invoices, credit notes and reminders by email, forward receipts and supplier invoices to be read by AI, upload bank statement PDFs, keep a driving log and see your profit in the reports. Join the beta and run next week’s paperwork through it.