Closing the books for the year as a sole trader with several income streams can feel like juggling flaming torches while standing on a balance beam. I’ve helped many micro-business owners through this process, and the key is to break it down into manageable, repeatable steps. Below I share the practical, step-by-step workflow I use — including checks, common traps, and tools that make the job quicker and more accurate.
Why a tidy year-end matters
Before we dive into the mechanics, a quick reminder of why this matters. A clean year-end ensures you:
- Know exactly what profit you made (and therefore what you owe in tax and Class 4 National Insurance).
- Have accurate records for future planning and loan or investment conversations.
- Reduce risk of HMRC queries by having well-supported figures.
- Make your next year’s bookkeeping faster because you’ve reconciled and standardised accounts.
Gather and organise everything first
I always start by getting everything I’ll need into one place. That saves time and prevents last-minute panic.
- Bank statements for all business accounts (including personal accounts used for business) for the full tax year.
- Credit card statements, PayPal, Stripe, and any other payment processor reports.
- Invoices issued and receipts for expenses (paper and digital).
- Records of cash takings and petty cash.
- Records of any capital purchases (equipment, laptops, tools) and asset disposals.
- Records of grants, COVID-related support, or other non-trading income.
If you use accounting software (Xero, QuickBooks, FreeAgent, or similar), make sure your bank feeds are connected and up to date. If you’re still on spreadsheets, collect every file into a single folder and label consistently (I name files like 2024-03_BankStatement_MainCurrent.pdf).
Reconcile bank and payment accounts
Reconciliation is the foundation of accurate accounts. I reconcile each account separately and tick off every transaction.
- Match bank and card transactions to sales receipts and expense invoices.
- Look for duplicates or missing items — a common issue with multiple income sources where one source is paid into a personal account.
- Investigate uncleared payments: unpresented cheques, pending BACS, or returned payments.
If you use bank feeds, use the suggested matches but verify the VAT treatment and nominal (category) for each. Don’t accept “auto-categorise” blindly — it’s a time-saver but not infallible.
Allocate income streams correctly
As a sole trader with multiple income streams (e.g., freelance design, an online shop, and occasional consultancy), it’s important to track them separately. I either set up different sales categories in my accounting software or use tracking codes.
- Create a simple income breakdown: label each stream (e.g., “Design services”, “Online shop”, “Training”).
- Run a P&L by tracking category so you can see profitability per stream.
- Check for cross-charging or transfers between streams to ensure you’re not double-counting.
This not only helps with tax but also shows which activities are worth scaling or cutting back.
Review and tidy expenses
Expenses need three checks: business purpose, evidence, and correct treatment for VAT and tax.
- Remove personal expenses. If you’ve used a personal card, either reclassify genuine business purchases or mark them as drawings.
- Group like expenses (subscriptions, travel, materials) and check for duplicates.
- Check capital vs revenue: equipment over the capital allowance threshold should be capitalised, not expensed.
- Apply the correct VAT codes where relevant — partial exemption rules can be tricky if you mix VAT and exempt sales.
Tip: I keep a simple expenses checklist for each transaction: receipt present, business purpose noted, and VAT identified. If any of those are missing I chase the evidence now — it’s harder later if HMRC asks.
Handle year-end adjustments
There are a few standard adjustments I always make before finalising the books:
- Accruals and prepayments: include invoices for work done but not yet billed and move prepaid subscriptions to the correct period.
- Depreciation or capital allowances: claim Annual Investment Allowance (AIA) where appropriate, or write depreciation if you prefer accrual accounting.
- Stock valuation: if you hold inventory for your online shop, count or value at cost and reconcile to recorded purchases.
- Bad debts: write off genuine irrecoverable invoices and update VAT if you’re on VAT accounting.
Check drawings and owner’s account
Sole traders don’t have a salary, but drawings are withdrawals to track. I reconcile the owner’s drawings against the bank to ensure they’re only recorded as drawings and not expenses. This keeps profit calculations accurate.
Prepare the year-end profit and loss and balance sheet
Once reconciled, run your P&L and balance sheet for the tax year. Look for surprises:
- Unusually high expenses in one-off categories (forgiveable if explained and evidenced).
- Missing income — match your invoice ledger to your bank statements.
- Large creditor or debtor balances — ensure these are genuine and not bookkeeping timing issues.
I like to run a P&L by income stream so I can see the contribution margins for each area of my business.
Tax adjustments and submission preparation
For sole traders, the next steps are all about translating bookkeeping profit into taxable profit.
- Adjust for disallowed expenses (e.g., fines, client entertainment) and add back non-deductible items.
- Include taxable benefits or other personal income if they relate to the business year.
- Claim capital allowances where appropriate; don’t forget the 100% AIA for qualifying items (subject to the current limits).
- Compile details for Class 2 and Class 4 NIC triggers based on profits.
If you use bridging tools or software that integrates with HMRC (SA100), export the figures and check them against the Self Assessment form fields. I always allocate time to proof the tax numbers — small errors create big headaches.
Keep a tidy set of supporting records
HMRC doesn’t expect perfection, but it does expect evidence. I maintain a simple folder structure (digital and backup) and keep a short index with key items: bank reconciliations, a list of significant invoices and receipts, asset register, and any contracts or grant documents. If HMRC asks, you’ll thank yourself for being organised.
Use tools that speed things up
My favourite tools that save time:
- Xero and QuickBooks for bank feeds, tracking categories, and simple P&Ls.
- Receipt capture apps like Dext/Receipt Bank or even the built-in Snap & Store in QuickBooks to avoid chasing paper receipts.
- Spreadsheet templates (I have a simple year-end checklist template I share with clients) for manual cross-checks.
Don’t be afraid to automate routine tasks, but keep control of final categorisation and VAT treatment.
Address common pain points
I see a few recurring issues with multi-income sole traders:
- Mixing personal and business banking — solve this by using a dedicated business account and paying yourself a regular drawing.
- Missing receipts for cash-based sales — create a simple cash book and issue receipts at point of sale.
- Incorrect VAT handling for mixed supplies — if you’re unsure, seek specialist VAT advice; it’s an area HMRC reviews closely.
Final sanity checks before you lock the year
Before you call the year closed:
| Check | Why it matters |
| Bank reconciliations completed | Avoids unrecorded income or expenses skewing profit |
| Invoices reconciled to bank | Ensures sales are fully accounted for |
| VAT returns matched to VAT ledger | Prevents under/overpaying VAT |
| Asset register updated | Supports capital allowances and depreciation |
| Supporting documents filed | Saves time if HMRC queries arise |
If everything checks out, export and archive your final reports and back up your data in at least two locations. I usually create a zipped archive with a readme that explains what’s inside — it’s a small step that pays dividends if anything needs revisiting.
