The rise and rise of the tech-savvy sole trader

Xero’s head of accounting Paul Bulpitt tells freelancers, contractors and sole traders how they can leverage the technology changing the future of tax.

Sole traders make up an ever increasing proportion of the workforce. Some work in creative industries – writers, media people, photographers and designers. Some as management consultants, project managers, programmers or developers. Others as builders, electricians, accountants and beauticians. The range of sole trader businesses gets bigger all the time.

More than three quarters of sole traders say their best working days are still ahead of them. So if you’re a sole trader, or thinking of becoming one, you’re in good company.

In 2016, there’s never been a better time to be a sole trader. Technology has pushed back boundaries and created new opportunities and depending on the type of work you do, you can be based almost anywhere. For example, some sole traders may need little more than a laptop and an internet connection. Others may need tools, supplies or a vehicle, but they’ll still be agile – ready to move wherever their work takes them.

Lightening the load by moving online

One reason why things are looking up for sole traders is because technology has made it easier than ever to do business. Online or cloud-based software has streamlined processes and sped up the exchange of information. For example, you may already be using:

•       online office tools like Microsoft Office 365 or Google Apps
•       email services like Gmail
•       cloud-based file storage and accountancy software
•       social media to market your services and keep in touch with customers
•       video conferencing to talk to clients and friends
•       websites to reach new clients.

It makes sense to move your whole business online as there’s no point being tied to a single computer or desk – cloud-based software gives you the opportunity to work from anywhere with access to your business from any device.

Filing your tax returns online

HMRC has announced its strategy to digitise the taxation process. This year, over 9,500,000 tax returns were filed online, and by the end of the year there will be 10 million people with digital tax accounts – a third of the working population. Everyone will need a digital tax account by the end of 2019. There are plenty of software options out there that can take the pain away – sole traders and small business owners using cloud-based accounting software for example can connect directly with HMRC to upload their annual tax returns, making it a doddle.

For sole traders, managing finances is crucial, and choosing the right business bank account can facilitate easier invoicing, payments, and expense tracking. Consider a dedicated sole trader account to separate personal and business transactions. This move enhances financial clarity and aids efficient tax reporting.

Although the digitisation is a major change to the way HMRC operates, this move to streamline the burden of compliance for small businesses and sole traders is ultimately a good thing, as it will eliminate wasted time and expenditure on inefficient compliance processes. For freelancers and contractors, it means no more of the dreaded paper tax returns!

Find an accountant in the know

Choosing an accountant is like choosing a new business partner. The top things you need to look out for include finding someone with experience in preparing tax returns and financial documents for freelancers or sole traders with a similar revenue to yours and in a similar sector. Since HMRC is going digital, make sure you find someone who is savvy about using cloud-based software. The more familiar you and your accountant is with business technology options now, the easier you will find the future, as cloud-based business processes, big data innovation and digitisation will become the norm.

A digital future
With HMRC’s digital transformation, filing tax returns in the future should make life a whole lot easier for freelancers, while cloud technology . At Xero we believe this automated process will ultimately halve the time it usually takes to file a tax return, saving us all from an exhaustive process and a frustration headache!