Sole Trader Accounts: How to Prepare a Profit and Loss Statement (Free Template)

Sole trader accounts are simpler than most people expect. For a typical UK sole trader, “doing your accounts” means preparing a profit and loss statement for the year: your business income, minus your allowable expenses, gives your profit. You don’t file these accounts with Companies House or send them to HMRC. You use the figures to fill in the self-employment pages of your Self Assessment tax return, then keep them as your record. This guide shows you how to prepare one step by step, using the same expense categories HMRC uses on the tax return, with a free profit and loss template you can download.

Sole trader accounts at a glance

• What they are: a profit and loss statement (P&L) for your accounting year, backed by your records.
• Who sees them: you, and anyone you choose to show (an accountant, a lender). HMRC asks you not to send accounts with your tax return. It only receives the totals.
• The year: most sole traders make their accounts up to 31 March or 5 April, so they match the tax year.
• The method: cash basis (record money when it actually comes in or goes out) is the standard method for sole traders.
• The categories: HMRC’s tax return groups expenses into set boxes. Use the same categories in your P&L and the return almost fills itself in.
• How long to keep them: at least 5 years after the 31 January deadline for that tax year.

What are sole trader accounts?

A limited company must file formal annual accounts, including a balance sheet, with Companies House. A sole trader doesn’t. As a sole trader, you and the business are legally the same person, and your profit is taxed through your own Self Assessment return.

What you do need, by law, is accurate records of your business income and expenses. GOV.UK says you must keep them so you can work out your profit or loss for your tax return and show them to HMRC if asked. Turning those records into a profit and loss statement is what most people mean by “sole trader accounts”. Our sole trader bookkeeping guide covers keeping those records day to day.

A simple P&L answers three questions:

1. How much did the business bring in? (income, or turnover)
2. How much did it cost to run? (allowable expenses)
3. What was left? (net profit, or a loss)

That net profit is the starting point for your Income Tax and Class 4 National Insurance. Our guide to the Self Assessment tax return for the self-employed explains how the bill is worked out from there.

Example of a sole trader profit and loss statement

Here is a simplified example for a self-employed decorator for the 2025 to 2026 tax year, using cash basis. The line items follow the expense boxes on HMRC’s self-employment pages.

Two things to notice. First, the £24,000 the decorator transferred to their personal account during the year is not on the list. That money is drawings, not an expense, so it doesn’t reduce the profit. Second, because turnover was under £90,000, they could enter just the total expenses (£12,436) on the tax return instead of filling in each box.

How to prepare your sole trader accounts, step by step

1. Pick your accounting year

HMRC’s short self-employment page expects your accounts to be made up to a date between 31 March and 5 April. An April to March year, or 6 April to 5 April, lines up with the tax year. If your year ends on a different date, you must use the full self-employment pages and make an adjustment, which is a job most people hand to an accountant.

2. Decide: cash basis or traditional accounting

GOV.UK describes cash basis as the standard way for sole traders to record income and expenses. You record income when the money arrives and expenses when you pay them, so you never pay tax on money you haven’t received.

Traditional accounting records income and costs when you invoice or are billed. GOV.UK suggests it can suit businesses that are more complex, for example with a lot of stock, or that need finance. It says a bank may ask to see accounts drawn up this way before agreeing a loan. If you use traditional accounting, you tick box 8 on the short form.

3. Gather your records

You need a full year of:

• Business bank statements. These are the backbone. Our guide on how to download bank statements from every UK bank shows where to find them.
• Sales invoices and receipts for money you were paid, including cash.
• Purchase receipts and bills for what you spent.
• Records of any business costs paid personally, such as a work purchase on your personal card.

4. Get your transactions into one list

Export your business account as a CSV file where your bank allows it. If it only gives you a PDF, our free bank statement converter turns it into Excel or CSV and checks every running balance so no transaction goes missing. Add any business cash takings and any business costs paid from personal accounts.

5. Put every transaction in a category

Give each line a category from the table below. These are the same groups HMRC uses on the tax return, so totalling them gives you your tax return figures directly.

6. Take out what isn’t income or an expense

Remove anything that isn’t business income or a business cost. That includes money you take for yourself (drawings), personal spending from a shared account, transfers between your own accounts, money you put into the business from savings, and loans received or repaid. Only the interest on a business loan is an expense, not the loan itself.

7. Adjust for personal use

If something is used partly for the business and partly privately, such as a phone, a car or home broadband, include only the business share. Keep a note of how you worked out the split. Our guide to allowable expenses for sole traders covers mileage rates, working from home and the other simplified options.

8. Add it up and check it

Total each category, then total income and expenses. Before you trust the figures, check them: every transaction in your bank statements should be either in your P&L or removed on purpose in step 6. If the account balance doesn’t reconcile, something is missing or counted twice.

HMRC expense categories for your profit and loss

These are the expense lines on HMRC’s 2025 to 2026 self-employment pages. The short form (SA103S) is for turnover under £90,000. The full form (SA103F) is for £90,000 and over, or more complex businesses.

If your turnover is under £90,000, HMRC lets you put just your total expenses in box 20 on the short form. Keeping the categories in your P&L is still worth it: it shows you where the money goes, and Making Tax Digital will need them (see below).

What is not an allowable expense?

HMRC’s notes are clear that these don’t reduce your profit:

• Drawings: money you take out of the business for yourself
• Your own “salary”: as a sole trader you can’t employ yourself
• Your own National Insurance and Income Tax
• Depreciation of equipment (tax relief for equipment works differently, see below)
• Client entertaining
• The private share of anything you also use personally

If you take stock or goods out of the business for your own use, HMRC treats that as income too. It goes in box 27 on the short form.

Net profit vs taxable profit

Your P&L gives your net profit, which goes in box 21 (or a loss in box 22) on the short form. Your taxable profit can be slightly different:

• Equipment and vehicles: on cash basis, most equipment purchases are allowable expenses, but cars are treated differently. On traditional accounting, equipment is claimed through capital allowances instead.
• The £1,000 trading allowance: you can deduct a flat £1,000 instead of your actual expenses if that gives a better result. You can’t claim both.
• Losses: a loss can be set against other income or carried forward. HMRC’s notes explain the options.

The tax return’s working sheet takes you from net profit to taxable profit. If any of this applies, it’s worth a quick check with an accountant.

Sole trader accounts and Making Tax Digital

From April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send HMRC quarterly updates. The threshold drops to £30,000 from April 2027.

GOV.UK says Making Tax Digital uses the same income and expense categories as Self Assessment. Each quarterly update is a summary of those category totals, not a tax return, and HMRC doesn’t receive individual receipts. So a P&L built on HMRC’s categories is the same shape MTD needs.

What changes is the software. Under MTD you need compatible software to send the updates. A spreadsheet can still be part of your records if bridging software connects it to HMRC. Our guide to Making Tax Digital for the self-employed covers what you need and when.

Free sole trader profit and loss template

We’ve built a free Excel template around HMRC’s categories. It also opens in Google Sheets.

• Paste your transactions (date, description, money in, money out) and pick a category from the drop-down.
• The P&L builds itself, month by month, with a year total and your net profit.
• A “Tax return figures” block shows each total next to its HMRC box number on the short and full forms.
• Refunds are handled: money back from a supplier reduces that expense.
• Drawings and money you pay in are tracked but kept out of profit.
• Built-in checks flag any transaction with no category, a mistyped category, or a date outside the year.

Download the free profit and loss template (Excel) →

Prefer not to use a spreadsheet? Use the free Bookkeeping Tool

Our free Bookkeeping Tool does the same job in your browser, with no sign-up:

1. Import your bank CSV or Excel file, or paste rows from a spreadsheet, and confirm which columns hold the date, description and amounts.
2. Open Manage categories and paste this list to set up HMRC-style categories in one go:

Sales, Other business income, Cost of goods and materials, Car van and travel expenses, Wages and staff costs, Rent rates power and insurance, Repairs and maintenance, Accountancy legal and professional fees, Interest on business loans, Bank charges and card fees, Phone stationery and office costs, Advertising and marketing, Other allowable expenses, Drawings, Capital introduced

3. Categorise: search for matching entries (every “SHELL” payment, for example), select them and apply a category in one go.
4. Report: add your business name and the dates of your year, then download your profit and loss report as a PDF or CSV.

Anything you put in Drawings or Capital introduced is automatically left out of the profit, which is exactly how a sole trader’s accounts should treat it. Your work saves in your browser, and you can create a private link to open it on another device or share it with your accountant.

Common mistakes in sole trader accounts

• Treating drawings as an expense. Money you pay yourself is not a business cost.
• Using turnover as profit, or profit as turnover. Box 9 is what you took in before any costs.
• Missing cash takings or costs paid personally. The bank statement is the backbone, not the whole picture.
• Claiming 100% of mixed-use costs. Only the business share is allowable.
• Counting a transfer twice. Moving money between your own accounts is neither income nor an expense.
• Leaving it all until January. Categorising monthly takes minutes. A whole year at once takes days.
• Not keeping the evidence. Keep your records for at least 5 years after the 31 January deadline. HMRC can ask to see them.

Frequently asked questions

Do sole traders have to file accounts?

No. Sole traders don’t file accounts with Companies House, and HMRC’s notes say not to send accounts or receipts with your tax return. You report the totals on the self-employment pages of your Self Assessment return and keep your records in case HMRC asks to see them.

Can I do my own accounts as a sole trader?

Yes. Many sole traders with straightforward businesses prepare their own profit and loss and file their own return. An accountant is worth considering if your business has stock, staff, vehicles, a year end that isn’t around 31 March to 5 April, or if you’re unsure what’s allowable.

Do sole traders need a balance sheet?

The Self Assessment return doesn’t ask for one, and most sole traders on cash basis don’t prepare one. A lender may want fuller accounts, including what the business owns and owes, before agreeing finance.

What’s the difference between turnover and profit?

Turnover is everything the business took in before costs (box 9). Profit is what’s left after allowable expenses (box 21). Tax is worked out on profit, not turnover.

What if I made a loss?

Enter it in box 22 instead of box 21. Depending on your situation, a loss can reduce tax on other income or be carried forward against future profits. HMRC’s self-employment notes set out the options.

What is an example of self-employed accounts?

The decorator example above is typical: one page listing turnover, each category of expense and the net profit for the year, supported by bank statements, invoices and receipts. Our free template produces exactly this layout.

How long do I need to keep my accounts and records?

At least 5 years after the 31 January Self Assessment deadline for the tax year. For 2025 to 2026, filed by 31 January 2027, that means keeping everything until at least the end of January 2032.

Want someone to do your accounts for you?

If you’d rather hand it over, Accounteezy prepares accounts and tax returns for UK sole traders, from a one-off year-end tidy-up to monthly bookkeeping and your Self Assessment tax return.

Get a free quote →

Sources: HMRC Self Assessment self-employment (short) SA103S and self-employment (full) SA103F pages and notes for 2025 to 2026; GOV.UK guidance on business records if you’re self-employed, cash basis, the trading allowance and Making Tax Digital quarterly updates. Last checked 2 October 2026. This guide is general information, not tax advice.