Sole trader accounting software made simple for your business

Published Friday 12 December 2025

Table of contents

• Why sole traders need accounting software
• Benefits of accounting software for sole traders
• Making Tax Digital compliance for sole traders
• Essential features to look for in sole trader accounting software
• Why sole traders are moving away from spreadsheets
• The benefits of online accounting software
• How to choose sole trader accounting software
• Get the most from your accounting software
• FAQs on sole trader accounting software

Key takeaways

• Choose accounting software with essential features like easy invoicing, expense tracking, bank connections, and MTD for ITSA compatibility to meet upcoming tax requirements and streamline your financial management.

• Avoid using spreadsheets for accounting as they lack real-time updates, create high error risks, offer no audit trail, and cannot scale with your business growth needs.

• Prioritize cloud-based accounting software that provides multi-device access, automated data entry, and secure data sharing capabilities to manage your finances efficiently from anywhere.

• Test accounting software through free trials before committing, and assess your specific business needs to ensure the solution addresses your biggest time-consuming challenges like invoicing or expense tracking.

Why sole traders need accounting software

As a sole trader, you're the one in charge of everything – including the finances. While it might be tempting to use spreadsheets to track your money, they can quickly become complicated and time-consuming. Before you know it, you're spending more time on admin than on your actual business.

Accounting software is designed to simplify this. It helps you stay organised, keep accurate records, and understand your financial position at a glance. This makes it easier to manage your cash flow, prepare for your Self Assessment tax return, and make confident business decisions, which is especially important as certain traders will be the first to be notified by HMRC that they must comply with MTD for income tax.

Benefits of accounting software for sole traders

Using the right software can make it much easier to manage your business finances. Here are some of the key benefits for sole traders:

• Save time on admin: Automate tasks like sending invoice reminders and sorting expenses, so you can focus on what you do best.
• Get paid faster: Create and send professional invoices in moments, and accept online payments to improve your cash flow.
• Track finances with ease: Connect your bank account to see money coming in and going out in real time, all in one place.
• Simplify tax time: Keep digital records and run reports that make filling out your Self Assessment tax return much less stressful.
• Work from anywhere: Access your financial information on your laptop, tablet, or phone, whether you're at home or on the go.

Making Tax Digital compliance for sole traders

Making Tax Digital (MTD) is a government initiative to digitise the UK tax system. Soon, sole traders and landlords with qualifying income will need to follow MTD for Income Tax Self Assessment (ITSA) rules, as the requirements will be phased in from April 2026.

This means you'll need to use compatible software to keep digital records of your income and expenses and send updates to HM Revenue & Customs (HMRC), as digital records must be kept for at least six years. Using accounting software like Xero helps you meet these requirements, making the transition to MTD smooth and straightforward.

Essential features to look for in sole trader accounting software

Not all accounting software is the same. When you're a sole trader, look for a solution with features that fit your needs without being overly complex. Here's what to look for:

• Easy invoicing: Create, customise, and send invoices quickly.
• Expense tracking: Snap photos of receipts and record expenses on the go.
• Bank connection: Securely link your bank account to automatically import transactions.
• Simple reporting: View reports like profit and loss to see how your business is performing.
• Mobile app: Manage your finances from anywhere with a user-friendly mobile app.
• MTD for ITSA compatibility: Ensure your software is ready for upcoming tax changes.

Why sole traders are moving away from spreadsheets

Spreadsheets aren't designed for accounting and create significant problems for sole traders managing their finances. While Excel might seem like a cost-effective solution, it lacks the essential features you need for proper bookkeeping.

Why spreadsheets fail for accounting:

No real-time updates

Spreadsheets show static numbers without context, while accounting software provides live cash flow data and visual reports that help you understand your financial position.

High error risk

Manual data entry and copy-paste techniques lead to costly mistakes that can impact your business growth and tax compliance.

Limited scalability

Accounting software grows with your business, offering payroll management, automated bookkeeping, and secure data sharing with your accountant – capabilities spreadsheets can't provide.

No audit trail

Spreadsheets offer no record of changes, creating fraud risks and compliance issues. Accounting software tracks every entry and modification for complete transparency.

It makes sense to use the right tool for the job, including how you manage your finances. So get this right the first time and avoid problems later.

The benefits of online accounting software

Online accounting software provides cloud-based access to your financial data from any device, anywhere. This flexibility is essential for sole traders who need to manage their finances on the go.

Key advantages include:

Multi-device access

Log in from your laptop, smartphone, or tablet to manage your finances anywhere, eliminating the need for a fixed office setup.

Streamlined features

Purpose-built tools designed specifically for sole traders, without unnecessary complexity that slows you down.

Automated data entry

Bank feeds import transactions automatically, while smart tools capture receipt data and send payment reminders, saving hours of manual work and eliminating errors.

Log in from anywhere

If you're out and about a lot, sometimes it can feel like you have no fixed workplace. So you need to be able to work from wherever you are. Online sole trader accounting software lets you do that. Wherever there's an internet connection, you can get to your accounts and issue or pay invoices.

Technology made simple

If you're not technical, updating software can feel daunting. With online accounting software, the provider handles updates for you and backs up your data automatically.

Strong security

Your accounts are confidential. With online accounting software, your data is protected behind secure logins and encryption, and you control who you share access with. Cloud security is much safer than leaving data on your hard drive or a USB stick.

Share data easily

You may not have employees, but you'll need to share data with your accountant or bookkeeper. Some software lets you give your accountant or bookkeeper their own login, and you choose what they can see and do.

Pay as you go

Choose software on a subscription model. You pay a smaller amount each month instead of a large lump sum up front, which can help you manage cash flow when you're starting out.

How to choose sole trader accounting software

Choosing the right accounting software ensures you get features that match your business needs and budget. Follow this process to make an informed decision:

1. Assess your needs: Think about the tasks that take up most of your time. Is it invoicing, chasing payments, or tracking expenses? Look for software that solves your biggest challenges.
2. Plan for business growth: Choose software that scales with your needs. Look for options that offer payroll, inventory management, and multi-user access as add-ons when you're ready to expand.
3. Ask for recommendations: Seek proven solutions by connecting with other sole traders in your industry. Ask about their software experiences, both positive and negative. Your accountant or bookkeeper can also recommend options that work well with their processes.
4. Try before you buy: Test before committing with free trials that let you evaluate the software's ease of use, feature set, and integration capabilities.

Get the most from your accounting software

Once you've chosen your software, make it a part of your daily routine. The more you use it, the more you'll see the benefits. Use it to check your cash flow, send invoices as soon as a job is done, and snap receipts the moment you get them.

Ready to see how it works? Try Xero for free.

FAQs on sole trader accounting software

Here are answers to some common questions about accounting software for sole traders.

Which accounting software is best for sole traders?

The best software for you depends on your specific needs. Look for a solution that is easy to use and has the essential features for a sole trader, such as invoicing, expense tracking, and bank connections. It's also wise to choose software that is MTD for ITSA compliant to prepare for future tax changes, especially since some end-to-end software is already being recognised by HMRC for the program.

Can I do my own accounting as a sole trader?

Yes, many sole traders manage their own accounting, especially when their finances are straightforward. Accounting software is designed for people without an accounting background, making it much easier to handle your own books, stay organised, and avoid common mistakes.

How does accounting software help with Self Assessment?

Accounting software simplifies Self Assessment by keeping all your financial information in one place. You can easily track your income and claim all eligible expenses. When it's time to file your tax return, you can generate the reports you need, saving you time and reducing stress.