Bookkeeping Basics for Freelancers and Small Businesses in the UK: Tips on How to Manage Your Finances

If you’re considering freelancing, it’s important to understand the basics of bookkeeping before you take the plunge. Freelancing can be a great way to work on projects you’re passionate about, be your own boss, and have more control over your work schedule. However, it also requires a lot of self-discipline, as well as the ability to manage your finances and learn about financial record-keeping. Read on to learn the basics of bookkeeping and make sure you’re prepared for the challenges that come with it.

bookkeeping for freelancers

The basics of bookkeeping:

  1. What is bookkeeping?
  2. Open a separate bank account
  3. Keep track of your income and expenses
  4. Categorise your expenses
  5. Reconcile your accounts
  6. Prepare your tax returns
  7. Record-keeping
  8. Set aside money for taxes
  9. Stay on top of your bookkeeping
  10. Seek professional help
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What is bookkeeping?

Well, let me put it this way: bookkeeping is like being the accountant for a group of friends who can’t keep track of their expenses to save their lives.

You know how it goes – someone buys a round of drinks, someone else pays for the pizza, and before you know it, no one has any idea who owes what to whom. That’s where bookkeeping comes in – you’re the one who has to sort through all the receipts, figure out who spent what, and make sure everyone settles up in the end.

To be honest, being a bookkeeper can be a little bit like herding cats – you’re constantly chasing down receipts (unless you have a proper system for them!) and trying to make sense of people’s scribbled notes (unless you streamline your process!). But hey, once you get over the hump of figuring out a few bookkeeping basics, you’ll feel a whole lot better about managing your small business’ finances.

In a nutshell, bookkeeping is the process of recording and organising financial transactions. It’s like keeping a diary, but instead of writing about your deepest and darkest secrets, you write about the money you’ve made and spent.

So, here are the basics of bookkeeping for freelancers and small businesses.

1) Open a Separate Bank Account

I always recommend this to be the first step in bookkeeping: open a separate bank account for your business income and expenditure. This will make it easier to keep track of your transactions, without having to sift through unrelated personal transactions, such as groceries or your cat’s birthday present.

Example: Let’s say you’re a freelance writer, and you get paid £500 for writing an article. You don’t want that money to get mixed up with your personal money, so you deposit it into your business bank account. You can then use that money to pay for business expenses like website hosting, coffee, and therapy.

If you are a Sole Trader, you can use a personal bank account for this purpose. However, if you plan on incorporating your business, you should open a business bank account in your company’s name. These are the ones I recommend:

  • Starling Bank – Starling Bank offers a free business account that is suitable for freelancers. It includes features such as invoicing, tax calculations, and real-time alerts.
  • Tide – Tide offers a free business account that is designed for freelancers, contractors, and small businesses. It includes features such as invoicing, automated bookkeeping, and expense management.
  • Monzo – Monzo offers a free business account that is suitable for freelancers. It includes features such as invoicing, expense tracking, and tax calculations.

2) Keep Track of Your Income and Expenses

The next step is to keep track of your income and expenses. You can do this by using a spreadsheet or bookkeeping software or app.

If you only have a handful of business transactions per month, you don’t need to invest in a bookkeeping software if you don’t want to: keeping a tidy Excel or Google Sheet is enough for you to be able to track business expenses and income received.

However, if you have quite an active business with many transactions per month, you may want to consider paying for a subscription-based accounting software, such as Xero and Quickbooks. Some of the pros to using accounting softwares are:

  • You can have your bank feed sync with the software, so you can avoid manually exporting and importing your bank transactions.
  • You can assign more than one category to each transaction, allowing you to, for example, track them by project as well as by type.
  • You can run reports to see what your profit margin is, and compare the actual expenditure to the budget.
  • You can upload receipts to the system, and go paperless – no more hanging on to printer receipts and invoices!
  • You prevent missing any important transactions.
  • It sharpens your bookkeeping and administrative skills, which are transferrable to any job you may aspire to.

3) Categorise Your Expenses

Categorising your expenses will help you understand where your money is going and make it easier to file your taxes.

If you use an accounting software, you will need to tailor your chart of accounts to match your income streams and your expense categories.

The chart of accounts is a list of all the different types of financial transactions a company can have, organised into categories, or “accounts”. Each account is assigned a unique number or code, which helps you keep track of its financial information and generate reports. You want this list of categories to match the types of business expenses you normally incur.

For example, a photographer might want to include the following categories in their chart of accounts:


  • Photography equipment
  • Studio hire/rent
  • Printing and Developing Film
  • Website costs


  • Wedding photography
  • Fashion photography
  • Print sales
  • Photography Teaching

When you go through your business transactions, whether it be on a spreadsheet or on an accounting software, you want to categorise every one of them, so that you can track how much you spend for each category type.

This should be done regularly, you guys. I suggest categorising all transactions at least weekly. so that you don’t forget what the transaction is for, and so that you don’t find yourself doing a year’s worth of categorising in one go. ‘Future you’ is going to want to kill you if you do so.

basics of bookkeeping

4) Reconcile Your Accounts

Reconciling your accounts means making sure that the transactions in your bookkeeping software match the transactions in your bank account.

You need to make sure that all your bank activity is categorised and fully accounted for. If you made any cash transactions, these need to be recorded and categorised, too, which is why I advise to use cash as little as possible and only if absolutely necessary, as keeping track of cash transactions is notoriously harder: you need to include them in your spreadsheet, or input them manually in your accounting software.

Example: You notice that you spent £100 on coffee in your bookkeeping software, but your bank account shows that you only spent £80. You double-check your receipts and realise that you made a mistake and input a receipt twice. You correct the error in your bookkeeping software and move on with your life.

5) Prepare Your Tax Returns

As a freelancer, you’re responsible for paying your own taxes through Self Assessment. That means you need to keep track of your income and expenses throughout the year and file your taxes on time. 

I wrote an entire article on filing your Self Assessment tax return, and it includes tips and tricks on how to do it seamlessly and stress-free.

If you are managing an incorporated company, you will need to file a Corporation Tax return (CT Return). There are different ways to submit a company’s accounts, depending on how the company was incorporated, and its turnover. Read more about Corporation Tax on HMRC’s website, and let me know in the comments if you’d like an article about how Corporation Tax works in the UK.

6) Record-keeping: How Long to Keep Your Invoices and Receipts

It’s essential to keep your invoices and receipts organised. This will make it easier to track your income and expenses and prepare your taxes. If you are an individual in the UK, you need to hold on to all financial documentation for at least 22 months after the end of the tax year the tax return is for. If you are an incorporated company, you must keep your records for at least six years from the end of the last company financial year they relate to.

Example: You invoice a client for £1,000 for a project, and they pay you within a week. You keep a copy of the invoice and the payment receipt in your bookkeeping folder (or you upload it in your accounting software). You also keep receipts for all of your business expenses, like coffee, paper, and pens.

7) Set Aside Money for Taxes

As a freelancer and/or small business owner, you’re responsible for paying your own taxes, and it’s important to plan ahead. It’s a good idea to set aside a portion of your income for taxes so that you’re not caught off guard when tax season rolls around.

Example: You earn £5,000 in a month from freelance work, and you know that you’ll need to pay about 30% in taxes. You set aside £1,500 and put it in a separate account so that you won’t accidentally spend it.

8) Stay on Top of Your Bookkeeping

It’s important to stay on top of your bookkeeping throughout the year. This will help you avoid mistakes and make tax time less stressful. If you let weeks or months pass by before tidying up your financial books, you will make your life incredibly harder than just tackling them more consistently, like daily or weekly.

Example: You make it a habit to update your bookkeeping software at least once a week. You reconcile your accounts regularly and categorise your expenses as soon as you make them. When it’s time to file your taxes, you’re prepared, and you don’t have to scramble to gather all of your paperwork.

9) Seek Professional Help

If you’re not confident in your bookkeeping skills or you don’t have the time to keep up with it, it’s a good idea to seek professional help. You can hire a bookkeeper or accountant to handle your finances for you.

Unbiased is an excellent way for you to find an accountant or bookkeeper that can set up a good system for you, and even train you to do some of the work more efficiently. They have a fantastic customer service, and a vast pool of professionals that they can match you against, based on your financial situation and walk of life.

If you can’t afford an accountant, or are determined to learn the basics of bookkeeping yourself, there are plenty of free resources out there you can access. There are thousands of training videos on how to use an accounting software, and you might only need to book an hour with an accounting specialist to ask them questions about the things you are unsure of.

Example 1: You’re a freelance graphic designer, and you’re swamped with work. You don’t have the time or the energy to keep up with your bookkeeping, so you hire an accountant to handle it for you. They keep your records organised and file your taxes on time, and you can focus on your work.

Example 2: You are determined to do your own bookkeeping, but you aren’t sure whether a few transactions should be considered allowable business expenses, or personal expenses. You search for a bookkeeper or accountant, who can help you understand the principles of claiming expenses, what you can deduct from your income, and other useful advice for how to prepare your accounts according to best practice.


In conclusion, bookkeeping may seem overwhelming at first, but it’s an essential part of freelancing and running a business. If you give it a little bit of time, it will grow on you and it will make you feel like you are absolutely on top of your books, and what’s more empowering that being on top of your accounting? I don’t know. It’s the best, I promise.

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This article was all about the basics of bookkeeping for freelancers and small businesses

About the author : Susie Italiano

bookkeeping for small business
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