10 tips for managing your expenses if you're self-employed

How to manage expenses

Do you find that it gets to the end of the tax year and you are frantically searching through drawers trying to find work receipts? Or does your accountant’s face sink when you hand over a bag of crumpled paper receipts? If this sounds like you, don't worry. Below, we outline some tips from expense experts on how to track your expenses if you’re self-employed.

1. Know which records you have to keep

It’s important to know how long you need to keep your receipts. For those who run a limited company it is six years, while for those who operate as a sole trader it is five years.

From April 2023, some sole traders will have to submit tax returns through Making Tax Digital (MTD). We would recommend staying ahead of the curve by using MTD-compliant software that keeps your records safe, digitised, and easily exportable if they are requested by HMRC.

The Business Toolkit from Starling Bank is one example of digital bookkeeping software that can help. Some businesses registered for VAT have had to submit their VAT returns through MTD-compliant software and keep digital records since last year. Software like Starling's can make this simpler, enabling you to submit VAT returns directly from the Toolkit.

2. Have all your business expenses in one place

When running a business, it is important to make sure all expenses are being paid out of the same account where possible. Although you may occasionally pay with a credit card or petty cash, having a main business bank account is both pragmatic and professional.

Setting up a business account can take months, but you can apply for a Starling Sole Trader Account or Business Current Account for limited companies/LLPs in minutes. It is also worth noting that our business account has no monthly fees.

If you also decide to subscribe to our Toolkit, which costs £7 per month, all the transactions you make through your account automatically sync and appear in the Bookkeeping section of your online banking. This makes it much easier for you to sort through expenses.

3. Store receipts carefully

Proper management of receipts is crucial as a self-employed professional. Lost and damaged receipts is a common, but frustrating, problem. No one wants to go through all their pockets at the end of the tax year, gathering together all the odds and ends from the last 12 months.

One simple solution is to keep your receipts digitally. Starling enables customers to take pictures of receipts and assign them to specific transactions instantly.

4. Group expenses into categories

When it comes to your tax return or limited company accounts, all of your expenses need to be categorised so that you can fill out the relevant tax sections on your tax return. For those who are new to self-employment, there is plenty of information on the government website to help you get started.

Alternatively, choose accounting software or an app (like Starling) that automatically assigns your transactions to groups that align with the HMRC tax categories. If the auto-categorisation isn’t quite right, you can move transactions around.

If you are unsure what to assign to which category, Toolkit has done all the reading to provide helpful insights using the same categories that HMRC has on its tax forms.

5. Make sure you can remember what you bought

Remembering what all the transactions on your bank statement correspond to can be challenging. David Allen, a business author, popularised the two-minute rule: “if you can do it in two minutes, do it now.” So if you can write down a note on your receipt to type up later, or even better add a note to your transaction in your Starling Bank app, then you will always know what you bought and why you bought it. It also helps that we name all our merchants in your feed so it is easily readable.

6. Check your expenses regularly and update them

Staying on top of your expenses is crucial. Updating them regularly means that the information is still in your head and that you avoid the panic of doing everything at the end of the tax year.

It’s important to take the little and often approach. The Starling Business Toolkit streamlines this by having all the information readily available in the online banking portal. You can make payments and categorise them quickly and efficiently, helping you make expenses part of your daily routine.

7. Include personally paid expenses into your bookkeeping

Sometimes you may not be able to pay for expenses through your business account. Maybe you get a great rate on a business credit card, pay for something with spare petty cash, or want to include part of your working from home bills. Whatever it is, it is important to keep a record of all your expenses in one place. Going through multiple statements where you’ve spent money can be painstaking but is also avoidable.

You can keep a spreadsheet of what expenses you pay from where, or you can add an external transaction within the Starling Toolkit. This feature not only adds it to your bank transactions but notes the source, so you can remind yourself of which method you used to pay for that expense.

8. Make sure you are only making claimable expenses

It’s important to know which expenses are claimable. HMRC disallows “any expenditure not incurred wholly and exclusively for the purposes of the trade, profession or vocation.” So if part of a purchase is only for business purposes make sure to only include it in your bookkeeping with the taxable deduction showing. Helpfully, the Starling Toolkit enables you to input the tax allowable amount as you go. It will also provide an estimate for your tax bill if you are a sole trader.

9. Keep it simple

Some expenses are easier to consider when you don’t have to separate personal and business to the minute detail. HMRC allows simplified expenses to give tax deductions for costs related to your car, working from home, and living at your work premises. These are useful if you don’t want to divvy up every single expense, and you can include them easily for your bookkeeping. 

10. VAT registered? Record your VAT correctly, and get a receipt

For those of you who are VAT registered, it is important to make sure you request a VAT receipt from your supplier. All VAT-registered suppliers will be able to provide a VAT invoice/receipt on request (but may need to be prompted), and you will need a copy in order to claim on your VAT return. Then all you need to do is make sure you record this correctly in your bookkeeping, so you can claim the right amount of VAT back. The Toolkit does this easily with all the options available to make sure that your expenses are input correctly on your VAT return.

Meet the author


Starling Bank’s award-winning business account is designed to help self-employed people do less banking – and more of what they love. Learn more about IPSE's partnership with Starling here.