No law requires a sole trader to prepare formal accounts in the company sense: there is no prescribed format, no Companies House filing and no audit. What the law does require is accurate records and a correct profit figure on the Self Assessment return, and many lenders, landlords and larger customers will in practice ask for a profit and loss account and balance sheet, or for HMRC’s own tax calculation, before they deal with you.

What does the law actually require a sole trader to produce?

A sole trader’s legal obligations are tax obligations. HMRC’s guidance says you must keep records of business income and expenses for your Self Assessment tax return, together with records of your personal income. You do not send the records in with the return, but you must keep them so you can work out your profit or loss and show them to HMRC if asked. Records must be kept for at least five years after the 31 January submission deadline for the tax year concerned.

The tax legislation goes further and says expressly what it does not require. Section 25 of the Income Tax (Trading and Other Income) Act 2005 says that where the cash basis does not apply, trading profits must be calculated in accordance with generally accepted accounting practice, but section 25(2) states that this does not require compliance with the Companies Act 2006 except as to the basis of calculation, and does not impose any requirement as to audit or disclosure. In other words, a sole trader using traditional accounting must measure profit the way UK GAAP would, but nobody can insist on statutory style accounts with notes, a directors’ report or a signed balance sheet.

The detailed record rules, including what counts as proof and what to do if records are lost, are covered in record keeping rules for the self employed. This page looks at the accounts themselves.

Cash basis or traditional accounting: which applies?

From the 2024 to 2025 tax year the cash basis is the default method for sole traders and partnerships without corporate partners. Under the cash basis you record income when you receive it and expenses when you pay them. You must opt out if you want to use traditional accounting, which records income and expenses by the date you invoiced or were billed. HMRC lists businesses that cannot use the cash basis, including limited companies, limited liability partnerships and partnerships with a corporate partner.

The choice drives how much “accounts” you need. A cash basis trader can work from a summary of receipts and payments. A trader using traditional accounting must also record debtors, creditors, the value of stock and work in progress at the end of the period, year end bank balances, capital introduced and money taken out for personal use. Those are exactly the figures that make up a balance sheet, so traditional accounting tends to produce something close to a full set of accounts whether or not anyone asks for one. The wider comparison is explained in cash basis vs accruals accounting.

Which Self Assessment pages do the figures go on?

The 2026 notes to the short self employment pages (SA103S) say to use the short pages if turnover was less than £90,000, or would have been for a full year of trading. The full pages (SA103F) are needed if the business is more complicated, turnover is £90,000 or more, the profits of the accounting period need adjusting because the period ended before 31 March 2026 or was not 12 months long, or there is adjustment income from a change of accounting basis.

The full pages contain balance sheet boxes. The SA103F notes tell you to use the figures on your balance sheet to fill in boxes 83 to 99, giving examples such as a business bank account (an asset, or a liability if overdrawn) and the capital account balance. The notes also say that if you are subject to additional reporting requirements you must send a detailed profit and loss account, balance sheet and computations with your return. For most traders the return itself is the only document HMRC receives.

Receipts of £1,000 or less from self employment and miscellaneous income are covered by the trading income allowance and do not need to be reported unless they come from a connected party. If you claim the allowance you cannot also deduct expenses.

What do lenders and landlords usually ask for?

Lenders want evidence that someone independent has seen the figures. HMRC’s guidance says you can get your SA302 tax calculation for the last four years once you have sent your return, and a tax year overview for any year, and that you might be asked for these as evidence of income, for example when applying for a mortgage. You cannot print them until 72 hours after sending the return, and you should check that your lender accepts documents you print yourself.

Business lenders often want more than a tax calculation. HMRC’s own cash basis guidance notes that a business needing finance might choose traditional accounting because a bank could ask to see accounts drawn up that way, showing what the business owes and is owed, before agreeing a loan. A cash basis summary says little about working capital, so if borrowing is likely it is worth preparing an accruals based profit and loss account and balance sheet even though tax law does not demand one.

How do sole trader accounts differ from company accounts?

Point Sole trader Limited company
Legal duty to prepare accounts None as such; records and a correct profit figure for Self Assessment Directors must prepare individual accounts for each financial year (Companies Act 2006 section 394)
Public filing None Accounts delivered to Companies House under section 441
Format No prescribed format; GAAP measurement if traditional accounting is used Statutory formats and notes; true and fair view
Who receives them HMRC sees the return; lenders see what you give them Members, Companies House and HMRC with the Company Tax Return
Accounting basis Cash basis by default, traditional by opting out Accruals; cash basis not available
Owner’s money Drawings through the capital account, not an expense Salary, dividends or a director’s loan account

GOV.UK guidance confirms that a company’s statutory accounts must go to shareholders, Companies House and HMRC. None of that applies to a sole trader. The treatment of money taken out of an unincorporated business is covered in drawings for sole traders, and the wider choice of structure in sole trader vs limited company.

Does Making Tax Digital change this?

Making Tax Digital for Income Tax changes how often figures are reported, not whether formal accounts are needed. HMRC’s guidance says sole traders and landlords with qualifying income over £50,000 for 2024 to 2025 should have started from 6 April 2026, those over £30,000 for 2025 to 2026 must start from 6 April 2027, and those over £20,000 for 2026 to 2027 from 6 April 2028. Digital records and quarterly updates replace the shoebox, but they are still records rather than accounts. See Making Tax Digital for Income Tax.

What does this look like in practice?

Illustration only. Priya is a self employed electrician with turnover of £70,000. She uses the cash basis and completes the short pages, so HMRC never sees a balance sheet. She then applies for a £40,000 van and equipment loan. The bank asks for two years of accounts. Her accountant converts the cash figures to traditional accounting by adding £6,000 of unpaid customer invoices and £2,000 of supplier bills at the year end, and prepares a simple balance sheet showing the van, the bank balance and her capital account. The tax return stays on the cash basis; the accounts for the bank are a separate document. For a mortgage a year later the lender asks only for her SA302 calculations and tax year overviews.

What mistakes come up most often?

  • Assuming “accounts” means company style accounts. A sole trader cannot file at Companies House and does not need notes or a directors’ statement; section 25(2) of ITTOIA 2005 says so.
  • Mixing bases. A trader on the cash basis who adds year end debtors for the bank must not carry those adjustments into the tax figures unless they have opted out of the cash basis.
  • Ignoring the period rules. If the accounts do not end on 31 March or 5 April, profits must be apportioned to tax years; see basis period reform.
  • Treating drawings as wages. Money taken by the owner is not a deductible expense, however it is described in the bookkeeping.
  • Relying on self printed documents. Some lenders will not accept an SA302 you have printed yourself; check before the application.
  • Throwing records away too soon. Keep them for at least five years after the 31 January deadline for the year.

Where a company is involved, the distinction between annual accounts and internal reports is explained in statutory accounts vs management accounts.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.