If you’re a sole trader doing your own bookkeeping, first of all hats off to you.
It’s not easy juggling the actual work of your business and keeping your finances in order. And chances are, you started using Xero because you wanted to make it easier, right?
But here’s the truth nobody tells you:
Xero can make life easier… if you know how to use it properly.
Without the right setup and habits, it’s just as easy to end up with messy, confusing records that cause stress, cost you money, and create panic when it’s time to submit your tax return.
If any of this sounds a little too familiar, you’re not alone. Here are the five most common Xero mistakes sole traders make and how you can start doing it right.
1. Incorrectly Categorising Payments to Yourself
You transfer money from your business account to your personal account, no big deal, right?
Except in Xero, how you record that transfer matters.
It’s not “wages” or “expenses” — it needs to be coded properly, usually as a payment against your Owner’s Drawings.
Get it wrong, and your accounts won’t reflect the true financial position of your business.
Worse? You might overstate your expenses, making your self assessment inaccurate.
2. Duplicate Transactions
You create an invoice and record a payment separately without matching them.
Or you upload an invoice and a receipt for the same transaction.
Result?
Duplicate transactions.
And duplicate transactions = overstated expenses or income, scrambled reports, and sheer confusion.
3. Leaving Reconciliations Too Late
Reconciling a month’s worth of transactions is doable.
Reconciling a year’s worth at the end of January? That’s a nightmare.
When you leave reconciliations too long:
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You forget what payments were for
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You guess categories
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You spend hours fixing avoidable mistakes
Consistent, regular reconciliation is key to keeping your Xero records clean and accurate.
4. Mixing Personal and Business Transactions
We see this all the time.
Buying your weekly groceries on your business card.
Paying a supplier from your personal account.
It happens, but if you’re not recording it properly in Xero, your accounts are wrong. Full stop.
And worse, you could accidentally claim expenses you’re not entitled to, waving a big red flag at HMRC.
5. Claiming VAT Incorrectly When You’re Not VAT Registered
Xero lets you record VAT, but if you’re not VAT registered, you shouldn’t be claiming it back.
Still, many sole traders accidentally code expenses as VAT-inclusive, thinking they’re saving money…
…only to realise (too late) that they’ve made their bookkeeping completely inaccurate.
The Good News? You Can Get This Right.
You don’t need a finance degree.
You don’t need to become an accountant.
You just need the right foundations explained in a way that makes sense.
That’s exactly what we teach inside our Getting Your Bookkeeping Right on Xero course.
It’s designed specifically for service based business owners who want to take control of their finances, without the overwhelm, jargon, or second-guessing and without having to fork out for a professional bookkeeper each month.
It’s practical, clear, and built to save you money, stress, and time.
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