One business, two sets of accounts, and how to make them agree

It is the form that reports a sole proprietor's business on a US return. You show the income, the expenses and the resulting profit or loss, which then joins the rest of your income.

The IRS page for Schedule C sets out what belongs on it. For a freelancer in Britain, it describes exactly the business Self Assessment already covers.

There is no British equivalent form. The self-employment pages of your return do the same job in a different shape.

Four things do most of the work: the period, the accounting basis, the expense rules and the currency. Each on its own can move the figure, and together they explain almost every gap.

However, none of them means one return is wrong. They mean the same business measured two ways gives two answers.

So expect a difference. Then document why it arises, and keep the reconciliation with your records.

They do not, and nothing can make them. The British year runs to 5 April and the American year to 31 December, so each return covers a different twelve months.

That means an invoice paid in February sits in one British year and one American year that do not overlap neatly. Over time the difference usually evens out, although in any single year it does not.

So keep your ledger by date rather than by tax year. Then you can produce either period by filtering, instead of rebuilding it.

Also note the date each invoice was paid, not just issued. Under the cash basis that payment date decides which year the income falls into.

It records money when it moves, rather than when you raise the invoice. From the 2024 to 2025 tax year, the cash basis became the default for most sole traders in Britain, and you opt out to use traditional accounting.

The GOV.UK guide to the cash basis explains who can use it and how to leave it. In practice many freelancers find it simpler, since it follows the bank account.

American rules allow a cash method too, subject to their own conditions. Where both sides use cash, the reconciliation gets considerably easier.

It removed an older source of confusion for anyone with an unusual year end. Since the 2024 to 2025 tax year, Britain taxes profits on a tax year basis, whatever date your accounts run to.

The GOV.UK note on basis period reform explains the change. For a freelancer already using 5 April, however, nothing moved.

For anyone with an unusual accounting date, the reform simplified matters. It also brought the British year closer in shape to the American one, without matching it.

Expect the relief to arrive at different times, because each country writes off assets its own way. Britain gives capital allowances on equipment, often allowing the full cost in the year of purchase for smaller businesses.

America has its own depreciation rules, with elections that can also accelerate relief. The IRS small business tax guide covers the general position.

So a laptop bought in March can land in different years on each return. Record the purchase date and cost once, then apply each country's rules separately.

Both countries allow a claim, and neither accepts the other's shortcut. Britain publishes simplified flat rates for home working hours and for vehicle mileage, so many freelancers use those instead of actual costs.

American rules have their own methods and conditions for a home office and for vehicle costs. Because the tests differ, a claim can qualify in one country and yet fail in the other.

Keep the underlying facts rather than only the claim. Hours worked at home and miles driven support whichever method each return uses.

Record the currency the client actually paid you in, then convert for each return. A dollar invoice belongs in dollars in your ledger, with the rate you used for the British figures beside it.

Use one consistent conversion method across the year and keep the source. Switching methods between invoices makes the accounts hard to defend.

Bank charges and currency conversion costs also count as business expenses in their own right. They are easy to miss when payments arrive through a payment platform.

It sits outside the profit figure altogether, which is why it rarely causes trouble. VAT you charge is not your income, and VAT you reclaim is not your expense, so registered businesses record figures net of VAT.

The American return, meanwhile, has no VAT concept at all. It simply sees the net figures, which is the same basis your British accounts use.

Unless you are registered, VAT you pay on purchases forms part of the cost. Then both returns include it in the expense.

Each country applies its own loss rules to its own figure, and the two sets of rules are not alike. So a loss in one system does not automatically appear, or count the same way, in the other.

Britain offers several routes for trading losses. For example, you can usually carry them forward against later profits of the same trade. America has its own limits and carryforward rules.

So a bad year needs its own advice. In our practice we see losses claimed correctly in one country and simply forgotten in the other.

Directly, because the profit it shows drives the whole calculation. Self-employment tax is then worked out on net earnings from the business, rather than on what the exclusion removes from income tax.

A certificate of coverage under the social security agreement can remove that charge where British contributions apply instead. Our guide to the totalization agreement explains the mechanism.

Without the certificate, a higher profit on Schedule C means a higher American bill even when credits cover the income tax.

Payment platforms complicate the record, because they net off fees before paying you. So your income is usually the gross amount the client paid, with the platform fee recorded as an expense.

So record both figures rather than only the amount that reached your bank. Otherwise the turnover on both returns understates the business.

Platforms also convert currency at their own rates. Therefore keep the statement showing the rate, since it supports the British conversion.

One set of records, tagged well, usually beats two sets kept in parallel. Each transaction needs a date, an amount, a currency, a category and a note of the rate used.

Making Tax Digital pushes British sole traders above the threshold towards software anyway. Choose a package that lets you export by date range rather than by tax year only.

Our guide to registering for Self Assessment covers the wider setup. The ledger is the part that saves the most time later.

Review the categories once a year. A Schedule C line that never gets used, or a British category that collects everything, usually means the tagging needs a tidy.

After the American return and before the British one, because the calendar year closes first. That order means the figures are still fresh when you need them for the second return.

Doing it once a year is usually enough for a small business. However, a quarterly check suits anyone inside Making Tax Digital, since the records are already being updated.

Either way, do it while you can still remember the unusual items. A year later, the odd invoice takes far longer to explain.

Do this once a year, after the American return and before the British one. It takes an hour when the ledger is clean.

Keep the working paper; it answers most questions either tax authority might raise.

Take an illustrative example: an American copywriter in Glasgow bills £90,000 across the year, buys a laptop in March, and works from home three days a week.

Her British accounts use the cash basis to 5 April and claim capital allowances on the laptop plus the simplified home working rate. Her Schedule C covers the calendar year and applies American rules to the same laptop.

As a result, the two profits differ by a few thousand pounds. Her reconciliation explains the gap in five lines, and both returns stand up without further work.

The first is forcing the figures to match. They should not match, and a forced number is harder to defend than an explained difference.

The second is keeping books only by British tax year. Rebuilding a calendar year from those records wastes hours every January.

The third is applying one country's shortcut to the other's return. Flat rates and elections do not travel.

The fourth is losing the working paper. Next year, it is the fastest way to remember how you handled anything unusual.

We prepare both sides from one ledger through our treaty relief service, with a reconciliation you can keep. Where an election or a certificate changes the answer, we say so before the year ends.

If your business files in both countries, send us a year of records and we will produce both sets of figures at a fixed fee agreed first. This article is general information, not personal tax advice; take advice on your own facts from a qualified adviser.