Running your business

§Start here

This page is for someone who incorporated a company a few weeks ago and is now piecing the rules together from search results and half remembered advice. It assumes you know nothing about company accounts and defines every term the first time it appears.

It is long, because the subject is long. You are not meant to read it in one sitting. Use the contents list to find the part you need, and come back when something new lands in your inbox from Companies House or HMRC.

If you have not incorporated yet, or you are wondering whether you should have, the switch at the top of the page takes you to the sole trader version of this guide.

Two things worth saying before you start.

First, the rules divide into two kinds. There are principles, which change slowly and which you can learn once: what a dividend is, why a directors' loan goes wrong, what "wholly and exclusively" means. Then there are numbers, which change most years. This page explains the principles in full and marks every number so you can see it is time sensitive. Get the principles right and you will spot when something has changed.

Second, this is general guidance, not advice about your situation. Tax outcomes turn on facts, and your facts are not on this page. Where something genuinely depends on circumstances we say so rather than inventing a rule. If a decision matters, get it looked at properly before you act.

§Expenses: what you can actually claim

Lists of allowable expenses are everywhere and they are the wrong way to learn this. Learn the test instead, and you can answer questions the list does not cover.

The test

For the company, a cost is deductible if it is incurred wholly and exclusively for the purposes of the trade.

Take those words seriously, because each does work:

• Wholly concerns amount. The whole of the cost must be for the business.
• Exclusively concerns purpose. There must be no other purpose behind it.
• For the purposes of the trade means the reason you incurred it, judged at the time. Purpose, not consequence. That a personal purchase happens to be useful at work does not make it a business expense.

Note what is absent: the word "necessary". A cost does not have to be unavoidable to be deductible. It has to be incurred for business reasons.

Duality of purpose

The word "exclusively" means that if a cost has two purposes, one business and one personal, it fails the test entirely. Not partly. Entirely. This is the concept that makes expenses hard, and it is called duality of purpose.

The classic example is a barrister buying court clothing. The clothing was required for work, but it also kept her warm and decent, which is a personal purpose everyone has. Two purposes, so no deduction, even though she would never have bought those particular clothes otherwise.

There is an important exception. Where a cost can be divided into a definite business part and a definite personal part, the business part is deductible. A phone bill with itemised business calls can be split. A single indivisible cost with mixed purpose cannot.

A second, stricter test for you personally

There are two layers here, and conflating them causes trouble.

The company's deduction uses "wholly and exclusively". But where you pay for something and the company reimburses you, the question of whether that reimbursement is tax free in your hands uses a stricter test: wholly, exclusively and necessarily in the performance of the duties of your employment.

"Necessarily" is objective: would any holder of your job have to incur this, not just you? And "in the performance of" means while doing the job, not to put yourself in a position to do it. Training that qualifies you to do something new fails, because it happens before performance.

The practical effect: the company can pay for many things and get a corporation tax deduction, but if they fail the stricter employee test, they become a benefit in kind taxable on you. Getting a deduction and creating a tax charge at the same time is a poor outcome, and it is why "can the company pay for it?" and "is it tax free?" are two different questions.

Capital or revenue

Before asking whether a cost is allowable, ask whether it is capital. Buying something with a lasting benefit, such as a laptop, a vehicle or machinery, is capital expenditure. It is not deducted as an expense. Instead you claim capital allowances, usually the Annual Investment Allowance, which often gives full relief in the year anyway but through a different route.

The distinction matters most with property and repairs. Restoring something to its previous condition is a repair, and deductible. Improving it is capital. Replacing a broken window is a repair. Replacing all the windows with a better specification is closer to an improvement.

The examples that come up constantly

Working from home

Two routes. The flat rate of per week requires no receipts and no evidence, and is the sensible default for most directors.

Alternatively you can claim the actual additional costs of working from home, apportioned on a reasonable basis such as rooms used and time spent. This produces a bigger claim if you genuinely work from home most of the time, but it needs a calculation you can defend and records to back it.

You can also grant your company a formal licence to occupy part of your home and charge it rent. This gives a larger deduction for the company but the rent is taxable income on your personal tax return, so the benefit is the difference between the rates. It also needs an agreement and care over the room's use, because using a room exclusively for business can affect the capital gains position on your home. This is worth advice rather than a template.

Mileage in your own car

If you use your own vehicle for business, the company can pay you approved mileage allowance payments tax free at per mile for the first business miles in the tax year and per mile after that, with for motorcycles and for bicycles. You can also claim per mile for each colleague carried on the same business journey.

The rate covers everything: fuel, insurance, servicing, depreciation. You cannot claim the mileage rate and the running costs. If the company pays less than the approved rate, you can claim tax relief on the shortfall. If it pays more, the excess is taxable.

Keep a mileage log with date, destination and business reason. If your company is VAT registered and not on the flat rate scheme, it can reclaim VAT on the fuel element of the mileage, using HMRC's advisory fuel rates, provided you keep fuel receipts covering the amount.

Travel, and the commuting rule

Business travel is allowable. Ordinary commuting is not. Travel between home and your permanent workplace is a private cost, however early you leave.

The exceptions matter for a lot of small companies:

• Temporary workplace. Travel to a place you attend for a task of limited duration is allowable. This runs out if you expect to be there for more than 24 months, or if it becomes a fixed part of your working pattern. Once you expect to exceed 24 months, the relief stops from that moment, not at the 24 month point.
• Travelling appointments. If travel is inherent to the job and there is no regular base, such as a mobile engineer, travel from home is business travel.
• Home as a workplace. If your home is genuinely where the work is done, travel from home to a client is business travel.

Subsistence

Food and drink while travelling on business is allowable. Everyday lunch near your normal workplace is not, because you would have to eat anyway.

The company can reimburse actual receipted costs, which is the cleanest approach for a one person company. Alternatively HMRC publishes benchmark scale rates which can be paid without receipts for each expense, currently for a five hour absence, for ten hours and for fifteen hours where the absence extends beyond 8pm. Using scale rates requires a system to check that a qualifying journey actually happened.

Separately, when you stay away overnight the company can pay incidental overnight expenses of per night in the UK and abroad, tax free, for things like phone calls and laundry. This is another cliff edge, and it applies across the whole trip rather than night by night: exceed the total and the entire payment becomes taxable.

Equipment and software

Laptops, tools, machinery and furniture bought for business use are capital, relieved through the Annual Investment Allowance. Software subscriptions are ordinary expenses. Software bought outright with a long life is capital.

If you use equipment privately as well, the company can still buy it, but significant private use creates a benefit in kind. In practice HMRC accepts insignificant private use of business equipment.

Training

Training that updates or maintains a skill you already use in the business is allowable. Training that gives you a new skill or qualification, allowing the business to do something it could not do before, is capital and generally not deductible.

An accountant's CPD course is allowable. An accountant funding a law degree is not. The line is genuinely fuzzy in the middle, and this is one area where HMRC's view and taxpayers' views diverge often.

Clothing

The rule is narrow and people dislike it. Clothing is only allowable if it is:

• A uniform, meaning it is recognisably a uniform and not ordinary clothing, usually with a permanent conspicuous logo.
• Protective clothing required for safety: boots, hi vis, hard hats, overalls.
• A costume for a performer.

A suit is not allowable no matter how much your work requires one, because of duality of purpose. Nor is smart clothing for client meetings. Cleaning and repairing genuine work clothing is allowable.

Entertaining

This one is counterintuitive, so read it carefully.

• Client entertaining is not deductible for corporation tax and the VAT is not reclaimable. The company can still pay for it, and that is often better than paying personally, but it is added back when working out taxable profit.
• Staff entertaining is deductible for the company. Whether it is taxable on the employee is a separate question, answered by the annual function exemption above.
• Where you entertain a client and a member of staff attends, the staff portion does not rescue the client portion.

Business gifts

A gift to a customer is deductible only if it carries a conspicuous advertisement for the business, costs less than a set limit per person per year, and is not food, drink, tobacco or a voucher. Fail any of those and it is treated as entertaining. For VAT, output tax becomes due if gifts to the same person exceed in a twelve month period.

Professional fees and subscriptions

Accountancy fees for the company's compliance work are allowable. Fees for preparing your personal tax return are not a company expense: if the company pays them, that is a benefit in kind on you. Many firms invoice these separately for exactly this reason.

Subscriptions to professional bodies are allowable where the body appears on HMRC's approved list and the membership is relevant to the duties. A gym membership is not, and neither is a general business club unless it meets the same test.

Insurance

Business insurances are allowable: employers' liability, public liability, professional indemnity, contents, and key person cover. Employers' liability is a legal requirement once you have an employee other than a sole director shareholder. Some personal protection policies paid by the company create a benefit in kind, though relevant life cover is usually structured to avoid it.

The things people try that do not work

Quick reference

Use this to look something up. The full rules are in the sections above, and the summary here is not a substitute for them.

§Your company is a separate legal person

This is the idea everything else rests on, and it is the one most new directors have not fully absorbed.

When Companies House issued your certificate of incorporation, it created a new legal person. Not a nickname for you. Not a trading style. A separate entity that can own things, owe things, sue and be sued, all in its own name.

That has an immediate consequence: the money in the company bank account is not your money. It belongs to the company. You are three things at once, and it helps to keep them apart in your head:

• You are a shareholder, meaning you own the company. Ownership entitles you to a share of its profits, taken as dividends.
• You are a director, meaning you run it. Directors are officers of the company with legal duties to it. Being a director does not, by itself, entitle you to anything.
• You may also be an employee of it, if it pays you a salary through payroll.

Most owner managed companies have the same person in all three roles, which is exactly why the roles get blurred. But the tax system treats them completely differently. A payment to you as an employee is salary. A payment to you as a shareholder is a dividend. A payment to you as neither is a loan, and loans have to be repaid.

Every hard question in this guide is a version of the same question: which hat were you wearing?

The upside of separateness is limited liability. If the company fails owing money, your personal assets are generally protected, because the debts belong to the company and not to you. That protection is real but it is not unconditional. It falls away where you have personally guaranteed a debt, which banks and landlords routinely require from new companies, and it can fall away where a director has behaved improperly.

So read the guarantee clause before you sign the lease or the finance agreement. A personal guarantee undoes the main benefit of incorporating, for that particular debt.

§What changed when you incorporated

If you traded as a sole trader before, or considered it, here is what is actually different now. You have already made the choice, so this is orientation rather than a comparison.

The genuine advantage of a company is control over timing. As a sole trader you are taxed on profit as you earn it. As a company owner you decide when to extract profit, and that flexibility is worth real money across a few years, particularly if your income is uneven or if you want to leave funds in the business to grow.

The genuine cost is that you now have obligations to two separate organisations, both of which fine you for being late, and neither of which will chase you helpfully before doing so.

§Companies House and HMRC are not the same thing

New directors confuse these constantly, and it is an expensive confusion because filing something with one does not satisfy the other.

Companies House

The registrar of companies. Its job is the public record of who exists, who runs them and who owns them. It is not a tax authority and does not care what you owe. It wants:

• A confirmation statement once a year. This is a check that the public record is still correct: registered office, directors, shareholders, people with significant control. It is a confirmation, not an update, and it is due even if nothing has changed.
• Annual accounts. A formal set of financial statements. Small companies file an abridged version, so most of your figures are not made public, but the fact of filing is.
• Notice of changes, usually within 14 days: new director, change of address, share transfers.

HMRC

The tax authority. It wants money and the returns that calculate it:

• A company tax return, formally a CT600, with a full set of accounts attached. This is separate from the accounts you file at Companies House, prepared from the same books to a different standard.
• The corporation tax payment itself.
• PAYE submissions every time you run payroll, if you have any.
• VAT returns, if you are registered.
• Your personal Self Assessment tax return, which is about you, not the company.

Identity verification

Companies House now has powers to verify who directors actually are, and identity verification has become a condition of holding office rather than an optional extra. If you have not completed it, do it now, and be aware that people with significant control face requirements too.

§Your filing calendar

Every deadline you have derives from one date: your accounting reference date, also called your year end. Learn that date and the rest follows.

Where your year end came from

When your company was incorporated, Companies House set your accounting reference date as the last day of the month in which you incorporated, one year later. Incorporate on 12 March and your first year end is 31 March the following year.

This means your first accounting period is usually not twelve months. It runs from the date of incorporation to that month end, so it is a few days or weeks longer than a year. That is normal.

It also creates a wrinkle. A company tax return can only cover twelve months. So a first period of, say, twelve months and nineteen days produces two corporation tax returns: one for the first twelve months, one for the remaining days. Two returns, one set of accounts. This surprises people every year.

You can change your year end, and there are good reasons to. Aligning to 31 March keeps things tidy alongside the tax year and avoids the split period. You can shorten an accounting period as often as you like and lengthen it far more rarely.

The deadlines

What happens if you are late

Companies House penalties for late accounts are automatic, escalate with delay, and double if you were also late the previous year: up to a month late, rising through and to beyond six months. Persistent failure is a criminal offence for the director and can lead to the company being struck off.

HMRC charges as soon as a company tax return is late, and once it is three months late, with percentage based penalties beyond that. Late payment attracts interest from day one, and HMRC's interest rate on late tax is meaningfully higher than the rate it pays you on overpayments.

§Corporation tax

Corporation tax is charged on the company's profit. Not on its turnover, and not on the money in its bank account.

How profit is worked out

Start with turnover, meaning everything the company earned in the period. Subtract allowable business costs. What remains is accounting profit. Then adjust it, because accounting rules and tax rules are not identical:

• Add back disallowable costs. Some things are genuine business expenses in the accounts but are not deductible for tax. Client entertaining is the classic example. So is depreciation.
• Deduct capital allowances. Instead of depreciation, tax gives relief on equipment through capital allowances. The Annual Investment Allowance lets you deduct the full cost of most plant and machinery in the year of purchase, up to .
• Deal with losses. A loss can be carried back against the previous year's profit, or carried forward against future profits.

The result is your taxable profit.

The rates

There are two rates and a sliding scale between them. Profits up to are taxed at the small profits rate of . Profits above are taxed at the main rate of . Between the two, marginal relief applies, which produces an effective rate on that band higher than the main rate.

Two points that catch people. The limits are divided between associated companies, so if you control more than one company they share one set of thresholds. And the limits are pro rated for accounting periods shorter than twelve months.

§Taking money out of the company

There are exactly three routes, and everything you take is one of them whether you intended it or not.

There is a fourth route that behaves differently: an employer pension contribution, which moves money from the company into your pension without passing through your hands. It is covered in pensions.

And a fifth that is not really extraction: reimbursing yourself for a genuine business cost you paid personally. That is the company settling a debt it owed you, not income.

Why the mix matters

Salary and dividends are taxed on completely different systems, and that is the whole point.

Salary is deductible for the company, so every pound of salary reduces corporation tax. But it attracts income tax and both employee and employer National Insurance.

Dividends are not deductible, so they come out of profit the company has already paid corporation tax on. But there is no National Insurance on a dividend at all, and dividend tax rates are lower than salary rates.

Neither is universally better. The usual answer for an owner manager is a modest salary plus dividends, and the reasoning is worked through in salary and payroll.

What you actually keep

The mix matters, and so does the structure itself. This compares what a given profit leaves you through the company against what the same profit would leave a sole trader, so you can see whether incorporating is earning its keep.

§Salary, payroll and why there is an optimal amount

People will tell you a number. The number changes every year, so what matters is understanding why the number exists.

You need a payroll scheme

To pay yourself a salary you register the company as an employer with HMRC and operate PAYE, which stands for Pay As You Earn. Every time you pay yourself, the company sends HMRC a Full Payment Submission on or before the payday. This is real time reporting: the submission is due when you pay, not at the year end.

Directors' National Insurance is calculated on an annual basis rather than pay period by pay period, which is a genuine difference from ordinary employees and one reason director payroll is easy to get wrong in generic software.

The four forces that set the optimum

The optimal director's salary is the point where four separate things balance. Understand these and you can work out the answer in any year.

1. The personal allowance

You can receive of income before paying any income tax. Salary uses this allowance efficiently. Leaving it unused is throwing away tax free income.

2. The National Insurance thresholds

There are three thresholds and they do not coincide, which is what creates the sweet spot:

• The Lower Earnings Limit, . Earn above this and the year counts towards your State Pension record, even though you pay no NI on it.
• The Primary Threshold, . Above this you start paying employee NI at .
• The Secondary Threshold, . Above this the company starts paying employer NI at .

3. The corporation tax deduction

Salary and employer NI both reduce the company's taxable profit. So a pound of salary saves corporation tax at your company's rate. This pushes in favour of a higher salary, and it is why the answer is not "pay yourself nothing and take it all as dividends".

4. Your State Pension record

You need a set number of qualifying years to get a full State Pension. Paying yourself at or above the Lower Earnings Limit banks a qualifying year at no NI cost. Paying yourself less than that, or nothing, wastes a year that you cannot get back cheaply.

Putting it together

The optimum sits at whichever threshold gives the best net result once you weigh the corporation tax saved against the National Insurance paid. In practice it lands at one of two or three candidate figures each year, and which one wins depends on whether your company can claim the Employment Allowance.

§Employee NI, employer NI and the Employment Allowance

Two different National Insurance charges arise on the same salary. They are paid by different people and they behave differently.

Employee National Insurance

Deducted from your gross pay, so it reduces what lands in your bank account. It starts once your earnings pass the Primary Threshold, , and is charged at on earnings above it, with a lower rate on earnings above the upper limit.

Employer National Insurance

Paid by the company on top of your gross pay, so it is a cost to the company rather than a deduction from you. It starts at the Secondary Threshold, , and is charged at .

That "on top of" is important. A £30,000 salary does not cost the company £30,000. It costs £30,000 plus employer NI. Employer NI is itself deductible for corporation tax, which softens the blow but does not remove it.

There is also Class 1A National Insurance, charged at on benefits in kind. Same rate as employer NI, paid annually rather than through payroll. See benefits in kind.

The Employment Allowance, and the trap

The Employment Allowance lets an eligible employer reduce its employer National Insurance bill by up to a year. It is claimed through payroll and it is worth having.

§Dividends

A dividend is a distribution of profit to shareholders. It is not a payment for work, it is a return on ownership, and that distinction drives every rule that follows.

You can only pay a dividend out of profit

Company law lets you pay a dividend only from distributable reserves, meaning accumulated profit after corporation tax, less dividends already paid. Not from turnover, not from the bank balance, not from money that is really a VAT liability sitting in the account waiting to be paid.

So before declaring a dividend, the honest question is: has the company actually made this profit, after allowing for the corporation tax it will owe on it?

Paperwork is not optional

A dividend needs three things, and without them it is not a dividend:

• Accounts or management figures showing sufficient distributable reserves at the time of the decision.
• A directors' meeting minute recording the decision to declare the dividend.
• A dividend voucher for each shareholder, showing the company name, the date, the shareholder, and the amount.

This sounds bureaucratic for a company with one director and one shareholder. It matters anyway. If HMRC opens an enquiry and there is no contemporaneous paperwork, the payments were not dividends. They were withdrawals, and withdrawals are loans. Ten minutes of documentation per quarter protects a decision worth thousands.

How dividends are taxed

Dividends are taxed on you personally through Self Assessment, not through payroll, and they sit on top of your other income when working out which band they fall in.

Everyone has a dividend allowance of , on which the rate is zero. Above that, dividend income is taxed at within the basic rate band, in the higher rate band, and above that.

To know which rate applies you need your total income. The basic rate band runs to , the higher rate applies above and the additional rate above . Salary is counted first, then dividends on top, so a modest salary leaves most of the basic rate band available for dividends.

Two things to note. The allowance is a nil rate band, not a deduction, so it still uses up part of your basic rate band. And dividend tax is paid through Self Assessment on 31 January after the tax year, which means the money can leave your account many months before the tax on it is due. Set it aside.

Unlawful dividends

If a dividend is paid when there were not sufficient distributable reserves, it is unlawful. The usual consequence is that it is reclassified as a loan to you, with the tax consequences described in the next section. A shareholder who knew or ought to have known the reserves were insufficient can be required to repay it, and as a director of your own company you will struggle to argue you did not know.

This is not usually a case of anyone acting dishonestly. It happens when a director takes money regularly through the year and the accounts, prepared months later, show the profit was not there.

Different shareholders, different amounts

Dividends are paid per share, so shareholders holding the same class of share must receive the same amount per share. If you want to pay different people different amounts, you need different classes of shares, often called alphabet shares. That structure is legitimate but it has to be set up properly, and where shares are given to a spouse there are anti avoidance rules to consider. Take advice before restructuring your share capital rather than after.

§The directors' loan account

This causes more nasty surprises than anything else on this page. It is worth reading twice.

What it actually is

The directors' loan account, usually shortened to DLA, is a running record of money owed between you and the company. It is not a thing you open. It exists automatically, and it is a balance, not a document.

• Money that goes from the company to you, other than salary or a properly declared dividend, pushes the account overdrawn: you owe the company.
• Money that goes from you to the company, such as startup funds you put in or business costs you paid on your personal card, pushes it the other way: the company owes you.

If the company owes you, you can take that money back out at any time with no tax at all. It is repayment of a debt, not income. Many new directors have money sitting there they could take tax free and do not realise it.

How it goes overdrawn without anyone noticing

Nobody decides to overdraw their loan account. It accumulates:

• Personal purchases on the company card, including the ones that felt borderline business.
• Regular round sum transfers to your personal account "as wages", never processed through payroll or documented as dividends.
• Cash taken from takings before it reaches the bank.
• Dividends declared in good faith that turn out to be unlawful when the accounts are prepared.

None of these feel like borrowing at the time. All of them are.

The tax charge, and it is a big one

If your loan account is overdrawn at the year end and still overdrawn nine months and one day after the year end, the company pays a charge under section 455 of the Corporation Tax Act 2010 at of the outstanding balance.

Three things people misunderstand about this charge:

• It is paid by the company, not by you. It comes out of company cash on top of the corporation tax on profits.
• It is refundable, eventually. Repay the loan and the company can reclaim the charge, but not immediately: the refund comes nine months and one day after the end of the accounting period in which you repaid it. So the company can be out of pocket for a long time.
• It is not a penalty and there is no appeal. It applies automatically on the facts.

The separate benefit in kind charge

Separately, if your overdrawn balance exceeds at any point in the tax year, the whole loan counts as a beneficial loan, meaning you have received an interest free loan as a perk. You are taxed on the interest you did not pay, calculated at HMRC's official rate of , and the company pays Class 1A National Insurance on it. It goes on a P11D.

You can avoid this by having the company charge you interest at or above the official rate. The interest then becomes taxable income for the company, but it removes the benefit in kind.

What to do about an overdrawn account

In rough order of preference:

1. Repay it with your own money before the nine month deadline, if you have it.
2. Clear it with a dividend, if the company has distributable reserves. This converts the loan into a distribution. You pay dividend tax, which is usually far cheaper than the section 455 charge sitting there.
3. Clear it with a bonus through payroll. This works but attracts income tax and both National Insurance charges, so it is usually the most expensive route.
4. Have the company formally write it off. This is the worst option. The write off is taxed on you broadly as a dividend, National Insurance may apply, and the company gets no corporation tax deduction.

The real answer is not to let it build. Run payroll properly, declare dividends properly, keep a personal card for personal things, and look at the balance every month rather than discovering it at the year end.

§Benefits in kind

If the company gives you something with a personal value that is not cash, that is a benefit in kind and it is generally taxable.

The logic is straightforward: if benefits were tax free, everyone would take their pay in goods. So the tax system values the benefit and taxes you on it as though you had received that value in cash.

How it is reported

Benefits are reported after the tax year ends on a form P11D, one per employee who received benefits, due by 6 July. The company also files a P11D(b) and pays Class 1A National Insurance at on the total value.

You can instead payroll benefits, meaning you report and tax them in real time through payroll rather than on a P11D. Registration has to happen before the start of the tax year. Payrolling is becoming the default direction of travel.

The common ones

Company cars

Usually the most expensive benefit there is. The taxable value is a percentage of the car's list price, and the percentage depends on CO2 emissions. Petrol and diesel cars attract high percentages. Fully electric cars attract very low ones, which is why an electric car through the company can make sense where a conventional one rarely does.

Note that it is the list price, not what you paid, and that any private use at all, including commuting, triggers the charge. The company also gets capital allowances, with better treatment for low emission cars. Run the numbers before you buy.

Vans

Treated far more favourably than cars, with a flat benefit rather than a percentage of value, and no benefit at all where private use is only incidental to business use, such as ordinary commuting in a genuine work van. Whether a vehicle is a car or a van for tax is a question of fact and has been litigated, so do not assume a double cab pickup is a van.

Private medical insurance

Deductible for the company, taxable on you at the cost to the company. Straightforward, and often still worth doing.

Mobile phones

One of the genuinely good exemptions. The company can provide one mobile phone per employee with no benefit in kind at all, including unlimited private use. The condition is that the contract must be between the company and the provider. A phone in your own name that the company pays for does not qualify, and only identifiable business calls could be claimed. Move the contract into the company's name.

Trivial benefits

A small gift is exempt from tax and reporting if all four conditions are met:

• It cost or less to provide.
• It is not cash or a cash voucher. A high street gift card is fine.
• It is not a reward for work or performance.
• It is not in the terms of a contract or an expected entitlement.

The limit is a cliff edge: go a penny over and the whole amount is taxable, not the excess. Directors of close companies, which almost certainly includes yours, have an additional annual cap of .

The annual function exemption

The company can spend up to per head, including VAT and including travel and accommodation, on annual social events, with no benefit in kind. The event must be annual and open to all employees. This is a per head figure across the year, and it is also a cliff edge, so exceeding it makes the entire cost taxable rather than the excess.

Things that are genuinely exempt

• Eye tests where you use a screen at work, and glasses prescribed solely for screen use.
• Employer pension contributions.
• Work related training.
• One mobile phone, as above.
• Long service awards, subject to conditions and per year of service.
• Cycles and safety equipment provided under a scheme available to employees.

§Pensions

For a director, an employer pension contribution is usually the most efficient way to move money out of the company. It is worth understanding why.

Employer contributions versus personal ones

If you contribute personally, you are paying from money that has already been through the extraction process: it was taxed as salary or as a dividend before it reached you. You then get tax relief on the way in, which recovers some of that.

If the company contributes directly to your pension, the money never becomes your income. There is no income tax, no employee National Insurance, no employer National Insurance and no dividend tax. And the contribution is generally deductible against the company's profits, so it reduces corporation tax as well.

That is the whole argument, and it is a strong one. There is no other route out of a company that avoids every one of those charges.

The constraints

• You cannot access it yet. Pension money is locked until minimum pension age. This is a real cost, not a technicality, and it is why pension contributions suit surplus profit rather than money you need.
• The annual allowance. Total contributions from all sources are capped at a year. Exceed it and a charge claws back the relief. Unused allowance from the previous three years can often be carried forward.
• Tapering for high earners. The allowance reduces once adjusted income exceeds .
• The money purchase annual allowance. If you have already flexibly accessed a pension, your allowance drops sharply to and carry forward is not available.
• Wholly and exclusively. The company's deduction depends on the contribution being for the purposes of the trade. For a working director this is rarely challenged, but a contribution wildly out of proportion to the work done, particularly for a family member with a nominal role, can be.

§VAT

VAT is a tax on your customers that you collect and pass on. The money is never yours, which is the thing to hold on to.

When you must register

Registration becomes compulsory in either of two situations:

• Looking back. Your VAT taxable turnover over the previous rolling twelve months exceeds . This is a rolling test, not your accounting year, so it must be checked monthly.
• Looking forward. You expect to exceed the threshold in the next 30 days alone. This one catches people who win a single large contract. Registration is required immediately, not when the money arrives.

Missing the deadline means HMRC treats you as registered from the date you should have been. You will owe the VAT on sales made since then whether or not you charged it, which comes straight out of your margin.

Why some register voluntarily

You can register below the threshold. It makes sense when:

• Your customers are VAT registered businesses. They reclaim the VAT you charge, so your price is unchanged for them, and you reclaim VAT on your own costs. This is close to free money.
• You have significant VAT on purchases, such as equipment or stock.
• You want to look established.

It makes much less sense when you sell to the public, because you either add to your prices or absorb it.

How it works day to day

You charge output VAT on sales, reclaim input VAT on purchases, and pay HMRC the difference, usually quarterly. If input exceeds output you get a refund.

All VAT registered businesses must keep digital records and file through compatible software under Making Tax Digital. Spreadsheets alone are not sufficient.

You can deregister if your taxable turnover falls below , which is set lower than the registration threshold so that businesses hovering around it are not forced in and out each year.

The flat rate scheme, in outline

Instead of tracking VAT on every purchase, you charge VAT normally but pay HMRC a fixed percentage of your gross turnover, keeping the difference. It reduces admin.

Its usefulness narrowed considerably when the limited cost business rules arrived. A business spending little on goods pays a high flat percentage that usually makes the scheme worse than standard VAT. Most service businesses fall into that category. Check before joining.

Working through your company for one client

If your company provides your services to a single client, particularly one you previously worked for or who directs your work like an employee, the off payroll working rules, often called IR35, need considering. They ask whether, ignoring the company in the middle, the relationship would look like employment.

Who decides, and who bears the risk, depends on the size and type of the client. Where the client is a medium or large private sector business or a public body, the client makes the determination. Where the client is small, the responsibility sits with your company. Getting it wrong is expensive, and it turns on the working relationship rather than the wording of the contract. If this describes your situation, get the specific arrangement reviewed.

§If you work in construction or the trades

Construction has rules that override several of the general ones above. If you build, fit, install, decorate, or subcontract to someone who does, this section applies to you.

§If you sell used cars

Motor retail has a VAT regime of its own. Applying standard VAT to second hand vehicle sales is a costly error, and the records required are prescriptive.

§Employing your spouse or family

Paying a family member can be perfectly legitimate and reasonably efficient. It can also be one of the easier things for HMRC to unpick.

Two conditions have to hold, and both are questions of fact:

• The work must be real. There has to be an actual role with actual duties actually performed.
• The pay must be commercial. It should be what you would pay a stranger for the same work.

Where the pay is disproportionate to the work, the excess fails the wholly and exclusively test and is disallowed for corporation tax, while remaining taxable on the recipient. That is the worst of both outcomes.

Protect the position with the same evidence you would keep for any employee: a job description, a record of hours or output, payment through payroll at proper intervals, into their own bank account. Payments in cash, or into your own account, or at round sums that never vary regardless of work done, are what draw attention.

National Minimum Wage applies to family employees in the normal way unless a specific exemption fits, so the pay cannot be nominal either. And employing your children has its own rules on age, hours and permitted work.

§Records, and why bank separation matters

Good records are not about tidiness. They are the evidence that your tax position is what you say it is, and the burden of proof sits with you.

What to keep

• All sales invoices and all purchase invoices and receipts.
• Bank statements for every company account.
• Records of stock, assets bought and sold, and money owed both ways.
• Payroll records and details of benefits provided.
• The company's statutory registers, including the register of people with significant control.
• Dividend minutes and vouchers.
• A mileage log, if you claim mileage.

How long

Company records must be kept for six years from the end of the accounting period. Longer if there is an open enquiry, if an asset is expected to last beyond that period, or if a transaction spans more than one period. Digital copies are acceptable, and a photograph of a receipt is fine provided it is legible and retained.

Bank separation

You are not legally required to have a separate business bank account, but running company money through a personal account is a mistake for three reasons.

First, it destroys your evidence. When every transaction sits in one account, "wholly and exclusively" becomes an argument rather than a fact, and it is your argument to lose.

Second, it corrupts the directors' loan account. If company income lands in your personal account, that money has left the company and is now a loan to you, immediately, whether or not you meant it that way.

Third, it makes the accounts expensive to prepare, because someone has to reconstruct which of several hundred transactions were business. That work is charged by the hour.

Making Tax Digital

Digital record keeping and software filing already apply to VAT. Making Tax Digital for Income Tax is being phased in for self employed individuals and landlords by income level, which affects you personally if you have income of that kind alongside your company: . The direction of travel is settled even where the dates move.

§Closing the company

Worth knowing now, because the right route depends on how much is left in the company, and that is affected by decisions you make well before you close.

Three routes:

• Dormancy. If you might trade again, you can make the company dormant. It still files a confirmation statement and dormant accounts, but the burden is light. Cheaper than closing and reincorporating.
• Striking off. A voluntary application to remove the company from the register. Cheap and quick, and suitable when little value remains. Conditions apply, including that the company has not traded or changed its name in the previous three months. Any assets left in the company when it is dissolved pass to the Crown, so the company must be emptied first.
• Members' voluntary liquidation. A formal solvent liquidation run by a licensed insolvency practitioner. It costs more, but distributions are treated as capital rather than income, which can be significantly cheaper in tax where a substantial sum is being extracted, particularly if Business Asset Disposal Relief applies.

Two things to be aware of. There are anti avoidance rules that can recharacterise a capital distribution as income where you carry on a similar trade within two years of winding up, so the plan matters as much as the mechanism. And a company cannot be struck off if it is insolvent: where the company cannot pay its debts, different duties apply and you should take advice early, because continuing to trade while insolvent puts your personal protection at risk.

§Your first 90 days

If you have only just incorporated, this is the practical list.

• Open a business bank account. Before you take a penny of income. Everything else is easier afterwards.
• Complete identity verification at Companies House if you have not already.
• Confirm your corporation tax registration. HMRC should contact you at the registered office shortly after incorporation with your Unique Taxpayer Reference. Chase it if nothing arrives.
• Tell HMRC when you start trading, if the company was dormant at first.
• Register for PAYE if you will pay yourself or anyone else a salary. Do this before the first payday.
• Decide on VAT. Register if required, and work out whether voluntary registration helps you.
• Issue share certificates and set up your statutory registers, including people with significant control.
• Note your year end and every deadline that flows from it. Consider whether to change it.
• Set up bookkeeping with bank feeds connected, before there is a backlog.
• Open a tax savings account and move money into it every time you get paid.
• Get insured. Employers' liability if you have staff, and whatever your contracts require.
• Authorise your accountant to act for the company, which takes longer than people expect.
• Check your Self Assessment position. Being a director does not automatically require a return, but taking dividends usually will.

§Common questions

The ones we are asked most often, answered briefly. Each links back to the fuller explanation above.

§Where to get help

If you have read this far, you now know more about running a company than most directors in their first year. If you go on to do your own accounts, that was time well spent and we are glad the page was useful.

If you would rather hand it over, that is what we do. We are chartered accountants in Middlesbrough, regulated by the ICAEW, working exclusively with Xero. Fixed monthly fees, so you know what it costs before you commit.

Where to go next

• 365 Start is the service this guide belongs to: fixed monthly fees for newly incorporated companies, set up properly from the beginning.
• BuiltX if you work in construction or the trades, with CIS and the reverse charge handled as routine.
• ForecourtX if you sell used cars, built around margin scheme records and stock control.
• Accountancy 365 for everything else we do.

§Start here

This track is for someone working for themselves as a sole trader or in a partnership. No company, no Companies House, no corporation tax. Just you, your profit, and a tax return once a year.

Being a sole trader is the simplest way to trade in the UK. You do not register a company, you do not file accounts publicly, and there is no separate legal entity standing between you and the business. That simplicity is the whole appeal, and it is also the thing that catches people out, because the money in the business account is already yours and the tax on it is already your problem.

The rules divide the same way they do for companies. There are principles that change slowly, such as what makes a cost allowable or why your profit is not the same as your bank balance. Then there are numbers that change most years. This page explains the principles and marks every number so you can see which parts are time sensitive.

If you are weighing up whether to be a sole trader or a limited company, the switch at the top of the page moves you between the two guides. There is also a section at the end on when incorporating starts to make sense.

§What you can claim

This is the question we are asked more than any other, so it is near the front. The test is simpler than most people expect, and stricter.

The test

A cost is allowable if it is incurred wholly and exclusively for the purposes of the trade. Those three words do the work. Wholly means the whole of the cost was for the business. Exclusively means there was no second, personal purpose sitting alongside the business one.

Where a cost genuinely has two purposes that cannot be separated, none of it is allowable. Where it can be split on a fair and consistent basis, the business share is allowable. A mobile phone bill splits. A suit does not, because you need clothing regardless of the job, and that personal purpose runs through the whole cost.

Being paid from the business bank account does not make something allowable. The nature of the spending decides it, not the card you used.

The main categories

There is no exhaustive list, because every trade is different. These are the headings HMRC's own return uses, which is a useful frame because it is the frame your figures end up in.

Things people try to claim and cannot

• Your own wages or drawings. You and the business are the same person for tax. Money you take out is drawings, not a cost. It does not reduce your profit.
• Client entertaining. Lunch with a customer is not allowable, no matter how clearly it won you the work.
• Everyday clothing. Even a suit bought purely for client meetings. Uniforms, branded clothing and protective equipment are different and are allowable.
• Your own lunch on a normal working day. Food while travelling outside your usual pattern, or staying away overnight, is a different matter.
• Training that teaches you something new. Keeping existing skills current is allowable. Acquiring a new trade is capital in nature.
• Fines and penalties. Parking, speeding, congestion charge penalties and the admin fees on them. None of it, even on a business journey.
• Your own pension contributions. These are not a business cost, but you get tax relief on them separately through your return. Contributions for your employees are a business cost.
• Class 2 and Class 4 National Insurance. Your own National Insurance is not an expense of the trade.

The trading allowance

Instead of claiming your actual costs, you can deduct a flat from your gross trading income. If your income is below that figure you may not need to report the trade at all.

It is an either or choice. Take the allowance and you cannot also claim actual expenses or capital allowances for that trade. It is worth taking only if your real costs are genuinely below , which for most established businesses they are not. It suits a small side trade with almost no costs.

Evidence

Keep the receipt. A bank line showing a payment proves money moved, not what it bought or why. For anything apportioned, keep a note of how you arrived at the split and apply it consistently. An estimate you can explain and defend is worth far more than a precise figure you cannot account for.

§You and the business are the same thing

This is the single structural fact that everything else follows from, and it is the opposite of how a limited company works.

A sole trader business is not a separate legal person. There is no entity to own assets, owe money or sign contracts. There is only you, trading. The business name is a trading name, not a legal identity.

Three consequences follow, and they matter.

The debts are yours. There is no limited liability. If the business owes money it cannot pay, the creditor's claim is against you personally, and against your personal assets. This is the main reason people incorporate.

The profit is yours as it is earned. You do not need to declare a dividend or run a payroll to access it. Money moves from the business account to your personal account and that is simply you moving your own money. It is called drawings, and it has no tax consequence in itself, because you are taxed on the profit whether you withdraw it or leave it in the business.

The tax is yours personally. There is no corporation tax. Your trading profit is added to your other income and taxed through Self Assessment.

Partnerships

A general partnership is the same idea with more than one person. The partnership itself files a return showing the profit and how it was shared, and then each partner reports their share on their own return and is taxed on it individually. Liability is joint, which means a partner can be pursued for the whole of a partnership debt, not just their share.

A written partnership agreement is not legally required and is close to essential. Profit shares, what happens when someone leaves, who owns what, how disputes are settled. Without one, the default rules in the Partnership Act 1890 apply, and they are unlikely to be what either of you intended.

§Registering and your deadlines

There is no incorporation moment. You start trading, and then you have to tell HMRC.

Telling HMRC

You must register for Self Assessment by following the end of the tax year in which you started trading. So if you began trading in June 2026, which falls in the 2026/27 tax year ending 5 April 2027, you must register by 2027.

Register earlier than the deadline. HMRC issues a Unique Taxpayer Reference by post and it is not instant, and you cannot file without one.

The tax year and the filing deadline

The tax year runs from 6 April to 5 April. Your return for that year must be filed online, and any tax paid, by following the end of it. Paper returns are due three months earlier, at the end of October.

What late costs

Filing penalties run on their own track, separate from anything you owe on the tax itself, and they apply even where no tax is due.

• One day late: , automatically.
• Three months late: , on top.
• Six months late: a further , whichever is greater.
• Twelve months late: the same again.

Paying late is charged separately, with interest running from the due date plus penalties at thirty days, six months and twelve months. If you cannot pay, file anyway. Filing on time removes an entire category of penalty and costs you nothing.

Keeping records

Records must be kept for at least after the filing deadline for the year they relate to. HMRC can ask to see them, and they must be complete and up to date, not reconstructed from a carrier bag the week before the deadline.

§Income tax and National Insurance

Two charges on the same profit, calculated differently, paid together.

Income tax

Your trading profit is added to your other income for the year and taxed as a whole. Everyone has a personal allowance of , then the basic rate applies to the next , the higher rate from and the additional rate from .

If you also have a job, that employment income uses up your allowance and your basic rate band first. A trade that looks small in isolation can be taxed entirely at the higher rate because of a salary sitting underneath it.

Class 4 National Insurance

Class 4 is charged on your trading profit at between and , and at on profit above that. It is calculated on your return and paid alongside your income tax.

Class 4 buys you nothing. It is a charge on profit, not a contribution toward any benefit or pension entitlement.

Class 2 National Insurance

Class 2 is the one that used to build your State Pension record, and the rules changed in April 2024. It is no longer compulsory.

If your profit is at or above the Small Profits Threshold of , you are treated as having paid Class 2 without paying anything. You still get the qualifying year toward your State Pension. Nothing to do.

If your profit is below , the year does not count automatically, but you can pay voluntary Class 2 at a week to secure it. That is one of the better value payments in the tax system, and materially cheaper than the Class 3 alternative. It is claimed by ticking a box on your return, and it is easy to miss.

§Payments on account and the January problem

The first tax bill of a sole trader's life is usually about one and a half times the size they were expecting. This is why.

How payments on account work

If your tax bill for a year comes to more than , HMRC does not just collect it. It also asks for two advance instalments toward the following year, each equal to half of the bill just calculated.

The first instalment falls due on the same as the bill it follows. The second falls due on 31 July. Both are credited against what you eventually owe, so nothing is lost, but the timing is brutal in the first year because there is no earlier instalment reducing the balance.

Reducing them

If you genuinely expect the next year to be worse, you can apply to reduce the payments on account. Be realistic. Reduce them too far and HMRC charges interest on the shortfall from the original due date.

§Records, cash basis and Making Tax Digital

How you record the numbers now determines how much work January is, and from 2026 it is no longer entirely your choice.

Cash basis or accruals

There are two ways to work out your profit, and since the 2024/25 tax year the default flipped.

The cash basis counts income when the money arrives and costs when the money leaves. No debtors, no creditors, no prepayments. It is now the default for sole traders and ordinary partnerships, and the old turnover limits for using it have been removed entirely.

The accruals basis, also called traditional accounting, counts income when it is earned and costs when they are incurred, regardless of when the cash moves. You have to actively elect for it, on the return each year.

The default is not automatically the right answer. A business carrying real stock or waiting ninety days to be paid can get a materially different tax result from each basis, and switching between them needs transitional adjustments so nothing is counted twice or missed.

Making Tax Digital for Income Tax

This is the significant change and it has already started. If your qualifying income from self employment and property is above , you are in it now. The threshold drops to £30,000 from April 2027 and to £20,000 from April 2028.

Qualifying income means gross income before expenses, not profit, and it adds together self employment and property. Two modest income streams can put you over a threshold that neither would reach alone.

Being in it means keeping digital records in compatible software, submitting quarterly updates to HMRC, and making a final declaration after the year end. The annual return does not disappear so much as change shape.

Separate bank account

Not compulsory for a sole trader, unlike a company, and still the first thing we recommend. Untangling business from personal spending across a shared current account is the single most expensive kind of bookkeeping, and it makes an HMRC enquiry considerably more uncomfortable than it needs to be.

§Working from home

Two methods, and the easy one is usually the smaller one.

The flat rate

HMRC's simplified expenses let you claim a fixed monthly amount based on hours worked from home, with no calculation and no bills to keep:

Note what this covers, which is light, heat and power only. It does not include rent, mortgage interest, council tax or broadband. At the top band it comes to just over £300 a year.

The actual cost method

Alternatively, work out a fair proportion of your real household costs. The usual approach is by rooms and by time: what share of the rooms in the house is used for the business, and for what share of the time.

The costs that can go into the calculation include rent or mortgage interest, council tax, insurance, water, gas, electricity, and cleaning. Broadband is normally handled separately on its own business proportion.

For anyone with a genuine dedicated workspace and meaningful housing costs, this method is usually worth several times the flat rate. It takes one calculation, done properly once, and then repeated each year.

§Vehicles and mileage

You choose one method per vehicle and you stay with it for as long as you have that vehicle. Choose carefully.

Mileage

The simpler route. Claim a fixed rate per business mile, which covers fuel, insurance, servicing, road tax, repairs and depreciation. Everything.

If you claim mileage you cannot also claim running costs or capital allowances on that vehicle. The rate is the whole claim. You do need a mileage log with dates, destinations and business purpose.

Actual costs

The alternative is to claim the business proportion of everything the vehicle actually costs, and to claim capital allowances on the vehicle itself. This can be worth considerably more for an expensive vehicle or high running costs, and it requires you to track the business and private split and keep every receipt.

Fines are not allowable under either method, and that includes fines incurred on a business journey.

What counts as a business journey

Travel to see a customer or supplier, between work sites, to make a delivery, or to a temporary place of work. Not your ordinary commute to a regular workplace, which is never allowable however far it is.

§Equipment and capital allowances

Big things that last are treated differently from small things you replace.

A screwdriver you would simply buy again is a repair or renewal, and goes through as an ordinary expense. A machine you would insure, repair or sell second hand is an asset, and gets capital allowances instead.

The Annual Investment Allowance

Most equipment used in the business qualifies for the Annual Investment Allowance, which gives full relief in the year of purchase up to a year. That covers tools, computers, machinery, commercial vehicles and vans, and fixtures within business premises.

Expenditure beyond that limit goes into a pool and attracts a writing down allowance annually thereafter. The main pool rate reduced from 18% to 14% from April 2026.

Cars are different

Cars do not qualify for the Annual Investment Allowance. They go into their own pool and the allowance depends on CO₂ emissions, with the most favourable treatment reserved for zero emission vehicles. Any private use is apportioned, so a car used half privately gets half the allowance.

Equipment you already owned

If you bring something you owned personally into the business, you can claim on it, but at its second hand market value at the date you brought it in, not what you originally paid. Make a note of the item, the date and how you arrived at the value.

Under the cash basis

Most equipment is simply deducted when you pay for it, with cars remaining the main exception and still going through capital allowances. This is one of the practical differences between the two bases and worth understanding before a large purchase.

§VAT

VAT works identically whether you are a sole trader or a company. It is a tax on your customers that you collect and pass on, and the money is never yours.

When you must register

Registration becomes compulsory when your taxable turnover in any rolling twelve month period exceeds , or when you expect to exceed it in the next thirty days alone.

The rolling test is the one people miss. It is not your accounting year and it does not reset in April. At the end of every month you look back over the previous twelve, and if that total has gone over, you have thirty days to notify HMRC.

Zero rated sales count toward the threshold. Exempt sales do not.

Deregistration

If your taxable turnover falls below you can apply to cancel your registration.

Voluntary registration

You can register before you have to. It makes sense when your customers are mostly VAT registered businesses who can reclaim what you charge, and when you have meaningful VAT on your own purchases. It rarely makes sense when you sell to consumers, because it adds to your prices to customers who cannot recover it.

The flat rate scheme

The flat rate scheme lets you pay a fixed percentage of gross turnover instead of tracking input and output VAT separately. Its usefulness narrowed considerably when the limited cost business rules arrived.

Most service businesses fall into that category. Run the numbers before joining rather than after.

§The Construction Industry Scheme

If you work in construction as a subcontractor, tax is deducted from your invoices before you are paid, and you almost certainly have a refund waiting.

How the deduction works

Contractors verify you with HMRC and then deduct tax from the labour element of your payments. Materials, properly evidenced, are paid in full.

Registering is free and takes the deduction from to . There is no reason not to.

Why you are probably owed money

The deduction is taken from your gross labour without regard to your personal allowance or any of your expenses. A subcontractor with normal costs and a full personal allowance has almost always overpaid by the end of the year. That is not a bonus, it is your own money coming back, and it only comes back when the return is filed.

Gross payment status

You can apply to be paid in full with nothing deducted, which removes the cash flow drag entirely. You need to pass three tests: the business test, a compliance test covering every return and payment for the past year, and a turnover test of of net construction turnover excluding VAT and materials.

The compliance test is where applications fail, and it is unforgiving about small things filed a few days late.

§Should you become a limited company?

The honest answer is that it depends on more than your profit, and the profit number people quote is usually wrong for their situation.

What actually changes

When incorporating tends to win

• You are consistently profitable well beyond what you need to live on, so profit can be retained rather than drawn.
• Limited liability genuinely matters for what you do, because of contract size, staff, or the nature of the risk.
• Customers or contracts require it, which is common in some sectors.
• You are building something you intend to sell or bring investors into.

When staying as you are tends to win

• You draw essentially all the profit, so there is nothing to retain and less to gain.
• Profits fluctuate, or losses are likely, because loss relief is more flexible for a sole trader.
• The extra compliance cost and admin outweighs a modest tax saving.
• You value the simplicity, which is a legitimate reason and not a lesser one.

Run your own numbers

Put your profit in and see what each structure leaves you. It will not settle the question on its own, and it will tell you whether the question is worth asking in your case.

§Your first 90 days

If you do nothing else on this page, do these.

• Register with HMRC for Self Assessment. Do not wait for the deadline. The reference arrives by post and you cannot file without it.
• Open a separate bank account. Not compulsory, and the single highest return on ten minutes of effort available to you.
• Open a second account for tax. Move a fixed percentage across every time you are paid. Guess high.
• Decide how you will keep records, and start on day one rather than reconstructing later. If you are anywhere near the Making Tax Digital threshold, make it software from the outset.
• Keep every receipt, photographed if not on paper. A bank line is not evidence of what something was.
• Start a mileage log if you drive for work at all. It cannot be recreated credibly afterwards.
• Check whether CIS applies to you if you are in construction, and register if it does.
• Work out roughly where your turnover will land against the VAT threshold and the Making Tax Digital thresholds, so neither arrives as a surprise.
• Get the structure question answered properly rather than assuming. It is cheaper to ask now than to unwind later.

§Common questions

The ones sole traders ask us most often, answered briefly.

§Where we can help

Most of what goes wrong for a sole trader is not complicated. It is just unfamiliar, and it usually surfaces in January when the options have run out.

We work with sole traders and partnerships across Teesside and further afield, on Xero, covering the return itself and the things that determine what goes on it.

• Self Assessment, prepared properly and filed early enough that you know the bill before it is due.
• Bookkeeping and Making Tax Digital, so quarterly submissions are a by-product of records that are already current.
• Expense reviews, catching what is being missed and removing what would not survive an enquiry.
• Cash basis or accruals, modelled both ways on your own figures.
• Structure advice, including whether and when to incorporate, with the numbers behind it.
• VAT, from when to register through to which scheme costs least.
• CIS, including refunds and gross payment status applications.