I would like to set up in business as self-employed. How do I go about this?
Before entering self-employment, an individual will need to register with HMRC. Once registered you will receive your Unique Taxpayer Reference (UTR), and HMRC will set up the correct tax and national insurance contribution records. You will need to ensure that you keep your UTR safe, as you will need it to complete any future Self-Assessment tax returns.
How do I determine whether I am employed or self-employed?
This will depend on the details of your employment contract, or upon what you working arrangements happen to be. It is possible to be both employed and self-employed at the same time, however going through the following checklists should help you to define your employment status. An employed person:
– Has to perform the tasks that are asked of them
– Is told how, when and where they are to work
– Is paid a regular wage or salary
– Works to fixed hours
– Works for just one person or company at a time
– An employed person is not in charge of the business they work in, nor do they take any
responsibility for it – that is the task of their employer
A self-employed person:
– Runs their own business and are able to decide about the timing and the type of the work
that they do
– Are able to hire people themselves
– Take responsibility for the success or failure of the business
– Has more than one customer at the same time
– Takes care of the main equipment they use during their business activities
I want to set up my own business; but have been told that I will need a Business Plan. How detailed does my Business Plan need to be?
A bank or other lender will normally require you to submit a business plan to them before they allow you to have credit, a business loan, or an overdraft. Putting the plan together will give you the opportunity to organise your ideas and give you a clearer understanding of whether you are actually in a position to go ahead. Setting up the plan before you actually commence in business should mean that you are less likely to miss something fundamental which may cost you dearly later down the line.
A good business plan should include information in the following areas:
– A Business Overview. Here you should include a brief history of your business, or why you have decided to start one. You need to focus on the purpose of the business and on your products and services. You should include an assessment of your current position within the marketplace with an analysis of any competitors, and of their strengths and weaknesses.
– Business Strategy. This should cover a set period of time (usually a maximum of five years) and should focus on your specific objectives and goals, the steps that you need to take and the resources that you will need to get there. This section of the plan needs to outline the core business values, and strategic threats or opportunities that will affect you in the short to medium term.
– Marketing. Here you need to outline any market research which you have undertaken, and your marketing plans. You should detail how you intend to build your credibility, and how you intend to promote your business to your new clients.
– Team and Management. The good business plan should detail what you intend the staffing structure of your new business to be, and what experience these staff possess. You should mention any external advisors you intend to use to assist you along your new journey.
– Financial Budgets and Forecasts. Typically, you should include a profit and loss forecast; a balance sheet forecast; a cash flow forecast; and a capital expenditure budget.
What are the benefits from putting together a Business Plan?
At first the idea of having to construct a business plan for a new business can appear daunting.
However once started, the process of putting together a business plan can focus the mind of the
new entrepreneur, as well as playing a vital role in helping to secure future finance and support.
A business plan can help to clarify the business idea and define longer-term objectives. It can
provide a blueprint for the establishment of the business, and a series of benchmarks against
which the progress of the business can be measured.
What advantages are there to operating as a Sole Trader?
When first starting out in business, it can be advantageous (and simpler) to set up as a sole
trader. There are several advantages to starting out as a sole trader – these include:
– Some form of annual accounts, or summary of figures, are necessary for a sole trader to
produce a tax return. However, the preparation of accounts is not a legal requirement; and
sole traders are not required to file accounts at Companies House.
– There is no cost involved in setting up as a sole trader.
– Any losses generated by a sole trader can be set off against other income in the same tax
year; or they can be carried back to previous tax years.
Tax Treatment of a Sole Trader
A sole trader will generally pay tax by instalments on the 31 st January during the tax year and
the 31 st July of the following tax year. Therefore for an ongoing business trading in 2019/20,
a first payment on account with regards to the tax liability for the year will be payable by 31 st
January 2020 and a second payment on account will fall due for payment by 31 st July 2020,
with any final balancing payment falling due by 31 st January 2021.
Sole traders will also have to pay Class 2 NI of £3.00 per week (as at the time of writing –
please see our online tax card for most up to date rates) and Class 4 NI, dependent upon
their level of profits.
What travel and vehicle expenses are tax deductible for the self-employed?
If you’re self-employed, your business will have various running costs. You can deduct some
of these costs to work out your taxable profit as long as they’re allowable expenses.
Your turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on
the remaining £30,000 – known as your taxable profit.
Allowable expenses do not include money taken from your business to pay for private
If you run your own limited company, you need to follow different rules. You can deduct any
business costs from your profits before tax. You must report any item you make personal
use of as a company benefit.
Costs you can claim as allowable expenses
– office costs, for example stationery or phone bills
– travel costs, for example fuel, parking, train or bus fares
– clothing expenses, for example uniforms
– staff costs, for example salaries or subcontractor costs
– things you buy to sell on, for example stock or raw materials
– financial costs, for example insurance or bank charges
– costs of your business premises, for example heating, lighting, business rates
– advertising or marketing, for example website costs
– training courses related to your business, for example refresher courses
You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’.
Costs you can claim as capital allowances
If you use traditional accounting, claim capital allowances when you buy something which
you are going to use in your business, for example:
– business vehicles, for example cars, vans, lorries
You cannot claim capital allowances if you use your £1,000 tax-free ‘trading allowance’.
If you use cash basis
If you use cash basis accounting and buy a car for your business, you can claim this as a
capital allowance. However, all other items you buy and keep for your business should be
claimed as allowable expenses in the normal way.
Why should I set up a Limited Company?
Any person who decides that they want to trade as a business, but does not adopt a limited
company format, will be personally liable for any debts of that business. Any assets or savings
that they have will be vulnerable to a third-party claim against them.
The effect of trading as a limited company is to place a limit on the extent of that liability. This
limit is the value of the company – including any money an individual has invested in; loaned to;
or owes the company.
Once created a company has a separate legal identity from its owners and directors, and unless
they sign personal guarantees for the debts of the company, they will not be liable for these.
There are a number of advantages of trading under the format of a limited company. These
include, but are not limited to:
– It may make it easier to attract people willing to invest money into the business.
– It may increase the ease with which bank finance can be obtained.
– It will potentially be easier to sell the business; or to gift a share of the business to a third
party or to a family member.
– The kudos of being a limited company can mean that the business has a better standing in
the public eye. It is possible that people will have more confidence in the company as the
accounts, etc, are available for public scrutiny at Companies House.
– It is easier to continue the business in the event of a partner leaving; or passing away.
– There are no higher rate tax bands.
The disadvantages of adopting a limited company format are the extra costs which come with
preparing annual accounts; and also the loss of some financial privacy.
What details are required on a limited company’s letterhead?
If you are trading as a limited company within the United Kingdom, Company Law states that
the following information must be displayed on the company letterhead:
– Your fully registered company name (ending in the word Limited or Ltd)
– Your company registration number
– The place of registration (e.g. England)
What is a company tax return?
A Company Tax Return is a document which needs to be filed for each accounting period by
companies liable for Corporation Tax. A company has to file a return every year, even if it has
not made any profit during that year.
What is Capital Gains Tax?
Capital Gains Tax is a tax which an individual is required to pay where they have made a profit
through the sale of assets such as shares or property.
The amount of Capital Gains Tax payable can usually be reduced by a tax-free allowance and
some additional reliefs.
There are also some circumstances under which no capital gain tax has to be paid.
When am I obliged to register for VAT?
You may be required to register for VAT if you undertake a business in the UK as an individual;
partnership; company; association; charity; local authority; or any other organisation or group of
people acting together under a specific name.
Registration for VAT is compulsory where annual turnover exceeds £85,000 (as at the time of
writing – please see our online tax card for most up to date rates); or you expect the turnover to
be higher than that amount in the next 30 days. However, it may be possible that turnover has
gone over the VAT threshold temporarily, and in such a case it is possible to apply for an
exemption from registration.
Note however that it is not possible to register for VAT if you sell only goods or services that are
exempt from VAT; or you are not “in business” according to the HMRC’s definition of business.
My turnover is below the current VAT threshold. Can I still register for VAT; and what are the advantages of registration?
If you are doing business in the UK but your turnover is below the threshold for registration, you
may register for VAT voluntarily. It may be advantageous to charge VAT on your sales; and claim
back VAT on your purchases in various ways. By way of example, if there is a zero VAT rate for
the items you sell, but you buy standard-rated items, you will be in a position to receive VAT
refunds from HMRC. It is worth noting that an entity which registers for VAT voluntarily has the
same rights, but also the same responsibilities, as one which goes down the compulsory
What is CIS? Who are CIS contractors and CIS subcontractors?
The letters CIS stand for the Construction Industry Scheme. CIS regulates the procedures for
making payments to subcontractors by contractors in the construction industry. Businesses
outside the construction industry, but which spend a high amount of their funds on
construction, may also fall under the CIS regime.
How can I tell if my business falls under the CIS regime?
Businesses which are active in the construction industry in the United Kingdom in the form of a
partnership; company; limited liability partnership (LLP); and also self-employed sole traders;
will all fall under the CIS regime.
However, CIS is not limited to businesses whose core activity is construction. If a business spends
over £1 million a year on average on construction within three years, HMRC may consider it a
‘deemed contractor’ and it will have to register with CIS.
How do I go about closing my business down?
If you get to a position where you wish to close your business down, you will need to plan this
carefully. In the first instance, it is important that you inform HMRC of your intent – only then
will you be able to settle matters related to tax and National Insurance. In some circumstances it
will be possible to extend the deadlines for payments; or even to claim back some tax or
National Insurance which you have paid.
How should I inform HMRC that I wish to close my business?
• Self-employed persons, and business partners, will need to complete an online form.
• Shareholders may still have to file Company Tax Returns and pay Corporation Tax while closing
the business. It will be necessary to account for any capital gains made in the closing process via
the Company Tax Return.
• Employers must also submit a final Full Payment Submission (FPS) when running their final
payroll, in addition to the standard procedure. It is important that all outstanding PAYE tax and
National Insurance deductions are paid on a timely basis.
• VAT-registered businesses will need to deregister from VAT.
What are the advantages of Cloud Accounting?
Across the accountancy profession we are seeing that Online bookkeeping, also known as ‘cloud’
accounting software, is increasingly replacing PC based accounting packages.
Businesses are increasingly seeing many benefits from using a cloud-based accounts package.
All data is secure and is backed up in the cloud.
There is no need to run annual updates on the software or to invest in costly IT hardware
This is done automatically by the cloud software provider and monthly charges to customers
are very modest.
Various time saving, automated features can be added such as:
Automatic bank feeds straight into your accounting software.
The ability to manage your accounts anytime and anywhere from virtually any web enabled
device, for example using your smart phone or tablet to capture photos of purchase invoices
and expenses receipts; and posting them directly into the accounting software.
Allowing your accountant access to live accounting information so that amendments can be
made in real time without the need to email backups of software to and forth.
Automated sales invoices or estimates, in your design and format, raised and emailed to
clients with automated reminders if they haven’t paid within the agreed terms.
Xero has been at the forefront of the development of cloud base accounting, and at TLL we have
joined the Xero Partnership Programme to streamline the service which we are able to offer to our
clients. Several members of our team have undergone training to become Certified Xero Advisors,
and will be able to assist in setting up the system and guiding you through your online accounting
needs, together with dealing with ad hoc queries throughout the year.
What are HMRC Advisory Fuel Rates, and When Should They Be Used?
Advisory Fuel Rates are to be used when drivers are claiming mileage expenses for their business
trips. They are used in the following two circumstances:
– Reimburse employees for business travel in their company cars
If you pay a rate per mile for business travel no higher than the Advisory Fuel Rates, for the
particular engine size and fuel type, HMRC will accept there’s no taxable profit and no Class 1A
National Insurance to pay.
You can use your own rates which better reflect your circumstances if, for example, your cars are
more fuel efficient, or if the cost of business travel is higher than the guideline rates.
If you pay rates that are higher than the advisory rates and cannot demonstrate the fuel cost per
mile is higher, there’s no fuel benefit charge if the mileage payments are solely for miles of business
travel. Instead, you’ll have to treat any excess as taxable profit and as earnings for Class 1 National
– Require employees to repay the cost of fuel used for private travel
If you’ve correctly recorded all miles of private travel and used the correct rate (or anything higher)
to work out the cost of fuel used for private travel that the employee must repay to you, HMRC will
accept there’s no fuel benefit charge.
The advisory rates will not be binding where you can demonstrate that employees cover the full cost
of private fuel by repaying at a lower rate per mile.
How do I calculate Business Mileage Allowance payments?
Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle
for business journeys. You’re allowed to pay your employee a certain amount with regard to Mileage
Allowance Payments each year without having to report them to HMRC. This is called an ‘approved
To calculate the ‘approved amount’, multiply your employee’s business travel miles for the year by
the rate per mile for their vehicle.
The current rates as at the time of writing are as shown below (please see our online tax card for the
most up to date rates):
Type of vehicle First 10,000 miles Above 10,000 miles
Cars and vans 45p (40p before 2011 to 2012) 25p
Motorcycles 24p 24p
Bikes 20p 20p
For example, if an employee travels 12,000 business miles in their car – the approved amount for the
year would be £5,000 (10,000 x 45p plus 2,000 x 25p).
It doesn’t matter if your employee uses more than one vehicle in a year – it’s all calculated together.
What is involved in changing accountants?
There are various steps that you need to go through when changing your accountant:
Inform your current accountant – where possible, end things with your current accountant
on good terms and let them know that you’re moving on, as this will make the whole
process much smoother. You’ll need to grant them permission to speak to your new
accountants in order to hand over any paperwork. Alternatively, your new accountants can
help you draft a letter of notice on your behalf.
Disengagement letter – your current accountants will then need to provide details of the
work they have completed so far, including key dates and information. This is known as a
disengagement letter and is a professional document.
Professional clearance letter – your new accountant will also need to write to your previous
accountant. In this letter they will ask for professional clearance and request any relevant
paperwork. They will also ask whether there is any reason they cannot take you on as a
client – this is a formality and usually causes no problems. Your previous accountant may
charge you a small fee for this service.
Assigning authority – finally, you’ll need to assign authority to your new accountants for tax
affairs, which means they can file returns on your behalf.
What happens if I fail to declare all my income?
Tell HM Revenue and Customs (HMRC) as soon as possible if you’ve made money you need to pay
tax on and have not told them about it.
This could have happened because you:
– did not realise you needed to tell HMRC about it
– were not sure how to declare it
– did not declare it because you could not pay the tax
If you contact HMRC first, they may consider your case more favourably.
You do not need to tell HMRC about income you’ve already paid tax on, for example wages. But if
you do not think enough tax has been taken on your employment or workplace pension, you should
You should tell HMRC if you earned other taxable income and have not declared it in a Self-
Assessment tax return. This could include income from:
– renting out property
– capital gains, for example from selling property, valuable items or shares
– working for yourself, including if you buy or sell items regularly, for example at car boot sales or on
the internet (you’ll also need to register as self-employed)
If this income takes you over your Personal Allowance, you’ll pay tax on it.
Declare the income on a tax return
If you’re already registered for Self-Assessment but have not declared all your income, you can make
a change to your return.
If you do not usually send a tax return, you can register for Self-Assessment to declare any income
you have not paid tax on from the last 4 years. You’ll need to fill in a separate tax return for each
You’ll get a letter telling you what to do next after you’ve registered.
How long do accounting records need to be kept?
A company director has a legal responsibility to keep company records and accounting records. A
director must keep records about the company itself, as well as financial and accounting records.
You must keep records for six years from the end of the last company financial year they relate to, or
– they show a transaction that covers more than one of the company’s accounting periods
– the company has bought something that it expects to last more than six years, like
equipment or machinery
– you submitted your Company Tax Return late
– HMRC has started a compliance check into your Company Tax Return.
For example, if your accounting period ends on 31 March 2020, you’ll need to keep the records for
that period until at least 1 April 2026.
How long do I need to keep records for HMRC?
You must keep your records for at least 5 years after the 31 January submission deadline of the
relevant tax year. HM Revenue and Customs (HMRC) may check your records to make sure you’re
paying the right amount of tax.
For example, if you sent your 2018 to 2019 tax return online by 31 January 2020, you must keep
your records until at least the end of January 2025.
Very late returns
If you send your tax return more than 4 years after the deadline, you’ll need to keep your records for
15 months after you send your tax return.
If your records are lost, stolen or destroyed
If you cannot replace your records, you must do your best to provide figures. Tell HMRC when you
file your tax return if you’re using:
– estimated figures – your best guess when you cannot provide the actual figures
– provisional figures – your temporary estimated figures while you wait for actual figures
(you’ll also need to submit actual figures when available)
How do I register as an employer and set up PAYE?
You normally need to register as an employer with HM Revenue and Customs (HMRC) when
you start employing staff, or using subcontractors for construction work.
You must register even if you’re only employing yourself, for example as the only director of a
limited company. Most limited companies can register online.
You must register before the first payday. It usually takes up to 5 days to get your
employer PAYE reference number. You cannot register more than 2 months before you start paying
To pay an employee before you get your employer PAYE reference number, you should:
1. Run payroll.
2. Store your full payment submission.
3. Send a late full payment submission to HMRC.
Why does the profit per my accounts differ from the taxable profit per my tax computation?
This is often due to the difference between depreciation (accounts) and capital allowances (tax
Where a sole trader or a company buys an asset which is considered to have a life longer than one
year, this asset is normally capitalised for accounting purposes and taken to the balance sheet.
This asset is then written off against the profit figure by the process of depreciation over the life of
For example, a piece of equipment costing £30,000 may be considered to have a life of 3 years at the
time of purchase. As such the depreciation charge with regards to the asset in the accounts will be
£10,000 per year. After the 3 years the value of the laptop on the balance sheet would be £Nil.
The £10,000 annual depreciation would be a disallowable cost for tax purposes in each of the 3
The company would instead receive tax relief for the laptop by virtue of a capital allowance.
Capital Allowances are the mechanism by which capital assets attract tax relief – for tax purposes you
would take the accounting profit then deduct capital allowances in order to arrive at taxable profits.
Taking the example outlined above, the equipment would normally qualify for an Annual Investment
Allowance of 100%; and as such the full cost would be allowable for tax purposes in the year of
Therefore, if the profits of the company were £30,000 after adding back depreciation, then £30,000
would be deducted to produce taxable profits of £Nil.