Expert Tax Services for Small Businesses

Filing your taxes

When I speak with business owners, often this topic fills people with dread, they know the key point of filing taxes, however, everyone seems confused with the ins and outs.

As a business owner (sole trader) in the UK, you are the boss of your business. You have the freedom to make decisions, and keep all the profits after tax. It is designed to make the admin and compliance burden as low as possible (in comparison to limited company).

My key objective of the blog is to help business owners to understand about filing taxes, what is needed and when. This subject fits perfectly for this week. I will try to keep it as brief as possible.

What You Need to Know?

Most people who work through a pay-as-you-ear or PAYE system in the UK. Taxes are deducted at source (i.e. before you receive your wages). If you are self-employed with income from different revenue streams (e.g. rental, claim Tax-Free childcare or Maternity Allownce), then you may need to file your tax return (also known as self-assessment).

You need to register for self-assessment if you have not registered before, or if you didn’t do so last year.

The role of a sole trader

As a sole trader, you’re self-employed and personally responsible for your business’s finances. HMRC requires you:

To register - with HMRC and file an annual Self-Assessment tax return.
To pay - Income Tax and National Insurance on your profits.
To keep - accurate records of your income and expenses.

Self-assessment tax return year

In the UK, the tax year runs from 6 April to 5 April the following year. This is the period you need to inform HM Revenue & Customs (HMRC) about your income, and you will then need to pay tax and National Insurance contributions on anything you earn during this period.

For example, the 2024/25 tax year ran from 6 April 2024 until 5 April 2025.

Key self-assessment tax return dates

The following deadlines apply for file a tax return for 2025 (from 6 April 2024 to 5 April 2025):

5 October 2025: deadline for registering for self-assessment online.
31 October 2025: HMRC must receive it by this date for a paper tax return
31 January 2026: deadline for filing an online tax return and pay any tax and National Insurance contributions due (first payment during the year for for payment on account for 2026).
31 July 2026: second payment for payment on account for 2026.

Manage your own self-assessment tax return

Many sole traders handle their own finances, especially in the early stages of their business. If your business is relatively simple, e.g. you have a single source of income, minimal expenses, and no employees. You may be able to manage without an accountant, by:

Using Accounting Software: Tools like QuickBooks, Xero, or FreeAgent can help you track income and expenses, generate invoices, and even calculate your tax liability.
Staying Organized: Keep all your receipts, invoices, and bank statements in order. This will make it easier to complete your Self-Assessment tax return.
Educating Yourself: HMRC provides resources and guides to help sole traders understand their tax obligations. If you’re willing to put in the time, you can learn the basics of self-employment taxes.

When should I prepare tax return

It’s always good to be prepared, and it’s the same when it comes to your taxes. Sorting out your tax return as soon as after the start of the new tax year can help you stay on top of your finances.

It’s recommended to keep a record of all the money you earn, dates when you’re paid, and to keep documents, such as a P45 or P60, as you may need these when filing your return. HMRC can also request to see your supporting records after you’ve submitted your return, so you must keep these for upto five years after the tax year in question.

When an accountant can be helpful

As your circumstance changes the following situation may arise naturally as part of your business grew, then an accountant can be a game-changer for your business:

Complex Finances: If you have multiple income streams, work with international clients, or have significant expenses, an accountant can help you navigate the complexities.
Time Constraints: As a sole trader, your time is valuable. If you’d rather focus on growing your business than crunching numbers, an accountant can take the burden off your shoulders.
Tax Efficiency: Accountants are experts at identifying tax deductions and reliefs you might miss. They can help you minimize your tax bill and keep more of your hard-earned money.
HMRC Compliance: If you’re unsure about your tax obligations or worried about making mistakes, an accountant can ensure you stay compliant and avoid penalties.
Planning for Growth: If you’re considering expanding your business, taking on employees, or transitioning to a limited company, an accountant can provide valuable advice and support.

Accountant costs

While fees vary depending on the complexity of your finances and the services you need, many accountants offer flexible pricing for sole traders. For example:

One-Off Services: You can hire an accountant to handle specific tasks, such as preparing your tax return (can be anything between £200 and £500 – expect to pay more if your tax return is more complicated) or setting up accounting software.
Ongoing Support: If you need regular help with bookkeeping, payroll, or tax planning, you can opt for a monthly retainer.

When weighing the cost, consider the potential savings an accountant can generate through tax efficiency and error prevention. For many sole traders, the peace of mind and time savings alone are well worth the investment.

SUMMARY

Whether you need an accountant or not, is entirely depends on your business needs, the complexity of the business, and time and your confidence in managing finances. While many sole traders successfully handle their own finances, others find that having help from an accountant is a worthwhile investment.

If you’re just starting out, you may be able to manage on your own with the help of accounting software and HMRC resources. However, as your business grows or if you’re facing complex financial situations, an accountant can provide invaluable support and peace of mind.

Remember, the goal is to make your life easier and ensure your business thrives. Whether you choose to hire an accountant or go it alone, staying on top of your finances and compliant with HMRC requirement is key to your business success.

Expert Tax Services for Individuals and Businesses

1. Sole Trader

Pros:

Simple Setup: Easy and inexpensive to set up. You only need to register with HMRC for self-assessment.
Full Control: You have complete control over decision-making and operations.
Minimal Compliance: Fewer reporting and filing requirements compared to a limited company.
Tax Simplicity: Profits are taxed as personal income, and you only need to file a self-assessment tax return.
Privacy: Your financial information is not publicly available (unlike a limited company).

Cons:

Unlimited Liability: You are personally liable for any debts or legal claims against the business.
Tax Efficiency: You may pay higher taxes as profits are taxed at personal income tax rates (up to 45% for higher earners).
Limited Growth Potential: It can be harder to raise capital or attract investors as a sole trader.
Perception: Some clients may view a sole trader as less professional compared to a limited company.

2. Partnership

1. Sole Trader

Pros:

Shared Responsibility: Work with partners to share the workload, expertise, and decision-making.
Combined Resources: Pool financial resources, skills, and networks to grow the practice.
Tax Simplicity: Profits are split between partners and taxed as personal income (similar to a sole trader).
Flexibility: Partnerships can be flexible in terms of profit-sharing and management arrangements.

Cons:

Unlimited Liability: Like sole traders, partners are personally liable for the business’s debts and obligations (unless it’s a Limited Liability Partnership - LLP).
Potential for Disputes: Differences in opinions or management styles can lead to conflicts.
Shared Profits: Profits must be shared among partners, which may reduce individual earnings.
Compliance: Requires a partnership agreement and filing a partnership tax return with HMRC.

3. limited co.

Key considerations

Pros:

Limited Liability: Your personal assets are protected, as the company is a separate legal entity.
Tax Efficiency: Corporation tax rates are lower than personal income tax rates (19% to 25% as of 2023). You can also optimize tax through dividends and salary splits.
Professional Image: A limited company is often perceived as more credible and professional by clients and investors.
Growth Potential: Easier to raise capital, attract investors, or sell shares in the future.
Pension Contributions: Directors can make tax-efficient pension contributions through the company.

Cons:

Complex Setup: More expensive and time-consuming to set up and maintain. You must register with Companies House and comply with company law.
Higher Compliance: Requires annual accounts, corporation tax returns, and confirmation statements to be filed with Companies House and HMRC.
Public Disclosure: Financial information is publicly available on Companies House, reducing privacy.
Administrative Burden: More paperwork and administrative responsibilities compared to sole traders or partnerships.

Key considerations

Other Key Considerations for business structure

Liability: If you’re concerned about personal liability, a limited company or LLP is the safest option.
Tax Efficiency: A limited company often offers better tax planning opportunities, especially for higher earners.
Professional Image: A limited company may enhance your credibility with clients, particularly for larger businesses.
Growth Plans: If you plan to expand, hire staff, or attract investors, a limited company is more suitable.
Simplicity: If you prefer minimal paperwork and full control, a sole trader structure may be best.

An alternative to the above options is the Hybrid Option, which is called a Limited Liability Partnership (LLP).

An LLP combines elements of partnerships and limited companies:

Pros: Partners have limited liability, and profits are taxed as personal income.
Cons: More complex to set up than a general partnership, with additional filing requirements.

CONCLUSION

In conclusion, a sole trader is best for small, low-risk business with minimal compliance needs. A partnership is ideal for shared responsibility and resources but comes with potential liability and partnership risks. Finally, a limited company offers the most protection, tax efficiency, and growth potential but involves higher compliance and administrative costs. Choose the structure that aligns with your long-term goals, risk tolerance, and growth plans for business.

If unsure or need more information, please feel free to give us a call on 01372613038 or email us on info@hwaccount.com

Please reach us at info@hwaccount.com if you cannot find an answer to your question.

Trivial benefit - tax free gift you provide to an employee or yourself

Either it's on a Valentine's Day, special birthday or Christmas season, when you want to treat yourself, colleagues, or loved ones; have you heard about trivial benefit.

It is a tax-free gift or perk you provide to an employee or yourself (director/owner of the company).

If all conditions listed below are met, the benefit qualifies as a trivial benefit and remains tax-free:

1. Must cost £50 or less per employee per benefit (including VAT)

2. Must not be cash or cash-exchangeable voucher

3. Must not be a reward for an employee’s work or performance

4. Must not be part of an employee’s contract

5. Must not be part of any salary sacrifice arrangement

Provide the conditions are met, then tax free means:

1. you do not have to pay tax on benefit

2. You do not have to make NI contributions on the benefit

3. You do not have to let HMRC know about the benefit

A trivial benefit can be almost anything. For examples:

1. Team meals e.g pizza lunches, coffee & cake outings.

2. Gift cards (cannot be exchanged for cash) e.g Amazon, Spotify

3. Event tickets e.g. theatre, comedy clubs, concerts.

4. Birthday gifts e.g. chocolates, flowers, books or wine.

5. Seasonal gifts e.g Christmas hampers.

Max amount per benefit is £50, there is no cap on how many trivial benefits in a year each employee can receive. However, for a director of a close company*, the combined value of trivial benefits they can receive within a tax year is limited to £300.

*A "close company" is one which is controlled by 5 or fewer shareholders.

#tax #accounting #business #businessowner #smallbusinessowner #smallbusiness #employeebenefits @hwaccountancy

Business structure: Sole trader, partnership or Ltd co?

Choosing the right business structure for your business in England is a critical decision. Each structure - sole trader, partnership, and limited company- has its own pros and cons. Here’s a detailed comparison to help you decide. See section below for more information.

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Expert Tax Services for Small Businesses

Filing your taxes

What You Need to Know?

The role of a sole trader

Self-assessment tax return year

Key self-assessment tax return dates

Manage your own self-assessment tax return

When should I prepare tax return

When an accountant can be helpful

Accountant costs

SUMMARY

Business structure - sole trader, partnership, limited co.

Expert Tax Services for Individuals and Businesses

1. Sole Trader

1. Sole Trader

1. Sole Trader

2. Partnership

1. Sole Trader

1. Sole Trader

3. limited co.

Key considerations

Key considerations

Key considerations

Key considerations

Key considerations

CONCLUSION

TRIVIAL BENEFIT - TAX FREE GIFT

Expert Tax Services for Small Businesses

Filing your taxes

What You Need to Know?

The role of a sole trader

Self-assessment tax return year

Key self-assessment tax return dates

Manage your own self-assessment tax return

When should I prepare tax return

When an accountant can be helpful

Accountant costs

SUMMARY

Business structure - sole trader, partnership, limited co.

Expert Tax Services for Individuals and Businesses

1. Sole Trader

1. Sole Trader

1. Sole Trader

2. Partnership

1. Sole Trader

1. Sole Trader

3. limited co.

Key considerations

Key considerations

Key considerations

Key considerations

Key considerations

CONCLUSION

TRIVIAL BENEFIT - TAX FREE GIFT

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