What triggers an HMRC audit?

The first thing to point out is that a compliance check doesn’t only affect those trying to dodge paying tax. These checks can sometimes be completely random, or in other cases, be triggered by something, like anomalies in your financial records.

Any business can be investigated at any time, and for any number of reasons.

An audit could be triggered by discrepancies in submitted information (mismatches between your returns and HMRC’s own records, potential anomalies like low profits despite a high turnover, etc.), or by late/inconsistent filings.

There are also industry-specific risk factors, like if your figures aren’t consistent with the industry you work in.

Some sectors are likely to be scrutinised more than others (for example, those that deal in cash). But despite all this – HMRC can perform random checks on a business, regardless of whether anything has been triggered or not.

What happens?

The ultimate aim of a compliance check is to make sure your records are accurate and up to date, and a true reflection of your business activity.

As part of the enforcement strategy of HMRC, criminal investigations are carried out in extreme cases (sometimes resulting in prosecution).

That doesn’t mean everyone will be treated like a criminal, though, as there are legal limits to HMRC’s investigative powers.

As a taxpayer, you also have certain rights you should make yourself aware of – so you know what you do and don’t have to do.

The legal basis of HMRC’s authority

In order to deal with organised crime and things like deliberate tax avoidance, HMRC has to have powers similar to those of other agencies involved in law enforcement.

These powers are not unlimited, though, and HMRC must act within UK law, follow the relevant procedures, and respect taxpayers’ rights (including rights to challenge certain decisions and appeal penalties).

In this sense, criminal investigation powers are not permitted to be used in civil inquiries, like tax return inspections or routine business record checks.

HMRC’s information gathering powers

HMRC can require taxpayers to provide things like financial records, invoices, bank statements, and other information reasonably needed to check their tax position.

Generally, HMRC will want to look over several years of records, but there are limits based on the specific type of tax, as well as the reasons behind the investigation.

So, how far back can they go?

Typically:

• 4 years where reasonable care was taken
• 6 years for careless errors
• 12 years for an “offshore matter or offshore transfer”
• 20 years for deliberate tax evasion

These are the usual time limits, and which one applies depends on the behaviour involved.

HMRC can also request relevant information from banks, financial institutions, and other third parties who may be connected (subject to statutory safeguards).

Inspection and access rights

After their first contact, HMRC may ask for more documents or want a quick phone or video call. In some cases, they might ask to visit your business premises or your accountant’s office. They can’t go into any part of your home that’s used purely as a home, but if you run your business from there, that part could be included.

Is that allowed? Yes. Under Schedule 36 of the Finance Act 2008, HMRC can inspect business premises, assets and records where it’s reasonably needed for a tax check. That includes digital business records too.

Will they give me notice?

HMRC will normally agree a date with you, or give you at least 7 days’ notice. If they expect you to object, they can ask a tribunal to approve the visit in advance. Deliberately blocking an approved inspection can lead to a penalty. If it does come to this, your accountant can deal with HMRC on your behalf.

What are your rights during an audit?

We’ve spoken about the powers HMRC possesses, but what about you? As a taxpayer, you have a number of rights you should familiarise yourself with.

Apart from the obvious, like having a right to be treated fairly and kept informed, you have the right to appoint an accountant or other representative to deal with HMRC on your behalf at any point.

You’ll normally need to make your appeal directly to HMRC, but this can be escalated to a tribunal in some cases.

Penalties and consequences of non-compliance

Ideally, there will be no penalties, as HMRC won’t find anything wrong. You might even be owed repayment if it’s concluded you’ve paid more tax than you should’ve.

If you haven’t paid enough, though, then you’ll be asked to make up the difference.

HMRC might also issue a penalty, but this will depend on your unique circumstances. For example, whether it was a genuine mistake and how compliant you’ve been during the process.

Serious or deliberate non-compliance may lead to closer monitoring of future tax affairs, while serious cases involving deliberate tax fraud may lead to criminal investigations, prosecution, and even imprisonment.

Accurate and up-to-date records, as well as filing your tax returns on time, can help to reduce the risk of future compliance checks.

How should you respond to an audit from HMRC?

First and foremost, ensure you cooperate and meet any deadlines they set for you.

If your records aren’t already organised, consider investing in good bookkeeping software, as this will help streamline the whole process.

You may also wish to seek professional advice from a qualified accountant, who’ll be able to answer any questions and ensure you’re staying compliant.

Your accountant can even represent you if HMRC do decide to investigate or issue a penalty.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post What Authority Does HMRC Have In an Audit? appeared first on The Cheap Accountants.

In fact, it might even make sense for some business owners who would benefit from specialist expertise, or just want to keep their bookkeeping and accounting separate.

But having multiple accountants isn’t for everyone.

There are also good reasons to stick with one and keep everything under the same roof, as it were.

In this article, we’ll weigh up both sides to help you decide what’s right for your business, according to your own unique circumstances.

Can you have more than one accountant?

Yes, a business can use more than one accountant or accounting firm, and there’s generally no requirement to use a single firm for every accounting service.

Still, it’s important to understand who is responsible for each task in order to avoid confusion.

There’s also a difference between appointing multiple accounting firms and authorising multiple tax agents to deal with HMRC on your behalf, which can involve service-specific restrictions.

Why might a business use two different accountants?

There are lots of reasons, including using a specialist for particular services, or to separate different elements of your finances.

Using a specialist accountant for specific services

You may want to hire a tax specialist to help with complex planning, or simply to offer ongoing support. At the same time, you might use another firm for an audit or specialist advisory work in a particular area.

An example could be getting expertise for international transactions or business restructuring, or even for industries covered by specialist tax rules – such as farming.

Separating personal and business finances

The director of a limited company might decide to use one accountant for the company’s annual accounts, and another for their personal Self Assessment tax return.

This arrangement is a clean way to compartmentalise your finances, although you have to ensure both accountants or accounting firms are on the same page regarding things like salary, dividends, and benefits.

So, communication is key.

Splitting accounting responsibilities between firms

This is where one accountant handles bookkeeping and VAT returns, say, while another handles payroll, annual accounts, or tax returns.

Clearly defined responsibilities help to safeguard against possible confusion or overlap, and they also stop a single accountant from becoming overwhelmed (for example, if they had to do everything themselves).

It does mean you’ll lose out on the benefit of one person seeing the bigger picture though – or it at least makes it more complicated to achieve that.

Can two accountants deal with HMRC on your behalf?

HMRC agent authorisation is the process of giving an accountant or tax adviser permission to deal with HMRC for you.

Without this authorisation, an accountant generally can’t access your tax information or discuss your tax affairs directly with HMRC.

You can use two accounting firms, but HMRC agent authorisation doesn’t necessarily allow both to act for the same tax service simultaneously, and so appointing a new agent may replace an existing one if you’re not careful.

It’s worth noting, though, that Making Tax Digital (MTD) for Income Tax works differently. Sole traders and landlords can appoint one main agent alongside one or more supporting agents, each with different levels of access. Even so, it’s important to be clear about which firm holds which role.

What are the disadvantages of using more than one accountant?

We’ve covered when it might be appropriate to use multiple accountants as a business owner, but there are some drawbacks, too…

Confusion over responsibilities

While you can certainly try to keep everything organised, it’s not always that easy, and so you run the risk of tasks being duplicated – or even missed entirely.

What’s more, there could be uncertainty around who is supposed to communicate with HMRC, and submit things like your tax returns.

There’s also potential for conflicting advice, which obviously isn’t productive and could cause you to second-guess decisions you make in running your business.

Problems sharing financial information

Different accountants work in different ways, and so you could face difficulties trying to coordinate deadlines and changes.

They may also be working with incomplete or outdated records.

It helps to keep everyone in the loop, and this is where good bookkeeping software comes into play, enabling you to share your financial records in real time.

Bear in mind that good bookkeeping software is nothing without accurate and up-to-date records, though, so be sure to stay on top of this.

Additional accounting fees

This almost goes without saying, but hiring more than one accountant also means paying for more than one accountant, and depending on how well-organised you are, you could be paying for overlapping services.

In addition, there’s likely to be extra admin required when coordinating multiple firms, as opposed to just one.

A single provider tends to be the more cost-effective option for most routine accounting requirements.

Is it better to use one accountant for everything?

Generally speaking, it’s better to have one central contact for bookkeeping, payroll, VAT, and tax returns.

Some businesses may still benefit from specialist support in key areas, so consider your business structure, complexity, and accounting needs before reaching a final decision one way or the other.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Can I Use More Than One Accounting Firm at a Time? appeared first on The Cheap Accountants.

But that’s not all.

It’s also your responsibility to report payroll information to HMRC accurately and on time, with mistakes or missed deadlines potentially leading to financial penalties.

Before you panic, we’ll take you through the payroll information you, as an employer, need to submit – as well as how to make sure you avoid PAYE penalties.

What is PAYE?

As a quick refresher, you’ll normally need to register as an employer for the Pay As You Earn (PAYE) scheme before an employee’s first payday if they earn £96 or more per week (£5,000 per year), have another job or a pension, or receive expenses or benefits. It’s also worth noting that once you pay someone more than £96 a week, you’ll start paying employer National Insurance.

What happens after I register?

Once registered, you’ll need to:

• Make any deductions your employees owe on their wages, such as for tax and National Insurance
• Report the details of their pay and any deductions to HMRC
• Send these amounts to HMRC along with your own contributions as an employer – by the 22nd of the following month (or the 19th if you’re paying by post)

In a sense, it sees employers act as tax collectors on HMRC’s behalf.

What PAYE information do employers need to report?

You’ll need to include the details of everyone on your payroll, how much they earned that month, the deductions you made, and statutory pay, plus things like holoday or sick leave. This includes employees who earn less than the threshold which required you to register in the first place.

When do employers need to submit PAYE records?

A Full Payment Submission is normally sent on or before the employee’s payday.

You’ll send these updates each tax month, which runs from the 6th of the month to the 5th of the next month.

For example, tax month one is the 6th April to the 5th May, tax month two is the 6th May to the 5th of June, etc.

If you don’t pay any employee during a particular tax month, you generally do not send an FPS for that month.

Instead, you send an Employer Payment Summary (EPS) to tell HMRC that nobody was paid.

What happens if PAYE reports are submitted late?

HMRC may issue a late filing penalty if PAYE reports are submitted late.

This can apply if:

• An employer submits an FPS late
• Fails to send the expected number of FPS reports
• Does not send an Employer Payment Summary (EPS) when no employees were paid in a tax month

How much are PAYE penalties?

Employers who submit PAYE reports late may face monthly penalties ranging from £100 to £400, depending on the size of their workforce.

HMRC will normally not charge a penalty for the first late filing in a tax year (except for employers registered as annual schemes). There is also generally no penalty where an FPS is late but all payments reported on it have been submitted within three days of the employee’s payday.

If an employer fails to submit the required FPS or EPS, then HMRC can also create a specified charge estimating how much PAYE it believes is due based on the employer’s previous filing and payment history.

In order to replace that estimate with the correct amount, the missing report must still be submitted.

What happens if you make a mistake on a PAYE submission?

Making a mistake on a PAYE submission does not automatically result in a penalty, although employers should try to correct errors as soon as possible.

This is because incorrect information can affect both employee records and the amount of PAYE that HMRC believes is due.

If the error results in an underpayment, HMRC may add the amount to your next PAYE bill.

Alternatively, if it results in an overpayment, the amount can typically be offset against a future bill (or potentially refunded).

Penalties apply where it is judged that reasonable care was not taken, or incorrect information was submitted deliberately.

What if I stop being an employer?

Once you register, you’ll need to continue sending returns – unless you tell HMRC you no longer employ anyone and need to deregister from PAYE entirely.

How employers can avoid PAYE penalties

In a general sense, you should focus on running payroll consistently and maintaining accurate payroll records.

It’s also good practice to submit PAYE reports ahead of deadlines to be on the safe side. Things will inevitably go wrong, so you want to leave yourself some wiggle room.

If you do find that you’ve made a mistake on a PAYE submission, the important thing is to correct it as soon as possible.

For an error in an FPS (e.g. incorrect pay or deductions), employers will usually just correct the year-to-date figures in their next regular FPS.

If it was an error in an EPS, employers should submit another EPS containing the correct year-to-date figures.

Lastly, consider using good payroll software to streamline the whole process and minimise errors that could lead to penalties.

You could also hire an accountant to help manage your payroll.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post What Employers Need to Know About PAYE Reporting and Penalties appeared first on The Cheap Accountants.

So, where does this leave you? Thankfully, there are many different options available when it comes to hiring an accountant, and some are more cost-effective than others.

In this article we’ll go over what’s available.

Is it worth hiring an accountant?

Among other things, building a business from the ground up requires patience, hard work, and significant investment. Every little counts.

With any leftover money instead being channelled back into growing your business, it’s understandable you would maybe think twice before choosing to hire an accountant.

What most people miss, though, is that hiring an accountant is also an investment in your business.

Compliance and convenience

Dealing with HMRC for the first time is a steep learning curve, and managing that experience can be much easier with an accountant in your corner.

Having an accountant on call will also free up time that might be spent on your accounts for you to focus on bringing in new business or promoting your services.

Along with answering your questions, an accountant can provide specialist advisory services and spot potential financial issues before they become a problem. It goes a long way towards reducing the risk of your business being investigated by HMRC.

Not to mention accountancy fees are tax deductible when incurred wholly and exclusively for your business.

Finding an accountant

The first thing you should do is compare your options.

You’ll find that some accountancy firms operate exclusively online, offering low-cost remote services.

These services are mainly targeted at small businesses or freelancers, and offer a full range of accounting services at affordable prices.

Traditional high street accounting is still an option, too, offering face-to-face meetings and a “personal touch” that some really value.

Also consider whether you’d be fine with a generalist accountant who covers all the bases, or whether you’d benefit from hiring someone with specialised knowledge in your industry.

Checking an accountant is qualified

Regardless of the type of accountant you ultimately choose to go with, you’ll also want to make sure they’re appropriately qualified by looking out for specific qualifications.

For example, you could look for a Chartered Certified Accountant (commonly abbreviated as ACCA) or a member of the Institute of Chartered Accountants in England and Wales (ICAEW).

What are the main differences between an online and high street accounting service?

The big difference is how you actually work with your accountant – as opposed to, say, the exact services or expertise you receive from them.

Generally speaking, an online accountant provides support remotely, while a high street accountant offers a local office where you can arrange to meet in person.

There can be some overlap, though.

• Some online firms provide a dedicated accountant, who you can call, email, and video chat with
• Some local firms offer remote or over-the-phone appointments, but you won’t necessarily have an assigned accountant

As an example, The Accountancy Partnership offers remote support from your own dedicated accountant at fixed monthly fees.

You can find out more about how much an accountant really costs here.

Is an online accountant cheaper?

It can be, but you need to do your research first.

The most useful comparison to make would be the total cost of the services your business needs – rather than looking at only the advertised starting price.

Ask whether the quote includes bookkeeping, accounts, tax returns, payroll, software, and ongoing advice, or whether some of these cost extra.

It’s also a good idea to agree how often you can contact your accountant, as well as the typical turnaround times you can expect.

Some other important factors to consider include:

• Scope of work
• Charges
• Communication
• Service levels
• Qualifications
• Experience
• Reviews

Which should you choose?

As with most things business-related, it comes down to personal preference and what’s best for you based on your own unique situation.

An online accountant may be the better option if you prefer remote communication and want to avoid travelling for appointments.

On the other hand, a high street accountant is worth considering if face-to-face communication is important to you, and they may also understand specific regional business challenges.

Remember, though: neither preference should replace doing your due diligence and carefully comparing pricing structures, and as we have seen, the line between online and traditional accountant is becoming increasingly blurred as firms look to provide a personal service in a more convenient way, and at a lower overall cost.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Is an Online Accountant Cheaper Than a High Street Accountant? appeared first on The Cheap Accountants.

This is actually the first big decision most entrepreneurs face, and it’s an important one, as choosing the right legal structure for your new start-up can affect a wide range of things, from protecting your assets to how tax-efficient your business is.

Of course, there are pros and cons to any kind of business structure, so deciding which is best for you really comes down to your own unique circumstances, as well as your general preferences.

In this article, we’ll break down how being a sole trader works, explaining the key differences from being a limited company, and then walk you through the registration process.

What is a sole trader?

A sole trader is an individual who owns and runs their own business.

As a sole trader, there’s no legal distinction between you and your business, and so you’re personally liable for everything that happens, in both a financial and a legal sense.

This includes things like the business’s finances, taxes, and any debts it takes on.

How does being a sole trader work?

Well, because there’s no legal separation between a sole trader’s personal finances and those of the business, you’ll pay Income Tax on your profits, whether or not you actually use them personally.

This means that, even if you leave them in the business, you’ll pay personal tax on them.

Who can become a sole trader?

Technically anyone can if they set up their own business, but – depending on how much you earn from sole trader income – you might need to register for Self Assessment in order to pay the correct amount of tax.

Sole traders are allowed to earn up to £1,000 from self-employment (known as the trading allowance, which is increasing to £3,000 from April 2027) in a tax year before they need to register for Self Assessment and start sending tax returns to HMRC.

When do I need to register as a sole trader?

You should register for Self Assessment no later than the 5th October in your second tax year of business.

The tax year runs from 6th April to 5th April.

Failure to notify HMRC that you need to register for Self Assessment as a sole trader can result in a penalty, even if it was a genuine oversight on your part.

These penalties are in addition to any tax which might be overdue.

Why register as a sole trader?

As far as HMRC is concerned, sole traders and their businesses are one and the same.

This might mean there’s more risk for you personally due to the increased liability, but it also means you get to keep all of the profits.

Other benefits include being able to operate your business with relative privacy, as there’s no requirement for a sole trader to make information available to the public.

What’s more, there’s a limited amount of admin when it’s just you, and this saves you time in the long run.

What are your responsibilities as a sole trader?

Your responsibilities as a sole trader depend on how you need to report your income tax.

Paying tax

If you don’t qualify for MTD for Income Tax (MTD IT) yet, you’ll complete a Self Assessment tax return to HMRC each year and pay Income Tax and National Insurance on your earnings.

If your qualifying earnings mean you do need to report your earnings via Making Tax Digital for Income Tax, you’ll submit four quarterly updates, followed by one final declaration, which replaces the Self Assessment.

Keeping records

Either way, you’ll also need to keep detailed and accurate bookkeeping records, and if you are operating under MTD IT, you’ll need to use MTD compatible software.

Sole trader vs limited company: what’s the difference?

As a sole trader, there’s no legal distinction between you and your business – meaning you’re personally liable for everything that happens within it.

If something unforeseen occurs, for example, a client sues you for professional negligence and wins a financial settlement, you could end up losing personal assets to cover the cost.

A limited company works differently. As the name suggests, your personal liability is limited – any debts belong to the company, not to you as an individual.

This generally makes it a more protected structure for directors and shareholders, since business debts stay separate from personal finances.

You’re more likely to align with a sole trader business structure if:

• Your profit figure is below £30,000
• Your business is relatively low-risk in terms of potential liability
• You only have one source of income

If you’re a higher earner, or you work in a high-risk industry, it may be best to opt for a limited company – but speak with an accountant first.

How to register as a sole trader?

Sole traders register by signing up for Self Assessment with HMRC.

You can register for Self Assessment using your online Government Gateway account, or via your GOV.UK One Login – depending on which one you have.

Alternatively, if you have been registered for Self Assessment in the past, you can reactivate your registration using a CWF1 form rather than having to create a brand new account (as this can cause confusion).

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post What is a Sole Trader, and Should I Register as One? appeared first on The Cheap Accountants.

While you would traditionally go to a bank for this kind of backing, the growth of technology and online services has given rise to alternative finance options.

Peer-to-peer lending is one such example, giving business owners more choice in how they borrow and invest.

But how does this actually work, and are there any potential risks to be aware of?

Let’s take a look.

What is peer-to-peer lending?

Peer-to-peer (P2P) lending connects borrowers directly with potential investors, usually through an online platform or site.

This obviously cuts out the more traditional route of going through the bank, but the main benefit is increased flexibility, and it also gives you the chance to engage with people who are excited about whatever it is you’re trying to achieve.

An example might be someone borrowing £5,000 to consolidate credit card debt, while multiple investors each fund part of the loan.

Or investors could provide cash to a business against unpaid customer invoices.

Who is involved?

There are three main parties involved in a P2P loan:

• The borrower – the person or business that needs the money and agrees to repay it with interest
• The investor/lender – the individual or organisation that provides the money and hopes to earn interest
• The P2P platform – the online company that connects borrowers with lenders

Other parties can be involved, though.

For example, credit reference agencies, payment providers, or debt collection services if payments are missed.

How do businesses access P2P funding?

You can apply to online platforms, which will assess risk and suitability in order to determine a fair interest rate.

The loan is then listed on the platforms so potential investors can decide whether or not to get involved, and in this respect P2P is quite similar to crowdfunding.

Some popular peer-to-peer lending sites in the UK include:

• Crowd2Fund – a P2P lending platform where investors lend to UK businesses seeking finance
• Rebuildingsociety, which focuses on loans to UK small and medium-sized businesses for purposes such as growth, equipment, hiring staff, cash flow, etc.
• FOLK2FOLK, which provides loans to SMEs across sectors including retail, hospitality, farming, and leisure
• Kuflink – offers bespoke short-term commercial and property-backed lending opportunities

How is the loan repaid?

Essentially, a P2P lending platform functions as a kind of middleman between a borrower and investors.

The borrower applies for a loan, and the platform assesses the borrower’s eligibility.

The loan is then listed or allocated to investors, with the borrower receiving the money once the loan is funded.

In terms of repayments, the borrower makes these as necessary and the platform distributes them to the investors (after deducting any applicable fees).

What should businesses consider?

You may still be weighing up whether to try out peer-to-peer lending or go the tried-and-tested route of borrowing from a bank.

When assessing the potential viability of a P2P platform, you first need to do some research into its reputation to ensure it’s legitimate, and this will also give you some insight into how it operates, as well as its eligibility requirements, etc.

It’s worth knowing that some of the sector’s original big names, including Zopa, RateSetter, and Funding Circle – have since scaled back or exited retail P2P lending entirely, as tighter regulation and thinner margins made the model harder to sustain. That doesn’t mean P2P is dying – smaller specialist platforms like the ones above are still active – but it’s a sign the sector has matured and consolidated rather than simply grown.

In general, though, you should consider the advantages and disadvantages of peer-to-peer lending vs taking out a more traditional loan.

To help you out, we’ll break down the main pros and cons.

Pros

In addition to greater accessibility, P2P lending generally gives you faster access to capital thanks to a quick and convenient process that can be completed over the web.

There are also flexible loan structures, with platforms offering different repayment periods, and competitive interest rates mean there’s more choice overall.

Cons

Some borrowers will face higher interest rates (e.g. those with weaker credit scores), and some platforms may charge arrangement, administration, or late-payment fees.

In this sense – and as with any kind of loan – debt is always a risk.

What’s more, P2P isn’t always cheaper than banks, and some platforms may offer fewer repayment options than a mainstream lender if your circumstances change.

Key takeaway

It’s certainly true that P2P lending can be more convenient, but borrowers should take time to compare the total cost, fees, and repayment terms carefully before taking on a loan they may struggle to pay back.

Compare the P2P loan with bank loans, overdrafts, asset finance, grants, or other types of financial aid before committing.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post What Your Business Needs to Know About Peer-to-Peer Lending appeared first on The Cheap Accountants.

We’ll explain what MTD is, and whether it’ll affect you.

What is MTD?

In simple terms, it’s a government-led initiative to try and modernise the tax system, while also minimising mistakes in the process.

It’s arguably the biggest change since HMRC launched Self Assessment more than 30 years ago. Okay, but… how does it work?

Well, it aims to replace existing analogue processes with digital, or cloud-based, record keeping, the idea being that this will ultimately make it easier for people to submit their tax returns.

Some of the other proposed benefits include:

• The ability to review all your tax information from your personal digital tax account
• A faster, more streamlined process of submitting your information to HMRC
• Increased accuracy and fewer errors

Who does MTD apply to?

Making Tax Digital applies to all VAT-registered businesses, as well as sole traders and landlords who pay Income Tax (depending on their gross qualifying earnings).

Making Tax Digital for VAT

Compliance with the Making Tax Digital rules is mandatory for every business which registers for VAT.

Now, how exactly do you comply?

By keeping digital records, and using compatible Making Tax Digital software to submit your VAT returns.

Making Tax Digital for Income Tax

If you’re a sole trader or landlord, MTD for Income Tax may already apply to you, depending on how much you earn.

The rules are based on your gross income (your turnover before expenses) from self-employment and/or property, not your profit. If your 2024/25 return showed income over £50,000, you were required to follow the MTD for Income Tax rules since 6th April 2026.

If you haven’t yet signed up, HMRC may register you. You’ll receive a letter if this happens, although it’s usually better to sign up yourself, so you can check the details are right from the start.

Further groups will follow in stages:

• From April 2027: Those with gross income over £30,000
• From April 2028: Those with gross income of £20,000 or more

To meet the requirements, you need to digitise all records relating to your business income and expenditure, and make this a habit going forwards. You also need to submit quarterly updates using HMRC-recognised software and provide a Final Declaration by the 31st of January following the tax year it relates to.

If you’re already over the £50,000 threshold and haven’t yet set up compatible software, it’s worth speaking to your accountant as soon as possible.

Read our guide to choosing a property accountant if you need more help in this area.

How do I prepare my business for MTD?

Making Tax Digital is being rolled out in stages, so what you need to do depends on which group you fall into.

If MTD already applies to you

If you’re VAT-registered, or you’re a sole trader or landlord with gross income over £50,000, you should already be keeping digital records and sending your information to HMRC using approved software. If you haven’t got this set up yet, speak to your accountant as soon as you can so you can get compliant.

If MTD applies to you soon

If your gross income from self-employment and/or property is over £30,000, your start date is April 2027. If it’s £20,000 or more, it’s April 2028. You’re not in scope yet, but now is a good time to:

• Move your bookkeeping into digital software
• Get into the habit of recording income and expenses as they happen
• Try out quarterly reporting before you’re required to do it

What is MTD software?

MTD accounting software allows you to create digital records and make submissions to HMRC. Lots of software providers offer an all-in-one solution which can be used to both create the records and submit them.

This type of software is often hosted online, with data stored on several servers in multiple locations, meaning it’s protected from things like power outages, or hardware and software malfunctions.

A note on bridging software

In some cases, you may need bridging software to make the actual submission. Bridging software is basically just a means by which you can link your financial records to HMRC in a way that’s compliant with the MTD rules.

After all, not all digital record-keeping systems (such as spreadsheets, and even some bookkeeping software providers) include a direct connection to HMRC, so you may need a way to “bridge” the gap.

Will my accountant make sure I’m MTD compliant?

Online accounting software means you can give multiple people access to your data, simultaneously and in real time. This means your accountant and anyone else in your business is always kept in the loop and knows what’s what.

This in turn makes it easier for them to help you maintain good and accurate bookkeeping records, as there’s no need to transfer files manually. Everyone is always working on the most up-to-date versions of things, which helps in terms of collaboration.

So, yes, your accountant can absolutely help make sure you’re complying with the Making Tax Digital rules if you need to be.

What are some other benefits of digital record keeping?

We’ve established that online accounting software provides an extra layer of security, with your data being hosted on multiple servers in multiple locations at any one time, but what are some other benefits to using it?

Well, one of these would undoubtedly be increased collaboration, as every change is universal and real-time data can be seen by anyone with access.

Your data is also generally more accessible, with you being able to view it from anywhere with a secure login and access to the internet.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Are You Ready for Making Tax Digital? appeared first on The Cheap Accountants.

You may even feel like there aren’t enough hours in the day to do everything you need to.

Thankfully, while you might not be able to time travel, there are some steps you can take to free yourself up to focus on the most important tasks in your business – and ultimately stay on top of your workload.

These include coming up with a robust plan, prioritising tasks, and accepting help (in various forms).

Let’s get started.

Plan ahead

First and foremost, good financial planning and management (especially in the early stages) can help give your business a solid foundation, which will allow you to rest easy and focus on the immediate future.

The knowledge gained from undertaking thorough market research can be used to set clear goals, and this ensures your business is always making progress in the background – almost without you even having to think about it.

With the big picture taken care of, you’ll have the mental space needed to crack on with the tasks at hand, giving them the level of attention they deserve.
Speaking of which…

Prioritise tasks

If you have a to-do list, determine which tasks most need your attention and aim to tackle these first, in order of importance and/or urgency.

This is part of being well organised and should ensure you never fall behind.

Know when to delegate

Being a business owner, you may feel it’s your responsibility to handle everything yourself, and, while this kind of thinking is certainly admirable, it won’t help you save time.

Rather, you should look to delegate certain less crucial or urgent tasks (e.g. admin) to other people in your business, so you have the time to focus on the most important ones.

If you don’t already have other people in your business and feel your workload is becoming difficult to manage, you might want to consider expanding, as this will allow you to share the burden.

Outsourcing

It’s important to think about the long-term before deciding to bring on other people full-time.

For example, if your workload is just heavy right now because of a specific project, deadline or period (for example, Christmas), then outsourcing may be the smarter, more cost-effective option.

Outsourcing is where specific business tasks or functions are given to external service providers (like freelancers) to handle, typically on an ad hoc basis.

On top of saving you money, though, outsourcing generally affords more flexibility, allowing access to specialist skills if and when you need them.

This in turn can help to streamline projects, with freelancers tending to be highly experienced in their chosen field (and thus very efficient).

Make use of technology

As a business owner today, you simply can’t afford to ignore the digital tools and platforms available to you, which can be a huge help.

One of the major pitfalls of running a business is that there’s rarely enough time to handle tedious administrative tasks, like scheduling meetings, sending reminders, and keeping up with routine follow-ups.

But thankfully nowadays, something like an AI scheduling assistant can sort everything out for you, saving you precious time and freeing up your schedule for more pressing matters.

An AI calendar app like Reclaim.ai can be another nice, easy option to help you stay organised.

Generally speaking, the technical nature of AI means it’s best utilised in various admin roles and can enable you to work faster and more efficiently.

If it’s the financial side of things that’s slowing you down, consider using cloud-based software like Pandle, which offers powerful automations that eliminate the hassle of manually entering every business transaction.

Hire an accountant

The main benefit of hiring an accountant is they’ll be on call to answer any questions you might have, which saves you having to conduct your own research into HMRC’s constantly evolving rules and regulations.

Instead of trying to track down the correct information all by yourself, simply consult an expert, who will break everything down and also ensure you’re being as tax-efficient as possible.

What’s more, online accounting can significantly speed up this process, as every change to your records is universal and applies to all devices (so there’s no transferring files manually or emailing attachments back and forth).

Your data can be accessed by everyone, simultaneously, and in real time, which means your accountant is always in the loop.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Time-Saving Tips for Small Businesses appeared first on The Cheap Accountants.

That means you must’ve done something really wrong, right?

Not so fast.

There are many possible reasons why HMRC might want to take a look at the inner workings of your business, ranging from something minor to the more serious.

It certainly doesn’t help that tax jargon is confusing at the best of times.

Don’t fret, though, as we’ll explain exactly what a compliance check is, as well as why HMRC may have chosen your business specifically.

Let’s get started.

What is an HMRC compliance check?

Simply put, HMRC carries out compliance checks to ensure businesses and individuals are paying the correct amount of tax, at the right time, and claiming the correct reliefs.

They can be completely random, or they might be triggered by something in particular, for example – mismatches in your tax data.

Ultimately, the aim of a compliance check is simply to make sure your records are accurate and up-to-date, and also a true reflection of your business activity.

Why might HMRC ask to carry out a compliance check?

Contrary to what you may have thought, compliance checks don’t only affect those trying to avoid paying tax.

Any business can be investigated at any time, and for any number of reasons.

What are the most probable reasons, though?

Random checks

HMRC will sometimes perform a random check on a business, whether anything has triggered an investigation or not.

With this in mind, it’s important to remain levelheaded, as while it’s obviously scary being contacted by HMRC, it doesn’t necessarily mean there’s cause for concern.

Discrepancies in submitted information

For example, mismatches between your returns and HMRC’s own records, or involving third-party data from banks, employers, etc.

HMRC also look out for potential anomalies, such as low profits despite a high turnover, or a big fluctuation in figures.

Late or inconsistent filings

Frequently submitting your tax returns or accounts after the deadline is another surefire way to get HMRC’s attention, as is making regular mistakes on these.

Industry-specific risk factors

Another way your figures can be inconsistent is if they aren’t consistent with the industry you work in.

Some sectors are more likely to be reviewed, with cash-based businesses generally facing the most scrutiny.

Tips, reports, or external information

HMRC also sometimes receive tip-offs from individuals with inside knowledge.

An example of this could be a tip-off about company directors earning significantly more than employees (and not receiving dividends).

Alternatively, it could simply be noted that you aren’t registered with an accountant, which might raise some eyebrows depending on the size of your business.

What happens during a compliance check?

After initially contacting you, HMRC might request additional documents or ask to arrange a telephone interview.

They may even request access to your home, business, or agent’s office – though this is usually reserved for more extreme cases.

In terms of your records, there are several areas HMRC may want to take a peek at, including your bookkeeping, accounts, payroll/HR data, and your tax returns.

How far back will investigators go?

Generally speaking, HMRC will look over several years of records, but there are limits based on the type of tax and the reason behind the investigation:

• 4 years for genuine mistakes
• 6 years for careless errors
• 12 years for an “offshore matter or offshore transfer”
• 20 years for deliberate tax evasion

This is why it’s recommended that you retain financial records relating to your business for a minimum of five to six years depending on your business structure.

Possible outcomes

In an ideal world, there will be no further action required.

You might even be owed some kind of repayment if you’ve paid more tax than you should’ve.

If you haven’t paid enough tax, however, then you’ll be asked to make up the difference.

HMRC might also issue a penalty, but your own unique circumstances will be taken into consideration (especially if you made a voluntary disclosure, which is where you come forward of your own accord and inform HMRC of a mistake you’ve made).

How to respond to an HMRC compliance check

First and foremost, ensure you communicate clearly and meet any deadlines they set for you.

If your records aren’t already organised, consider investing in good bookkeeping software to help streamline the process.

You may also want to seek professional advice from an accountant, who’ll help you stay compliant and check you’re operating in the most tax-efficient way possible.

What are your rights during a compliance check?

Apart from the obvious, like having a right to be treated fairly, kept informed, etc., you also have a right to representation in the case that HMRC decides to issue a penalty of some kind. The good news is that your accountant can fully represent you (just ensure that’s something you have within your package).

You’ll normally need to make your appeal directly to HMRC, but this can be escalated to a tribunal in some instances.

How to reduce the risk of future compliance checks

Compliance checks aren’t fun, and so it’s worth doing everything in your power to reduce the likelihood of them occurring.

The two main things you can do are to keep accurate and up-to-date records (ideally using MTD-compliant bookkeeping software) and file your returns in plenty of time.

Again, you can also think about seeking professional support where appropriate.

A good accountant will keep you compliant and tax-efficient, and may even be willing to represent you if HMRC do decide to investigate.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Why Are HMRC Asking to Do a Compliance Check? appeared first on The Cheap Accountants.

No, times have moved on, and people pretty much expect to be able to purchase things online, or at the very least using their debit or credit card, if not contactless.

If you’re a business owner who has yet to make the switch to online payments, there’s simply no time to lose, and waiting any longer could result in you getting left behind.

But what exactly constitutes an online payment, and how do they work?

Also, what’s the cost involved?

Let’s take a look.

What are the benefits of online payment?

First and foremost, your business risks losing a sale if there’s no way for someone to pay via card, as they simply might not have cash on them (an increasingly common occurrence).

Like it or not, people have been conditioned to rely on online payment methods, and so carry less and less cash every year.

Being able to take card payments also means people will be inclined to spend more, as they’re not eating into any emergency cash reserves they do have.

Security is another big factor.

The reality is that businesses which deal in cash are more vulnerable to things like robbery attempts, putting staff at risk unnecessarily.

Conversely, when everything’s in the ether, it’s safe from physical threats.

Perhaps the biggest benefit, though, is simply convenience and accessibility, with online payments enabling customers to make purchases from anywhere in the world, and at any time.

This means businesses can receive payments instantaneously.

How do online payments work?

Online payment generally refers to when businesses accept electronic payments for goods or services purchased over the internet (or via card/contactless).

There are different types of online payments to be aware of as a business owner.

These include:

• Debit and credit card payments
• Bank transfers
• Digital wallets

Typically, payments go through a payment gateway and payment processor, and these authorise online payments by encrypting and transferring data securely.

Choosing the right online payment method

When it comes to choosing an online payment method, there are actually quite a lot to choose from, and some work better for different types of businesses.

It really comes down to what’s best for your business, based on your own unique needs.

With that in mind, the most common types include the following:

Credit and debit cards

These are undoubtedly the most common forms of online payment processing, mainly because of how easy they are to use.

To make an online purchase, customers simply enter their credit or debit card information into a payment gateway.

Or, if the sale is in person, they can use their pin or even just tap their card for smaller purchases (known as contactless).

Bank transfers

As the name would suggest, this method involves the transfer of funds directly from the customer’s bank account to the business’s bank account.

Bank transfers can be completed two main ways: either via online banking or with mobile banking apps.

Alternatively, they can be initiated and authorised through a retailer’s website or app.

Digital wallets

These offer a convenient alternative, allowing customers to store their payment details and make online payments quickly and easily.

Popular examples include PayPal, Apple Pay, and Google Wallet.

Direct debit

This is a recurring payment method where the customer gives permission for the business to withdraw a set amount from their bank account at regular intervals, much like a subscription.

Cryptocurrency

Crypto is a digital currency that can be used to make online payments in certain countries.

Although this is a newer option, it’s becoming more and more popular, and regulations around it are constantly evolving.

Setting up a payment system

For businesses, choosing the right online payment processing provider is key to being able to accept online payments.

There are some important factors to consider when looking for one, though.

For example, you’ll want to look for providers that offer advanced security features like fraud detection and prevention, as well as data encryption.

You’ll also want to consider the costs (transaction fees, setup fees, etc.) and also check how easily the payment processor can be integrated into your website or e-commerce platform.

Depending on the size of your business (and your plans for future expansion), you may also need a provider that supports multiple currencies and languages.

Popular online payment platforms and tools

Generally speaking, you’ll find that most online payment processors share similar features, and so your final choice is likely to be based on which you think best aligns with the unique needs of your business.

Whichever route you go down, the goal is the same – to make it as easy as possible for customers to hand over their money. Weigh up your transaction volumes, your customers’ preferred payment methods and how much control you want over fees and contracts, then pick the provider that suits you best. It won’t always be the one with the flashiest offer.

Get the basics right, and online payments stop being a technical hurdle and start being what they should be – one less reason for a customer to walk away.

Let’s compare some of the best payment processors for businesses in the UK to give you somewhere to start.

WorldPay

• Offers specialist payment packages for small and medium-sized businesses
• Supports a wide range of global payment methods
• A choice of countertop, portable, or mobile card machines
• Pricing split into two main tariffs (Simplicity and Custom), usually tied to an 18-month terminal hire agreement

Revolut Business

• Provides a wide range of payment processing solutions for small businesses, including in-person card readers, a free POS app compatible with iPhones, Macs, etc.
• Gives you the ability to accept online payments in up to 32 countries
• No hidden fees, and no set-up charges
• Fast access to money with 24-hour settlement, even on weekends
• To use Revolut Business’s payment solutions, you will need an account
• Prices start from £10 per month

Tide

• Banking and payment solutions for small businesses, including card readers, online payments, and Tap to Pay
• Standard and Plus card readers, both of which have Wi-Fi and lifetime free 4G connectivity
• Plus model allows you to print receipts
• You can rent or buy the device
• Alternatively, you can choose the pay-as-you-go model, with no monthly fees but an upfront cost of £159 and transaction fees from 1.39% + 5p

PayPal

• Offers a point-of-sale, card reader, invoicing, and an ecommerce platform
• Allows you to manage your inventory, send abandoned cart emails, and track your performance with real-time sales analytics
• Compatible with iOS and Android, accepting Samsung, Google, and Apple Pay
• 1.75% transaction fee
• Custom rates for businesses that take over £10,000 every month

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post How Do I Take an Online Payment? appeared first on The Cheap Accountants.