In this article we look at what financial support is available to self-employed business owners who work from home.

Types of tax relief to claim when working from home as a self-employed worker

There is a whole array of tax relief available for self-employed workers, including part of the running costs of your home if that’s where you work from. Claiming can help keep cash flow healthy as well as your stress levels at bay.

What’s absolutely crucial when claiming any expenses is that you only claim the portion which relates wholly to your business. We cover this further in our article about claiming allowable expenses!

Typical examples of costs you can claim when working from home

• A portion of mortgage interest on your home (not including capital repayments)
• A portion of your rent, if you rent your property from a landlord
• Gas and electricity costs (heat and light) for the rooms which you use when working for your business
• Telephone and internet connection (based on a split between business and personal use)
• Repair or maintenance of a room that you use specifically for your job, such as a home office. You might also be able to claim for a portion of repairs or maintenance on the whole property, such as the roof. You can’t claim on a room which you don’t use for your work at all (e.g. the bathroom).

Claiming for water bills when working from home

Unfortunately claims for working from home don’t include water bills if your usage is only on a minor day-to-day basis.

Some businesses, such as a car washing service or home-working hairdresser, do require significant water usage. In this case you’ll need to apply to your provider for a separate charge, and then claim back the cost.

Calculating expenses for working from home

There are two methods to choose from when it comes to working out your self-employed WFH expenses:

• Simplified expenses: Use HMRC’s flat rate to claim tax relief based on how many hours you work from home per month
• Cost method: Work out what it actually costs you to work from home, so you can claim your business expenses accurately

Let’s break each of these methods down in more detail so you can make an informed choice on how you want to calculate and record your working from home expenses.

Simplified expenses

This is often the quickest and easiest way to calculate your claim for business expenses if you work from home. HMRC set flat rates based on how many hours you work from home:

• 25-50 hours of business use per month: Claim £10 flat rate per month
• 51-100 hours per month: £18
• 101+ hours: £26

The number of hours of business use might vary from month to the next – so be sure to keep records! For example, if you worked 30 hours from home one month (£10 flat rate) but 60 hours another month (£18 flat rate), you could claim a total of £28 for those two months.

The downside is that the simplified expenses method can only be used by those who work more than 25 hours per month from home. So, if you run a side hustle in your spare time and spend fewer than 25 hours WFH, this might not be the best option for you.

Plus, it’s important to note that the flat rate scheme used for the simplified expenses method doesn’t include telephone or internet expenses. You’ll need to calculate your actual usage using the cost method in order to claim these.

It’s also worth working out your actual costs anyway. HMRC’s flat rates may not be enough to cover your actual costs, so check which method if most appropriate for your business!

Cost method

The cost method can seem a bit more complicated, because you’ll need to figure out what part of your household bills are incurred as a result of your business operations. This method is a good option if:

• You work from home less than 25 hours per month
• You want a more accurate representation of your actual WFH costs
• You need to work out and claim a portion of telephone or internet expenses (as these costs cannot be recorded using the simplified expenses method)
• Simplified expenses flat rates aren’t enough to cover the costs incurred

This method of calculation also helps you understand where the costs are in your business, which is always good news for budgeting and cash flow.

An example of the cost method in action

If you have a house with 4 rooms and one of them is your home office, 25% of your home qualifies as being directly related to the running of your business.

So, if your gas bill for the month is £100, you could claim 25% of this as an allowable WFH expense – £25.

If more than one person uses the space, you will need to divide any allowable expenses between you – you won’t be allowed to each claim the full amount!

Looking for further support for your business? Head over to our info hub where you’ll find a whole host of helpful resources.

The post How Do Self-Employed People Claim Expenses for Working from Home? appeared first on The Cheap Accountants.

Outsourcing can do more more than just save you money, though. In this article we’ll look at the benefits of outsourcing tasks, and how to find freelancers to do the work.

What is outsourcing?

Outsourcing work means specific business tasks or functions are given to external service providers (usually freelancers) to handle, rather than the work being completed in-house.

It often gives you more choice and flexibility, allowing access to specialist skills if and when you need them.

Different types of outsourcing

There are actually a few different types of outsourcing to be aware of, such as:

• Outsourcing key business-related functions like marketing
• Business Process Outsourcing (BPO) (for example, payroll or customer support)
• Information Technology Outsourcing (ITO)
• Knowledge Process Outsourcing (KPO) – usually highly specialised functions such as accounting or research

Why outsource?

Like anything, there are pros and cons to outsourcing. It can be more cost-effective than hiring a full-time employee, particularly if it’s only for a short-term project.

You won’t need to worry about additional costs or responsibilities (like making pension payments and National Insurance contributions, or arranging Employer’s Liability Insurance).

It can also be faster. Outsourcing a task to someone who specialises in that specific function is likely to mean they’re highly experienced and able to be very efficient.

More broadly, outsourcing gives you access to a large range of skills, many – or even most – of which may not be available to you in-house.

Can I outsource for long-term projects?

Lots of businesses outsource tasks on a long-term basis – such as accounting or legal services, or you might have longer projects which you need help with. Just be careful around the IR35 rules if you do hire a freelancer who comes to sit in your office every day as if they were a regular employee. It can muddy the waters around disguised employment, and that can have tax implications for both of you!

How do I find freelancers?

Most online job sites will simply let you advertise for freelancers, but there’s always the option of looking on freelance marketplaces..

For example, if you’re looking for project-based services you can check out Fiverr, or if you’re looking for a few freelancers that work in a wide range of fields, you might look at Upwork.

These can be a great resource, providing access to hundreds – if not thousands – of available freelancers looking for work.

Most freelance marketplaces even allow you to filter for the exact skills and experience level you’re looking for.

How do I choose a freelancer?

Even once you’ve found some potential options, you still have to make a choice between them. Generally speaking, it’s important to consider things like cost and flexibility.

The idea of selecting the right expert to work with can be daunting if it’s not an area you’re familiar with. After all, that might be why you’re hiring them! It’s usually worth looking at their portfolio or other examples of clients and work, and asking for any testimonials.

Check their portfolio

If you’re struggling to decide whether or not to hire a particular freelancer, previous examples of their work can be very helpful, giving you a tangible idea of what they’d bring to the table.

While a more generalised approach to freelancing may work for those with a diverse set of skills, you typically want to pick someone who specialises in exactly the kind of work you’re asking them to do.

In other words, you want a specialist, not a generalist.

A solid portfolio serves as proof that a freelancer knows what they’re doing, whereas an absent one may be a sign that they’re relatively new (and therefore lack experience).

Look at their track record

In a similar way, testimonials from previous clients are a good sign a freelancer can be trusted to follow through and get the job done.

Hiring someone obviously comes with a high degree of risk, and so any reassurance you can get is vital. If a freelancer is able and willing to give you past case studies to look over, that’s an even better sign.

Get in contact with them

This is a good way to test how responsive they are. Simply shoot them an e-mail and see how long it takes for them go get back to you.

If they take a while, that could be a sign they’re either too busy or don’t see freelance work as a priority. But be fair – they might be away, or this might be a one-off! Either way, it’s a window into how your communication could go if you were to hire them.

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

The post How Outsourcing Can Help Your Small Business appeared first on The Cheap Accountants.

There are lots of considerations to make, and so, naturally, it’s easy to overlook things. One thing you may have overlooked is whether or not you would benefit from hiring an accountant.

To help you decide, we’ll break down the process of becoming a sole trader, your legal responsibilities, and how an accountant might help.

What is a sole trader?

Let’s start with the basics. A sole trader is just someone who runs their own business as an individual.

There’s no legal distinction between you and the business with this type of structure, so you’re personally liable for anything that happens. This is both good and bad – depending on your circumstances.

Considerations about being a sole trader

On the one hand, your personal assets might be at risk if the business struggles because there’s no distinction beween you and your work. On the other, you get to keep any profits for yourself once you’ve paid income tax and National Insurance. But, you’ll be taxed on them even if you leave them in the business.

It’s relatively easy to get yourself set up as a sole trader, with fewer rules and paperwork than if you were to use a different business structure.

Do I need to set up as a sole trader?

It depends! If you earn less than the Trading Allowance (£1,000) in self-employed income, you might not need to tell HMRC or pay tax on this. You can claim the Trading Allowance even if you have other sources of income, too.

If you do need to set up a sole trader business, make sure you inform HMRC by 5th October in your second tax year. A tax year runs from 6th April to 5th April the following year.

How do I pay tax as a sole trader?

Right, so… You’ve set up as a sole trader and you get more than £1,000 of trading income in a tax year. Now what?

Well, you’ll need to start submitting tax returns to HMRC so you can pay income tax and National Insurance on the profit you make.

What sort of tax return do sole traders need?

This depends on how much you make in total from self-employment and/or property income in a tax year. You’ll normally start by submitting Self Assessment tax returns.

Over time, you might also need to consider Making Tax Digital (MTD) Income Tax. As it continues to roll out, MTD Income Tax will gradually replace Self Assessment for some people.

Those affected will need to keep their income tax records digitally, and share this information with HMRC on a more frequent basis using compliant software.

• You’ll use MTD to report your tax from April 2026 if you earned more than £50,000 as a sole trader and/or rental income in the 2024/25 tax year
• In April 2027, the earnings threshold to start complying reduces to £30,000 earned in the 2025/26 tax year
• From April 2028, it’s £20,000 for the previous tax year

How do I make a tax payment?

HMRC will calculate your tax bill once you submit your return. There are many methods you can use to pay, including HMRC online, Direct Debit or bank transfer. If you work for an employer and have a sole trader business on the side, you may be able to pay your self-employed tax bill through your PAYE tax code.

The deadline to pay is 31st January each year (the same as the deadline to submit your tax return for the year). If your tax bill exceeds £1,000, you’ll need to make ‘Payment on Accounts’ – which essentially splits your tax bill in two halves. The second tax payment deadline is 31st July.

What are my other responsibilities?

You want to . This will be essential in helping you fill out your tax return, and will also help you to claim tax relief without forgetting about any allowable expenses.

Do I need an accountant?

Having an accountant can be extremeley reassuring. They’ll:

• Help you set up processes for keeping clear, up-to-date financial records – known as bookkeeping
• Advise how to optimise any tax reliefs and allowances, and make sure you’re claiming any allowable expenses
• Suggest software you can use for bookkeeping, or for MTD compliance if this applies to you

There are lots of different types of accountancy services available, so take your time to understand exactly what sort of support you need, and make sure your accountant is appropriately qualified.

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

The post Do Sole Traders Need an Accountant? appeared first on The Cheap Accountants.

Known as ‘appointing a paid agent’, it basically means delegating to a professional who will then liaise directly with HMRC about your finance and tax-related matters.

Who can be an agent for me?

Paid agents can be tax advisors, solicitors, or accountants, but you can authorise almost anybody to act on your behalf when it comes to dealing with HMRC, including family members and friends.

This type of agent is known as a ‘trusted helper’.

Although you have a number of options when it comes to who you can appoint as your agent to deal with HMRC, there are advantages to selecting your accountant for the role.

What can my accountant do as an HMRC agent?

An appointed agent can act on the taxpayer’s behalf for different types of tax, such as Corporation Tax, VAT, PAYE and Self Assessment – you might even have different agents for each one.

Simplifying processes and communication

Communication with HMRC can involve anything from queries and requests for information, to payment notices and deadline reminders. Appointing your accountant as your agent means the majority of this correspondence can be filtered through them.

This can make life a lot easier, leaving your agent to relay information to you as needed (and translated into plain terms, rather than scary-sounding HMRC speak).

Audit representation

If HMRC decide to audit your accounts or launch an inspection, your accountant will be able to make sure everything is in order, and talk you through what’s happening. An HMRC audit can be a daunting prospect, so having a professional in your corner can be a valuable source of confidence and support.

Compliance and strategy

As well as helping you stay on top of all your deadlines, your accountant will make sure you remain fully compliant with HMRC at all times.

They’ll also be able to help you optimise your tax efficiency, improve your financial reporting systems and save costs in line with all of the necessary rules and regulations.

Save yourself some time

As well as the tools of the trade that an accountant can bring to the table as your paid agent, there is also the overall benefit of significant time-saving – gold dust for business owners, right?

Having a professional at the helm of any back-and-forth with HMRC means you can focus on other things, like growing your empire. It also reduces the risk of any errors or confusion along the way, which, again, buys you back invaluable time and fends off financial penalties.

Keep stress to a minimum

All the above benefits combined make for a far less stressful relationship with your taxes and HMRC. Entrusting your accountant takes the pressure off you in exchange for peace of mind that your tax affairs are being dealt with by those who know what they’re doing.

How to appoint an accountant as an agent

The first thing to do is check your accountant meet HMRC’s standards for agents.

If you’re satisfied these standards are met, the next thing you need to do is provide your chosen agent with permission by appointing them through one of HMRC’s official authorisation processes.

Your agent will be able to guide you through whichever method is best for you.

Authorising your agent with a 64-8 paper form

A 64-8 form can be used to authorise an agent to deal with Self Assessment, partnerships, trusts, tax credits and people being paid via the PAYE system. It’s also used for VAT and for Corporation Tax.

You and your accountant can work together to make sure all the necessary fields are filled in before you send it back to HMRC to process.

Authorise access to your accounts online

Your accountant can apply for access to your tax accounts through their own HMRC Agent account.

This process will generate an agent code for each tax type they’re dealing with for you, which will be sent to your registered business address. Share these codes with your accountant so they can complete the authorisation on their end and start acting on your behalf.

Grant access through your tax account

If you’d prefer to grant your accountant access to act as your paid agent yourself, you can do this through your business tax account by signing in using your Government Gateway or One Login.

Note: You will need to be set up and registered for HMRC Online Services for this method of agent authorisation.

A ‘digital handshake’

This is where your agent sends a link for you to click that will digitally authorise them to deal with HMRC on your behalf.

What happens after I appoint an agent?

Once somebody, such as an accountant, has been appointed as an agent ready to act on your behalf, you can arrange for them to receive most of your correspondence with HMRC. There are a few exceptions to this, including your tax bills and any refunds you’re eligible for.

Removing an agent’s access

If you no longer wish for somebody to have access to your accounts or act on your behalf as an agent, there are two ways you can undo this:

• Go to your HMRC business tax account (if you have access to this) and remove or swap the agent
• Contact HMRC over the phone or via post, and they will be able to guide you through the agent removal or replacement process from there

Your responsibilities as a taxpayer

Appointing a representative agent is useful but you (the taxpayer) are still ultimately responsible for reporting and paying your own taxes.

That’s why it’s so critically important to have a communicative relationship with your trusted agent(s) and provide them with honest, detailed, and up-to-date information.

It’s also essential to review all documents and tax returns that are shared with HMRC on your behalf to ensure that your records are accurate and compliant. If they aren’t, you’ll be the one dealing with the repercussions, such as financial penalties, not your agent!

 
Looking for more business support? Head over to our info hub for the latest news and handy resources.

The post Can My Accountant Deal with HMRC for Me? appeared first on The Cheap Accountants.

Tracking these costs is a crucial (albeit sometimes complicated) part of running and growing your business – not least because it enables you to take advantage of tax relief on allowable expenses, so you only have to pay tax on your actual profits.

You might be wondering the best way to go about calculating and managing your business expenses and the good news is that you’ve got options if you’re a sole trader, and can work them out either based on the actual cost, or using a flat rate. The one we put under the spotlight here is the flat rate method.

Are flat rate expenses and simplified expenses the same thing?

Yes! The terms are sometimes used interchangeably, but they both refer to the same method of working out your expense claim. The name ‘simplified expenses’ was given to this method because it is, quite literally, a simpler way of doing things thanks to the easy flat rates that are applied.

How flat rate expenses are different to working out actual costs

Flat rate expenses are designed to streamline the process of submitting tax relief claims for a set amount of business-related costs each year. A good example of this is if you need to work out the cost of using a personal vehicle for work trips.

Using the ‘actual cost’ method means taking into account every cost you want to claim for, such fuel, insurance, and so on. Claiming a flat rate means you can multiply the number of miles you travel on your business trip by the flat rate which is set by HMRC for mileage.

Can anyone use the flat rate method?

Simplified flat rate expenses can only be used by sole traders or business partnerships that don’t have any limited companies as partners.

What can I use flat rate expenses to claim for?

There are three specific categories of business costs that flat rates can be used for if you’re self-employed:

• Living at a place of work
• Vehicle costs
• Working from home

We go into more detail about the rates and how to apply them below.

Flat rates for living at a place of work

If your business premises are also where you live, you can claim flat rate expenses based on how many people live at the property. The current rates are set at:

• 1 person: £350 per month
• 2 people: £500
• 3+ people: £650

Driving a business vehicle

If you have a vehicle that you use for business purposes (for example, you’re a mobile hairdresser who travels to meet clients), you can claim flat rate expenses on the miles you travel each year for work.

The flat rates for driving a business vehicle are currently:

• Cars and vans: 45p per mile for the first 10,000 miles you travel in the year, and then 25p per mile after that
• Motorcycles: 24p per mile

If you employ staff, they may also be able to claim these flat rate expenses, providing they meet the necessary criteria.

Working from home

Flat rate expenses are particularly handy for those who work from home for more than 25 hours a month. You can simply apply one of HMRC’s flat rates according to how much you use your home for work purposes or business-related activity.

The current flat rates for working from home are:

• 25-50 hours per month: claim £10 expenses per month
• 51-100 hours per month: claim £18 expenses per month
• 101+ hours per month: claim £26 expenses per month

It is important to note, however, that flat rates don’t cover internet or telephone costs when calculating expenses for working from home.

What are the benefits of using simplified expenses if I’m self-employed?

You have up to four years to apply for flat rate tax relief, so if there are any periods you’ve missed, go back and make sure you’re claiming all the relief you’re entitled to!

Using simplified expenses to work out your claim for tax relief does have some advantages:

• Less time and effort spent calculating and recording expenses means more time to focus on growing your business and striking a healthy work-life balance
• When the process is quicker and easier, there’s less chance of making mistakes – which is good news for the accuracy of your tax return!

Is it the best method for you?

Although there are many benefits, it’s important to consider whether claiming expenses using the flat rate method is the most financially efficient option for you.

It might be quicker and easier, but if your actual costs are considerably higher, then applying this method could mean you lose out on tax relief you’re entitled to.

The government has a handy calculator that can help you check whether or not flat rate (simplified) expenses will help save your business money.

Other ways to calculate expenses

When you don’t want to use a blanket flat rate method, or when you can’t, you can use what’s called the ‘costs method’, or ‘actual costs’.

When working from home, for instance, it means you have to divide your household expenses by the proportion which relates to your business so that you only claim expenses relating directly to work use.

For example, if you have a property with five rooms and one of those is your home office, a fifth of your property is used for business-related activity. So, if your electricity bill for the month comes to £500, you can only claim £100 (a fifth) as an allowable expense.

That said, it may be the case that using actual costs allows you to claim the most tax relief and operate your business in the most tax-efficient way.

We’d always recommend asking an accountant to help you figure out what the recommended course of action is for you.

 
Managing expenses can be tricky, especially if you’re new to running your own business. Check out our accounting support hub for more help, or to ask a tax question!

The post What Are Flat Rate Expenses? appeared first on The Cheap Accountants.

Nobody expects Mary Berry to be able to make waves with her mind, in the same way you’d never ask Aquaman to bake you a birthday cake. We’ve all got our own skills and superpowers but it’s crucial that we also accept our limits. One of the many myths of outsourcing is that the quality won’t be as good as doing it yourself, but this isn’t always the case.

Outsourcing can often help you hire in talent which you might not otherwise be able to afford (or need) on a long term basis.

We’ll share some tips on how to hire an expert if you need to outsource tasks from your business or as part of a project.

Decide where to look

The first step in looking for an expert? Look in the right place! For example, you might go to a freelancing platform like Fiverr if you need a content writer, or use Checkatrade for a roofing contractor.

It will help focus your search, which is a starting point.

Describe what problem you’re trying to solve

Giving the solution to the problem you’re hiring someone for can suggest you already have a very particular goal in mind. If this isn’t the case, and you need their expertise to work out what the best outcome could be, describe what you’re trying to achieve and any constraints instead.

That way, it becomes their responsibility to design the solution – which is exactly what you’re hiring an expert for!

How do you know you’re hiring an expert?

So, you’ve acknowledged a gap in your skillset, and recognised you need help from somebody more qualified or experienced. How can you identify a field expert when you aren’t one yourself? As a business owner or employer, this can become a bit of a stumbling block when it comes to finding the right person.

A common example of this is SEO. You know you need it to climb the search ranks and boost your small business marketing, but you don’t know where to start. When something feels like one big mystery or a foreign language, it can then be hard to work out whether the person you’re hiring knows what they’re talking about.

Fortunately there are several steps you can take to make sure you’re hiring the right person.

Ask for references and a portfolio

This is where it’s so important to do some research! Check out their portfolio, reviews, and reputation in as much detail as you can. You might not become an expert in the field within the hour but you will at least have a better understanding of the basics.

The best way to build a character profile and get a good idea about whether somebody is the expert they claim to be is to experience what they do first hand. Ask to see some examples of past work, case studies and testimonials from previous clients or employers before committing to anything. This is particularly useful for creatives like marketing experts.

Check their qualifications and professional memberships

In some cases it’s a legal requirement that the person carrying out a particular task is accredited or qualified by a professional body. For instance, gas appliances can only be installed by a gas safe engineer.

Some professions, such as accounting, aren’t a protected industry. Unfortunately this means that anyone provide accountancy services, so make sure they have the type of qualifications, accreditations, and experience that you need. Read our guide to hiring a qualified accountant.

Get a second opinion if you need one

Outsourcing doesn’t tie you to using one firm or person forever after. If you need to get a second opinion or several quotes, then you’re well within your rights to do so!

If you do end up using someone for a larger project, why not split the job up into smaller milestones – each with their own milestone payment? That way you can get out of there if you need to, without committing too much upfront or getting tied up in a contract.

Beware of sales patter

Most genuinely experienced and knowledgeable experts will be very honest that they don’t know everything – how could they? With that in mind a few potential red flags could include:

• An aversion of “not sure but I can find out”. This raises all sorts of questions about whether they actually know what they’re looking for, or what sort of value they might be able to offer you.
• Not giving you options, or explaining what the trade-offs might be to reach a particular outcome
• They use a lot of jargon without explaining what any of it means. Okay, so you’re hiring an expert – it’s their job to understand this stuff! They don’t need to dazzle you with science.
• They don’t ask any questions at all. You might have given a supremely detailed brief, but if they jump straight into sales mode rather than asking about your own unique circumstances, then they might be selling something more formulaic than the expertise they’re claiming to have.

 
Find more business guides and resources in our information centre, including help with finding a cheap accountant.

The post How to Hire an Expert When You Aren’t One appeared first on The Cheap Accountants.

Basically, yes – you can run a limited company and be a sole trader at the same time. What is crucial though, is that as well as keeping your personal and business finances separate, you’re really careful to keep the two businesses totally separate. That means two separate entities, not one business that’s been split in two.

That’s not just us being precious about the bookkeeping either, there are actually several very good reasons for keeping a clear divide between your business, including the lurking presence of HMRC.

We’ve prepared this guide to give you an idea of the basics, but it might also be worth chatting to your accountant about your business structure.

Making it clear that you’re not ‘artificially separating’ your businesses for VAT purposes

When a business approaches the VAT registration threshold (which means that turnover is getting near the magic £90,000 mark), it’s required to register for VAT.

Sole traders with multiple businesses work out their turnover for VAT on the basis of all their sole trader incomes combined, because there’s no legal separation between a sole trader and their business. Limited companies are an entity in their own right, so they work out their turnover for VAT separately.

Some business owners might feel tempted to split their business up, thus dividing the turnover, and therefore getting rid of the need to register for VAT. Don’t do it.

Avoiding tax avoidance!

If HMRC get even the slightest whiff that you’re trying to avoid VAT by splitting two businesses in order to stay below the VAT threshold, they’ll be all over you like a rash. This is particularly the case where both businesses are in similar industries.

Recording finances and claiming expenses correctly

On a very practical level – you need to make sure that any expenses you claim (bills, travel costs, broadband etc) are attributed to the right business. You could end up with one heck of an accounting headache otherwise!

For example, say you were to claim all your travel expenses through your sole trader business but use it for your limited company work half the time. HMRC could then disallow half the costs you’d claimed, and hit you with a bill for the additional tax – plus penalties.

Be clear what work each business does

In keeping the businesses separate, make sure you’re really clear what work was carried out by which business.

Perhaps all current clients will go through your sole trader business and from now on new ones will go through the limited company. Or maybe you’re a limited company providing kitchen worktops, and a sole trader who does photography.

Unless you clearly document your invoices, including making it clear which business they belong to, HMRC might decide it’s time for an audit.

Should I switch from being a sole trader to a limited company?

The only way to answer this question is to weigh up the pros and cons of being a sole trader versus incorporating the business to become a limited company.

The way you run your business, its turnover, and your personal circumstances, will all be major factors in deciding how to structure your business. You might also find it useful to chat to an accountant about choosing the most appropriate business structure first.

Operating as a limited company

When it comes to setting up as a limited company there are some distinct advantages and disadvantages to think about. One of the most common considerations is around the idea of risk.

Risk

Some businesses are more financially risky than others, so it might make more sense to register as a company because this limits the extent to which you’re personally liable for business’s debts. If the company goes belly up, you won’t start losing personal assets beyond anything you’ve already put into the company.

Tax efficiency

Depending on the level of turnover, and how you pay yourself from the business, it can sometimes be more tax efficient to operate as a company.

As a director and shareholder you can choose to pay yourself in dividends as well as a salary. The great thing about dividends is their lower tax rate, their exemption from National Insurance, and an additional dividend allowance on top of your personal tax allowance.

It all depends on what else you have going on though, so again – it’s well worth talking to your accountant!

Protecting a name

Registering a limited company is quite a formal process, and the company name must be unique. Once registered, no one else can use it so this can help protect your company’s name as a brand. The only way a sole trader can do a similar thing is if they trademark their name.

Operating as a sole trader

Some people see being a sole trader as a more attractive option because it’s simpler and faster to register the business with HMRC.

Admin

There’s also very little paperwork in setting up as a sole trader. Whereas company directors need to think about the Company Tax Return as well as their own Self Assessment, along with submitting annual accounts.

The main thing you need to do as a sole trader is your Self Assessment tax return.

Paying yourself

You won’t need a PAYE scheme to pay yourself a director’s salary, or a separate business bank account, or to go through the official process of issuing and recording dividends. As a sole trader, you can keep all your own post-tax profits yourself.

Privacy

The details of every limited company, its directors, and the people with significant control of it, must all be recorded publicly on the Companies House website. Sole traders don’t have to do this, so operating in this way can give you a little more privacy.

Liability

The downside of working as a sole trader is that you and your business are legally one and the same. That is to say, you’re personally liable for any business loans and debts the business runs up if things go pear shaped.

Your own assets, like your house, car, or any cash savings, are also at stake. That’s why being a limited company is such a draw because you quite literally have limited liability.

Funding

It’s also often more difficult to raise funding and gain investment as a sole trader, which can make growing your business tricky. Lenders – especially banks – tend to see limited liability companies as less risky and often shy away from sole traders.

Choosing the structure that’s best for your business

If there are very strong reasons for separating different business ventures (and you truly keep them separate) this is generally acceptable. Just remember that HMRC will be on the lookout for businesses who deliberately cherry-pick the best bits from each structure in order to avoid tax.

There are pros and cons to being a sole trader and for limited companies, so do your research, and don’t be afraid to ask questions!

 
Looking for an accountant to help you? Compare accountancy packages to get started.

The post Can I Be a Sole Trader and Operate a Limited Company? appeared first on The Cheap Accountants.

We’ve spoken many times before about the benefits of hiring an accountant to help your business be as tax-compliant and tax-efficient as possible. That said, affording the cost of an accountant is another kettle of fish, especially if you’re just starting out or hitting some financial struggles.

So, if you can’t afford to add an accountant to your outgoings, what are your options? After all, your tax returns are still going to roll around each year regardless.

In this article we explore your options if you can’t currently pay to hire an accountant. Don’t worry, there’s still plenty of help out there to keep you on top of your taxes with as little stress as possible.

Reach out to HRMC if you have tax questions

If you have any simple queries, you can contact HMRC online or call them to see if they can guide you.

HMRC also provides a whole host of different online resources to help taxpayers of all shapes and sizes. On the website, you’ll find things like free webinars and videos, tax return guides and handy tax calculators, all designed to support you.

Explore HMRC’s Tax Help hub.

Get in touch with TaxAid

If HMRC can’t help you out, your next stop should be TaxAid. It might also be your first stop if you’ve ever tried to look at one of HMRC’s tax manuals! TaxAid gives free, independent and confidential advice to low-income UK taxpayers aged under 60 or who are self-employed. It aims to make all things tax easier to follow and understand as a business owner who can’t afford the cost of leaving it all to the professionals.

It also supports those who:

• Have physical or mental health issues
• Struggle with addiction
• Have undergone traumatic or life-altering events
• Have poor communication, numeracy and/or literacy skills

You can call TaxAid’s dedicated helpline if you need some assistance: 0345 120 3779.

Use free online guides, templates and tutorials

The internet is full of free resources you can use to navigate your self-employed tax and accounting responsibilities. It can also be a bit too full of advice, at times. Do your homework and only use resources and guidance from sources you know are reliable. It’s also important to make sure you consult resources from the correct country! The tax rules in the UK are different to those in the US, for example.

Take advantage of free accounting advice

Even if you can’t afford to hire an expert, Google has got your back. Or rather, the fantastic accounting firms out there that are open to sharing free advice and resources online to help people in your situation.

A great example of this is the Ask an Accountant feature offered by The Accountancy Partnership, where you can ask a qualified accountant a tax question for free.

Some firms will offer things like consultations to support you without having to commit to paying for the full service.

Take a course in accounting basics

If you think you may not be able to afford an accountant for the foreseeable future, it could be worth equipping yourself with the basic accounting skills you might need.

There are dedicated course websites like Coursera, the Open University, Udemy and edX but YouTube is also a great place to browse for free but valuable learning content.

A course may require an initial investment as some will be paid but there are plenty of free versions available. Even if it does come with a price tag, it could save you a lot of money in the long run. You might be able to claim the cost as a business expense, by deducting the amount from your total income when you submit your tax return to HMRC.

Use free bookkeeping software

Good bookkeeping habits are the foundations of accurate, timely and low-stress accounting, so finding free bookkeeping software will make your life a whole lot easier.

Don’t be afraid to ask for help

If you are in a position where you can’t currently afford the cost of an accountant, don’t be nervous about reaching out for help. There are so many other business owners in exactly the same boat, which is why there are so many brilliant free resources out there!

Don’t be afraid to speak to other business owners you trust about general advice or help with specific tax-related topics. They may be able to show you how to do something, help you understand something you’re confused about, or point you in the direction of some other great tools and resources they rely on themselves.

If you don’t have a trusted network of like-minded business owners, you could consider joining a business support group or look on social media platforms like Facebook or LinkedIn. There you’ll find communities of people just like you, with questions just like yours.

 
Managing your taxes yourself can be tricky, especially if you’re not familiar with the rules! Check out our accounting support hub for more help, or to ask a tax question for free.

The post What Can I Do if I Can’t Afford an Accountant? appeared first on The Cheap Accountants.

Taking money from the business as a sole trader versus as a limited company

As a sole trader, your business and personal finances are effectively one and the same. That means that any profits the business makes are simply yours to keep, so withdrawing money from the business is pretty straightforward in terms of accounting.

With limited companies it’s different. The business is a separate legal entity, so you can’t just take money out without following a set process. Normally you would take money out of the company:

• As a salary
• In the form of dividends
• To reimburse business expenses that you paid from your personal account
• As a director’s loan

As you can see, taking cash isn’t illegal, but it’s crucial that you have clear cut audit trails. Otherwise, mixing up personal and business transactions can easily get you in a muddle. In this quick guide, we’ll briefly look at why and how you might take money out of your business for personal use.

Drawing a salary from your business

Paying yourself a salary a common way to take money out of your limited company regularly. It’s up to you how much you pay yourself, but lots of directors tend to pay themselves a tax-efficient combination of a lower salary and then dividend payments.

As a sole trader you can still pay yourself a regular salary, but it’s usually not necessary to set up payroll if you’re the only person in the business. Instead, you could just take the money on a regular basis. You’ll still pay tax and National Insurance on all of the business’s profits, even if you don’t ‘withdraw’ them from the business.

Director’s loans in limited companies

As the name implies, director’s loans are just that; a loan the director makes to the company, or vice versa, which is recorded in their director’s loan account. It’s not a facility that’s available to sole traders, but sole traders can simply keep the profits from the business anyway. There’s no need to account for taking money in this way.

Directors might borrow money from the company for unexpected personal bills, loan money to the company to fund growth, or move funds back and forth for all sorts of other reasons. What’s important is that there are accounting and tax implications for using your director’s loan account, so it’s essential you record everything to show why money is moving between the company account and your personal bank account.

You should try to repay your director’s loan prior to the end of your financial year. If not, it may be seen as additional income, so you’ll pay extra tax, known as S455, on any balance still outstanding.

Receiving dividends

Another way to withdraw money from a limited company is with dividend payments. For a tax-efficient way of taking money out of your business, you’d be hard pressed to do better than dividends.

Dividends are paid from any profit left over after Corporation Tax and are often paid in addition to a salary. They’re usually taken at the end of the company’s financial year (so that you know for sure how much is available to take safely).

There aren’t any rules which prevent you taking them more frequently, but it’s a good idea to pay them at regular intervals. It reassures HMRC that you’re managing the company’s finances appropriately!

If the company has other shareholders, they should receive dividends at the same time. The amount everyone receives is based on the proportion of the company they own. This means there may be less for you to withdraw than it first appears.

Withdrawing cash for personal expenses

If you want to take money from your limited company, via cash or cheque for instance, to be spent on personal items, make sure you keep absolutely accurate, watertight records. You should be able to see at a glance when the cash was taken out, and how much was withdrawn.

At the end of the financial year, any outstanding amounts could well be deemed as income by HMRC, which will mean paying tax and NI on it.

Business expenses reimbursement

Any business expenditure should really be paid from your business bank account wherever possible. However, you might decide to pay for certain incidentals from your own account. For example, train tickets or a coffee, but you don’t have a company credit card.

As long as the expenditure is entirely for business purposes, you’re well within your rights to claim back the cost. It’s not new personal income and will mean you’re not out of pocket when the payment was for something business-related.

As long as you make it very clear what the expense is for, and record everything meticulously in your accounts, it will be fine!

Keeping things simple

At this point there are a few tips we wanted to point out around keeping your accounting straightforward.

Firstly, bear in mind that if you make withdrawals pretty frequently from your business account to your personal account, you or your accountant will probably end up spending more time on record keeping. This is why we really recommend only withdrawing cash if you absolutely have to.

Plus, don’t forget that banks and accountants must, by law, inform the National Crime Agency if they think any transactions are suspicious. It’s part of their duty to help prevent money laundering or fraud.

Withdrawing cash regularly can also make it trickier to get an accurate idea of your cash flow. Understanding exactly what cash you’ve got where makes it easier to meet your commitments to creditors and suppliers.

As a final point, it’s possible that any money you do withdraw from your business for personal reasons will attract certain interest charges or penalties for late payment on business expenditure.

Benefitting from personal liability protection

Setting yourself up as a limited company means protecting yourself against your company’s debts. In other words, you’ll never have to sell your own assets like your home should your business end up in financial hot water.

However, it’s worth pointing out that if your company does unfortunately start to struggle, avoiding any legal action could prove difficult if too much cash has been withdrawn for personal spending, and therefore funds aren’t available.

Presenting a clear, accurate financial picture

Healthy businesses grow, but financing that growth can be difficult unless you’re able to show a clear financial picture. Potential lenders and investors will always want to examine the business accounts very closely indeed. Too many personal withdrawals may make them uncomfortable, and suggest that the business’s finances aren’t be managed correctly.

Potential clients may also want to see financial stability when assessing suppliers – for instance if you tender for a larger contract. Again, this makes it well worth keeping personal withdrawals to a minimum, so your cash flow is accurately presented.

 
We always recommend seeking the guidance and expertise of an accountant. That way, you can be sure that you’re doing everything by the book, and in the most tax-efficient way possible!

The post Can I Move Money from a Business Account to A Personal Account? appeared first on The Cheap Accountants.

Sending your tax return doesn’t just deal with income tax though, and your bill can also include any National Insurance that you owe on your self-employment income. In this article we’ll explain how National Insurance works for self-employed people.

What is National Insurance?

Anyone aged 16 or over, up until they reach State Pension age, pays National Insurance on any employment or self-employed income they get over a specific amount.

This wording is quite important, because not all types of income are subject to National Insurance. For instance, dividends, and sometimes even rental income you get from property if this isn’t your main business, can be free from NI.

Why do I need to pay National Insurance if I work for myself?

Making NI contributions gives you entitlement to certain benefits and the State Pension. National Insurance contributions also help to fund the NHS.

How much NI will I need to pay?

There are different types of National Insurance, known as classes, and these have different thresholds and rates. The type you pay depends on how much you earn from a particular source of income. For instance, employees normally pay Class 1 NI on income they earn from an employer, whereas self-employed people pay Class 4 NI.

Class 4 National Insurance for self-employed people

Class 4 NI is charged as a percentage of the profits you make from being self-employed.

• Lower Profits Limit (LPL): You’ll pay NI at a rate of 6% on any profits you earn in 2025/26 and 2026/27 which are over the £12,570 Lower Profits Limit
• Upper Profits Limit (UPL): You’ll then pay Class 4 NI at a rate of 2% on any profits over £50,270

What happens if I don’t pay NI?

Paying Class 4 NI is mandatory if your profits reach the threshold, but not everyone will earn enough to reach it. If your profits are above the Small Profits Threshold (£7,105 in 2026/27, or £6,845 for the 2025/26 tax year) then you’ll get NI ‘credits’, which protects your entitlement. If your profits are below it, then you might consider making voluntary contributions to cover any gaps.

For self-employed people this means making Class 2 contributions (which used to be compulsory, but are now voluntary) at a flat rate of £3.50 per week for the 2025/26 tax year, or £3.65 for 2026/27.

How do I register to pay self-employed National Insurance?

You’re automatically signed up for National Insurance and any other tax contributions that you need to make when you register for Self Assessment with HMRC.

When and how do I pay my NICs?

HMRC will use the information you provide in your Self Assessment tax return to work out your tax bill. The total amount will consist of any income tax and National Insurance you owe, as well as any other taxes you need to pay.

The deadline to submit your tax return and pay the bill for Self Assessment is 31st January following the end of the tax year that you need to report. You can submit your return much earlier, but this doesn’t affect the payment deadline – which can be useful if you need to budget for it!

 
Find out more about getting support with your finances and tax in our guide to finding the right accountant.

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