Chartered Certified Accountants, Auditors and Business Advisors
Frequently Asked Questions
Accounting and Tax Basics: Your Questions Answered
Use accounting software like Xero or QuickBooks, or keep a spreadsheet. Regularly record all money coming in (income) and going out (expenses) and save receipts, invoices and bank statements. Make sure your records are compliant with HMRC's Making Tax Digital (MTD) rules.
Profit is what's left after paying all your expenses, while cash flow is the actual movement of money into and out of your business. You could be profitable but still struggle to pay bills if your cash flow is poor (e.g. late payments from customers).
HMRC allows you to deduct "wholly and exclusively" business related expenses, such as office supplies, rent, advertising, travel and utilities. Keep records of all expenses and ensure they are business - related to claim them on your Self - Assessment or Corporation Tax Return.
If you are a Sole Trader, you take profits as personal income. If you're Limited Company Director, you can pay yourself a salary and/or dividends. Dividends are often more tax-efficient but must come from post-tax profits. We can help guide you on the best method.
You need to register for VAT if your turnover exceeds the £85,000 threshold (as of 2024). Once registered, you must charge VAT on your sales and file VAT returns. For businesses below the threshold, registration is optional but could be beneficial.
Keep all financial records up to date and organised throughout the year - this includes income, expenses, invoices and receipts. If you're self-employed, file your Self Assessment Tax return by 31st January each year. If you run a Limited company, ensure your Corporation Tax return is submitted on time.
Set aside 20-30% of your profits for taxes in a separate account. This helps you cover income tax, National Insurance and potentially VAT. We can help you estimate you tax liabilities more accurately.
Sole Trader : Simple to set up but offers no personal liability protection.
Partnership : Similar to sole trader but involves shared responsibilities.
Limited Company : Protects your personal assets and can offer tax efficiencies but requires more paperwork. The best choice depends on your business size, risk and goals.
File your taxes accurately and on time. Avoid common triggers like underreporting income, claiming excessive expenses or late submissions. Keep detailed, accurate records to substantiate everything you report to HMRC.
Payments on account are advance payments towards your income tax bill. If you’re self-employed or have other income that isn’t taxed at source (like rental income), HMRC asks you to pay part of your estimated tax bill ahead of the next tax year. These are usually due in two instalments: 31 January (for the current tax year) and 31 July (for the following tax year). They help spread the cost of your tax bill, so you’re not paying it all at once.
If your tax bill turns out to be less than expected, HMRC will issue a refund or offset the overpayment against your next bill.
If your finances are simple, you might manage with software. However, an accountant ensures compliance with UK tax laws, saves time, and helps you claim all available deductions. As your business grows, an accountant becomes a valuable partner.
Hancock & Hastings Limited
4 Carlisle Close, Dunstable, Beds, LU6 3PH, United Kingdom
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