What actually changed in April 2026?

From 6 April 2026, sole traders and landlords with combined gross income from self-employment and property over £50,000 must:

• Keep digital records of business income and expenses — spreadsheets alone only work if they connect to HMRC through bridging software.
• Send quarterly updates to HMRC through MTD-compatible software, roughly every three months.
• File a final declaration after the tax year ends, replacing the traditional self-assessment return.

The first quarterly updates were due by 7 August 2026, covering the quarter to 5 July (or 30 June if you elect to report calendar quarters). The remaining deadlines each year fall on 7 November, 7 February and 7 May.

Who joins, and when

• April 2026: gross self-employment + property income over £50,000
• April 2027: the threshold drops to £30,000
• April 2028: a further drop to £20,000 has been announced

The test is your gross income (turnover, before expenses), not profit — and self-employment and rental income are added together. £35,000 of freelance income plus £20,000 of rent puts you over the £50,000 line.

Running a limited company? Mostly, relax

MTD for Income Tax applies to personal self-employment and property income. If you work through your own limited company, your salary and dividends don’t count towards the threshold — the company already handles its taxes separately, and MTD for corporation tax is not currently scheduled.

Where directors do get caught: rental properties held personally. If your gross rents (plus any sole-trader side income) pass the threshold, MTD applies to that income even though your company is unaffected.

What about penalties?

Late quarterly updates earn penalty points rather than instant fines, with a fine once you hit the points threshold — and HMRC allowed a soft landing on points for the first year’s updates for those who joined in April 2026. Late payment of tax is treated separately and more strictly, so deadlines for paying haven’t relaxed.

What you should do now

• Over £50,000 gross? You should already be keeping digital records and making quarterly updates — if you’re behind, sort it now while penalties are at their gentlest.
• Between £30,000 and £50,000? Your start date is April 2027. Move your records into software this year and the switch becomes a non-event.
• Using FreeAgent? You’re in good shape — it’s MTD-compatible, and quarterly updates are filed from the records you’re already keeping.

Not sure whether MTD catches you, or want the quarterly updates handled? Get in touch — and if growing self-employed income is what’s pushed you over the threshold, it might also be the moment to ask whether a limited company now makes more sense.

Figures and dates correct as of July 2026. Thresholds and timings are set by HMRC and can change — we keep this guide updated.

The post Making Tax Digital for Income Tax: who’s affected and what to do appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

In this video we’ll look at Payments on Account and what they mean for self-assessment taxpayers such as self-employed individuals, limited company directors, those receiving incoming from property and other earnings that are not typically taxed through PAYE (Pay As You Earn).

What are Payments on Account?

Payments on Account are essentially prepayments towards the current year based on the previous year’s liability. These payments are based on the liability from the previous tax year ended 5th April and will be payable in two 50% instalments. Effectively this will cause you to pay the same amount of tax towards the current year.

When are Payments on Account added to your Self-Assessment liability?

HMRC only requests Payments on Account if your tax liability exceeds £1,000. The tax liability payable through self-assessment must also exceed 20% of the total tax due for the year. For example if your total tax payable for the year is £50,000, but the self-assessment liability is only £2,000 (i.e. most of the tax was paid through employment), HMRC would not ask you to make Payments on Account. Instead there would be a one-off payment due by 31st January as normal.

The first year is the most awkward for Payments on Account, as the entire tax liability plus an extra 50% instalment would be due in one payment. In future years with regular Payments on Account, you would only be paying a small balancing payment (if there is a difference in your tax liability) along with two 50% instalments due by 31st January and 31st July each year.

How are Payments on Account calculated?

Payments on Account are calculated by simply dividing your most recent self-assessment liability into two equal instalments. This would include Class 4 NICs for self-employed individuals, but would exclude any student loan repayment due. These payments are always based on your actual tax liability, but you can ask HMRC to reduce them.

What are the deadlines for Payments on Account?

The tax year ends on 5th April and the self-assessment deadline is 31st January; about 9 months later. Payments on Account, if required, are due by 31st January (the same as the normal liability) and 31st July, about 6 months later.

Please note, the payments on account are allocated towards the tax year that ends in-between the two payment deadlines on 5th April. Only the first 50% instalment would be payable before the tax year ends. The second would be payable a few months after. In theory, this would allow you to file your next self-assessment before the Second Payment on Account is due. If your liability is significantly lower, you may not need to pay the second instalment.

Can Payments on Account be refunded?

Once your next self-assessment tax return is filed with HMRC (possible anytime after 5th April), the actual liability would be updated in your personal tax account. Your Payments on Account would reduce the balance of tax owed. If it turns out that the tax due for the year is less than your Payments on Account, you would usually be able to request a refund from HMRC for the difference.

Payments on Account will be calculated on the next self-assessment return if the following conditions are met:

• Your tax liability is £1,000 or more
• Relevant amount of tax payable through self-assessment exceeds 20% of the total tax liability for the year

This also means if your next tax liability is lower, but the you still meet the criteria to make payments on account towards the following year, you could offset the overpayment of tax towards the next 50% instalments rather than requesting a refund.

How to Reduce or Remove Payments on Account

As previously mentioned, you would have the option to request that the payments on account are either reduced or removed completely. This is only recommended if you have an accurate estimate of your income for the current tax year and can correctly predict your next liability. We always recommend using a conservative estimate, where the payments on account would be slightly higher than what you’re expecting to pay in tax. Remember that payments on account are 50% instalments, so an anticipated tax liability of £1,500 would be two payments of £750 each.

If the payments on account end up being less than your actual liability for the year ending 5th April, HMRC will charge late payment interest on the first 50% instalment. Unfortunately the first payment on account will always be late as it’s due by 31st January and the tax year will only end a few months later on 5th April.

Summary

Payments on Account are a mechanism where HMRC can receive tax payments nearer to when the year ends, rather than 9 months later. This mostly affects taxpayers earning the majority of their income outside of PAYE and regularly pay tax through Self-Assessment. For example those that are self-employed, earning salary and dividends from their own limited company, and landlords earning income from property would be generally be required to make Payments on Account.

Need more time to pay your tax liability?

It’s recommended to contact HMRC as soon as possible if you know that you won’t be able to pay your tax liability on time or have missed the deadline. They will help with arranging a payment plan, usually in monthly instalments based on what you can afford. In most cases you would be able to arrange a payment plan online if the following conditions are met:

• your latest tax return is filed
• the liability is £30,000 or less
• it’s within 60 days of the payment deadline
• you don’t have any other payment plans or debts with HMRC

Further guidance, along with the link to arrange a payment plan for self-assessment can be found here: https://www.gov.uk/difficulties-paying-hmrc

The post Payments on Account for Self-Assessment appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

• A person who runs their own business (not through a limited company)
• Selling goods or services regularly for profit, i.e., if you are buying and selling products without company structure you would be considered self-employed.
• When you start working for yourself (not through a company or employer) you become a ‘sole-trader’

When to tell HMRC you are Self-employed

You are required to inform HMRC when you are earning more than £1,000 from self-employment between 6 April to 5 April of a tax year i.e. 06/04/2019 – 05/04/2020.

Normally you would register with HMRC as soon as you start trading. This is simply because it’s the easiest way for you, particularly if you know that you will be needing to submit a return. Registering immediately will also allow you to have things ready in time before anything is due from your company. The deadline for registering as self-employed is 5th October in the business’ second tax year.

For example, if you start your company in 2019, you will need to register by 5th October 2020 for the 2019 tax year. This is because the tax year of 2019-2020 will be due by 31st January 2021 and therefore will allow you just under four months before the deadline and before you need to make a payment.

To avoid anything being submitted late, it is recommended you register by 5th October latest, as this will also avoid HMRC issuing a fine if you have not registered by this date.

How to register as a Sole Trader with HMRC

You will need to have a National Insurance Number in order to register with HMRC. Most people will already have a National Insurance number, but if not, you can simply call the National Insurance Number application line.

If you are based in England or Wales, you can call 0800 141 2075. If you are based in Northern Ireland, you will need to contact their help centre directly.

The second step is to register for self-assessment online. If you have already registered to file self-assessments online previously, you can follow the link below which will reactivate your UTR number. It is worth noting that you will only ever have one UTR number, it will never change.

Register for self-assessment with an existing UTR: https://www.tax.service.gov.uk/shortforms/form/CWF1ST

If you have lost your UTR number, you can simply contact HMRC on 0300 200 3310. They will be able to send a reminder letter by post to your home address.

Alternatively, if you have an online personal tax account where you previously filed self-assessment tax returns, your UTR number will be shown there. You can also find your UTR number on any correspondence received from HMRC relating to self-assessments; if this is a letter, you can look for a 10-digit reference number.

If you don’t already have a UTR number, you can follow the link below to register online: https://www.access.service.gov.uk/registration/email

The link will allow you to set up your online tax account at the same time as registering for a UTR number.

Already Registered as a Self-employed individual?

What if you are already registered for self-assessment, but have only ever submitted paper tax returns and now want to do it online? The easiest way to do this is to create an online personal tax account: https://www.access.service.gov.uk/login/signin/creds

Once registered, you will be able to add the self-assessment service to your account and HMRC will send you an activation code by post within 10 working days. After you have received your activation code and used it to log into your account, you can then start filing your self-assessments online.

Other ways to register:
HMRC has a paper form you can complete in your browser. You can print off the form and send it directly to them by post. Just follow these 3 simple steps:

1. Go to: https://www.gov.uk/register-for-self-assessment/self-employed
2. Find the section at the bottom of the page called ‘other ways to register’
3. Click the link “fill this form on screen”

Some things to look out for when registering:

• Are you in the construction industry? If you are, you may want to register for CIS. You don’t have to, but it may mean that your deductions from CIS are lower. For example, you could register for the gross payment status if your income is over £30,000 in the construction industry.
• If your business turnover is more than £85,000 in a 12 month period, you will also need to register for VAT.
• Self-employed fishermen must notify HMRC within 3 months of when you first start fishing.

The post How to Register as Self-employed with HMRC appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

HMRC has some general guidance on what expenses you can claim with a limited company. Basically it’s anything that is ‘solely and exclusively’ for the purpose of your trade. What exactly does that mean?

For starters, anything your company purchases should further allow it to create revenue and ultimately more profit. Everything that is absolutely essential to run the business also falls under this description.

As a company director there are additional allowances you can claim such as the Use of Home Allowance. It’s a £4 weekly allowance that doesn’t require any receipts or evidence. Your company can just reimburse you for this cost as an allowable expense with full corporation tax relief. HMRC created this allowance for any time spent working from home on your business which inevitably happens.

If you want to claim more, then you’ll need to create a fair calculation to apportion your electricity, water and gas bills for business use. Do not include things like Council Tax as these are fixed costs that would be incurred with or without your limited company.

Allowable Company Expenses

Now that we have the director-specific expense out of the way, we can delve into the expenses your company can claim for tax purposes like VAT and Corporation Tax.

1. Staff Entertaining – In order for your company to receive full corporation tax relief on staff entertaining costs (events, group exercises etc), all staff members must be invited to attend. There’s also a Christmas Party Allowance of £150 per head that your company can claim. Please keep in mind that if your company spends more than the £150 allowance, the entire expense will no longer be allowable for corporation tax relief.
2. Travel & Subsistence – Travel between your company’s registered office address and client sites, or travel to networking events are perfectly allowable as a business expense. You can easily claim the Mileage Allowance from your company which is £0.45 per mile for the first 10,000 miles and £0.25 thereafter. Remember to keep records of your business travel with a mileage log and any relevant fuel receipts. There is however a 24 month rule if you often travel to the same location (here’s our post for more info). Subsistence is also claimable as long as it’s a pre-prepared meal such as a sandwich or cafe/restaurant food while you’re on the road. In other words, you can claim food while you’re travelling for business if you didn’t have the chance to bring your own. Again the same 24 month limit applies.
3. Equipment – Generally speaking, any equipment your company needs in order to provide its service will be allowable. This can be certain hardware, tools, accessories for your computer, cables etc. Often times contractors or freelancers will source materials or equipment on behalf of clients. These would be listed as a cost of sale in your books and are completely fine to put through the company.
4. Staff Training – Your company is able to pay for any necessary staff training to further improve its own services. However, this is limited to the services your company is already carrying out. Unfortunately what your company can’t pay for, is training that will add a new trade to the business. The best example would be a lumber company suddenly paying to train their staff members in software development. The two are not closely related and so HMRC would not look favourably on this scenario.
5. Uniforms & Protective Clothing – Essential protective gear related to your company’s trade is absolutely fine as a business expense. If you kit out your staff with branded uniforms or t-shirts, these are also allowable since it’s a form of advertising for your company. Even if you can use the shirts for personal wear, your company will still be advertised; removing the ‘dual purpose’ element of the clothing.
6. Internet & Phone – Your company is able to provide one mobile phone per employee. Generally this will need to be a business contract because employees could easily use a personal phone contract for, well, personal time. HMRC does not like this because of the ‘dual purpose’ element. However, as a company director you can treat your personal phone contract as your main business phone. The justification behind this is that the contract itself is a better deal for the company (being cheaper) and also provides more minutes, texts and data. So if you’re only using your phone for business, you could put the personal contract through the company. It’s even better if you can get a second phone contract for your personal needs. You can also claim your internet cost if it’s being used for business.
7. Software & Web Hosting – This is a very self-explanatory expense. Any software your company requires to carry out its trade or even advertise its services can be claimed for full corporation tax relief. The same goes for web hosting. Having a website is a form of advertising for the company.
8. Advertising & PR – Another expense that is easy to justify. This falls under the general category of an expense which will further the company’s turnover and profit. There’s no personal element to these kinds of expenses either so it’s absolutely fine to claim.
9. Medical Costs – These are only allowable when they can be directly correlated to your company’s service. For example if you’re a software developer and eventually you are perscribed with VDU glasses, this would be an allowable business expense (both the appointment and the glasses). Simply put, the company’s services were the cause of the problem. Be careful with medical costs however as some issues can be attributed to pre-existing conditions which means your company’s isn’t responsible.
10. Subcontractors, Employees & Service Costs – Any kind of labour cost related to your company’s services is again perfectly acceptable as a business expense.
11. Company Pension Contributions – Your company can contribute into a personal pension scheme on your or your employees’ behalf. There’s a limit of £40,000 per tax year, but it’s fully allowable for corporation tax relief. Please note that the limit can change if your personal earnings are over £100,000 per tax year. We recommend speaking with a financial advisor before making any pension contributions through the company.
12. Fixed Assets – These are equipment, plant and machinery purchases that have a ‘life’ of 2 years or more. So a laptop worth £2,000 could fall into this category and then depreciated over its expected life. Often your company can claim the annual investment allowance which lets your company receive full corporation tax relief up-front without waiting for depreciation. Plant and machinery can be things like a van, forklift, or other equipment your company needs to provide its services.

Disallowable Company Expenses

There are a few things that may not be so obvious as a disallowable expense for your limited company. Mostly these include items that have a ‘dual purpose’ or a personal element to them so HMRC cannot clearly distinguish that it’s wholly and exclusively for your business.

1. Groceries – Although HMRC allow you to claim subsistence costs from the company, they will not be happy about you claiming groceries from it. This is because all humans (running a business or not) will need to buy groceries as a basic need. It cannot be directly attributed to running your business. Purchasing groceries with the company will create a benefit in kind so it’s best to avoid doing so.
2. Gifts containing Food or Alcohol – This is very self-explanatory. HMRC does not allow your company to claim tax relief on any gifts containing food or alcohol. What your company can do however is reimburse the cost to you since it is still a business expense, providing you paid for it out-of-pocket.
3. Personal Costs – Making any personal purchases through your company will create a benefit in kind. For example a gym membership is a personal cost and you will need to pay extra personal tax on the benefit received.
4. Clothing – Clothing has a very strong ‘dual purpose’ element to it unless of course it’s branded with your company’s logo. Normal business wear can just as easily be used for social gatherings as it can be used for business meetings, so HMRC does not allow it. The same goes for dry cleaning. These will create a benefit in kind.
5. Client/Business Entertaining – Unfortunately client or business entertaining costs cannot receive corporation tax relief. You can only reclaim the cost from your company if it was paid for personally, rather than with the business card.
6. Dual Purpose items – Again these will simply create a benefit in kind as it’s very difficult to prove these as being ‘wholly and exclusively’ for the purpose of your business. This is why more often than not, company cars will immediately be treated as a benefit in kind by HMRC. If they are not actually used for any personal travel, you’ll need to work hard to prove this to HMRC.

That basically wraps up our detailed list of what expenses you can claim with a Limited Company. If you’re not sure of an expense, always get in touch with your accountant or even call the HMRC business helpline for more guidance. Doing so will help you stay on the right side of the law and prevent any inconvenient tax issues later on down the line.

Join our comprehensive accountancy service from £139 a month.

The post What Expenses Can You Claim with a Limited Company? HMRC Allowable Costs appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

Your Limited Company is able to purchase a van as an allowable company asset. Ideally there would be a reasonable justification for your company to purchase the van in the first place. For example you need to transport equipment that’s necessary for providing your company’s usual services.

Why purchase a van through a Limited Company?

There are a few tax advantages that go along with buying a van through your Limited Company. An obvious one is reducing your company’s corporation tax liability but that’s not the only reason. There’s also the benefit of having a vehicle that your company owns which you can access to carry out services.

Contractors and freelancers will find it easier to justify to HMRC that the van is exclusively for business use. With company cars on the other hand, HMRC basically has the standpoint that the car is for both personal and business use until proven otherwise.

This doesn’t mean vans can’t be considered a benefit in kind for tax purposes. If the van has ‘dual purpose’ (both personal and business travel) then there will be a flat rate benefit in kind charge of £3,350 in the 2018/19 tax year. Essentially £3,350 is added to your total income which needs to be taxed each year the benefit or van is made available to you.

The flat charge is much lower than a company car benefit in kind and the calculation is straightforward. For this reason, company vans can seem more appealing if there is a benefit in kind charge. However they will eventually cost you more than any corporation tax savings received so it’s best to avoid this scenario.

Remember if you only have ‘insignificant private use’ of the van, there won’t be a benefit in kind charge. The best example is dropping off a parcel at the post office on the way to a job. These journeys don’t happen very often and they don’t really affect the distance you would have travelled otherwise.

Once you’ve decided that the van is a necessary purchase for the company, there are various ways to account for it depending on the method of purchase or lease. We’ll discuss the implications of hire purchase agreements, leases, and buying a used or new van outright.

Before we get into that, we need to ensure the actual van is in fact classified as a ‘commercial vehicle’.

What is a van?

HMRC’s criteria to classify vans and light commercial vehicles (LCVs) are generally vague, but there are a few tools we can use to decide what is treated as a van for tax purposes.

For starters, HMRC’s definition of a van or LCV is:

• A vehicle primarily constructed for the conveyance of goods or burden

• A gross vehicle weight – fully laden – not exceeding 3,500kg

A more detailed list is available for combination vans and car derived vans here: https://www.gov.uk/government/publications/hm-revenue-and-customs-car-derived-vans-and-combi-vans

The list should give you a better idea of what HMRC would accept as a van. We recommend getting a full assessment of the vehicle you’re planning to buy as the topic can be rather complex.

Tax Treatment for Company Vans

All the purchase and leasing options are viable to obtain a van for your limited company, it’s simply up to you to decide what works best in your circumstance. There are different ways to account for each purchase or lease type.

Outright purchases, new or used, allow you to list the van as a capital asset to your company. If you sell the van later on, there will be profit or loss made on the sale. This in turn affects your company’s profit and tax figures. Usually you can receive full corporation tax relief on the purchase up-front by using the Annual Investment Allowance (AIA) so adjustments will need to be made when the van is sold.

This will also happen if your company finances the van purchase since it will own the vehicle at the end. The only difference is that your company won’t have to pay for the van up-front, but rather with installments. Corporation Tax relief can be claimed on the total cost up-front with the Annual Investment Allowance, however the interest charges will be accounted for separately.

Hire purchase agreements are usually treated this way too, allowing your company to get tax relief up-front. It’s best to get the contract checked by an accountant (like us) to make sure the tax treatment is done correctly. Both financing and hire purchase agreements can be very appealing options as they allow your company to keep a steady cash flow.

Leasing the van without guaranteed ownership at the end of the contract usually means that it will not be considered an asset to your company. This is simply because your company never owns the van. Instead it’s more like a rental. In this case you’d just add the monthly expense to your company accounts and get corporation tax relief normally just like any other expense. Operating leases would normally fall into this category.

Reclaiming VAT on Company Vans

It is possible to reclaim the VAT paid on a van purchase from HMRC, along with any running costs such as repairs and fuel. How you reclaim VAT will also vary depending on the type of agreement.

As required with any VAT reclaim, you must ensure that your company receives a proper VAT receipt from the company or person that is arranging your van purchase or lease. The receipt must have your company’s name on it to qualify.

There will also be further implications if you sell the van later on. Reclaiming VAT on a van purchase means your company will also need to charge VAT on its sale. We recommend speaking with a professional to ensure that the correct VAT is reclaimed and the accounts are properly updated with any van sale.

The post Purchasing a Van through a Limited Company Guide appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

Keep reading if you’d like to know more…

The Difference Between Salary and Dividends

Before we can even delve into paying yourself from a limited company, we first need to establish the difference between salary and dividends.

Salary is paid to company employees in exchange for their time through PAYE (Pay As You Earn) submissions to HMRC. These are monthly payroll submissions that detail the employee’s earnings and tax deductions based on a yearly or an hourly wage.

Almost anyone can be a company employee provided they are legally allowed to work and stay in the UK, and are actually working in some capacity for the company. A simple time for money exchange that’s regularly paid each week or month to the worker.

Dividends on the other hand are rewarded because you own a part of the business through shares. Being a company shareholder entitles you to a portion of its distributable profits when the company decides to pay dividends.

If you’re a sole shareholder in the company, you’ll be entitled to all profits after tax. Good accounting software such as FreeAgent and your accountant can help you confirm this amount in your company.

When dividends are paid, it’s usually on a quarterly basis. More frequent dividend payments can look like other income to HMRC such as salary. They will request the appropriate tax if this is the case (20-40% plus national insurance).

Tax on dividends is calculated once per year on your self-assessment tax return. Your accountant will be able to complete this for you. The tax year runs from 6th April and ends on 5th April. You have roughly 9 months to pay any liability by the following 31st January.

In short,

• Salary is taxed immediately each month
• Dividends are taxed yearly with a self-assessment return

• Salary payments are consistent weekly or monthly amounts
• Dividends are paid each quarter, or generally less often and depend on company profit

Now that we’ve determined how salary and dividends are different, let’s look at the actual process of paying yourself from a limited company.

Setup your PAYE registration & start running payroll

Before you can pay any salary from your company, you need to setup a PAYE registration. Your accountant can do this for you but sometimes at an additional cost. Our all-inclusive service includes registration and running payroll each month in compliance with HMRC.

Determining how much salary to pay is another matter. This varies between single director companies, husband and wife companies, and companies with multiple employees. Regardless, salary is an essential part of the company. It’s important to incorporate it from the beginning.

Employees should be paid what they’re worth based on market rates. Normally you can decide an annual salary, such as £35,000. Then simply enter the monthly or yearly amount into your payroll software. Make sure that your company is receiving enough income to cover your employees’ salary.

As a company director/shareholder which most contractors are, it’s recommended to pay yourself a lower salary as anything above your personal allowance will be taxed at 20% along with National Insurance Contributions. This cancels out any Corporation Tax savings from your limited company. We can suggest the best level of salary as part of our service.

There is also the option to pay yourself only in salary, however this is much less tax efficient. It could also lead to smaller companies having cashflow issues.

If you keep all of these things in mind, you should be able to come up with a reasonable figure for your salary.

Work out your company’s profit after tax

What does profit after tax mean exactly? It’s when you take all of the company’s income, deduct expenses to come up with the profit figure, and finally deduct Corporation Tax.

This final figure is actually what your company can use to pay dividends. A simple calculation would be as follows:

£30,000 Turnover (from invoicing)

-£20,000 Expenses (includes Salary)

£10,000 Profit

-£1,900 Corporation Tax (19% in this example)

£8,100 Profit (Distributable Reserves)

A good accounting software can do this calculation for you if you simply update what happened in the company. For example if you use FreeAgent, you would add invoices, expenses and bank transactions up to date for the software to tell you how much is available to take as dividends.

It’s important to only take dividends when the company has profit to do so. Otherwise these are called ‘illegal dividends’ or ‘director’s loans’ and have multiple tax implications.

Overall it’s best to avoid such a scenario as the company won’t be able to pay its Corporation Tax which could result in a forced closure by HMRC and Companies House.

Treat your limited company as a separate entity

Your company’s income is just that: your company’s income. Having a Ltd company doesn’t mean you can treat is as your own personal piggy bank. This is where a lot of contractors and freelancers run into trouble with HMRC.

The limited company will have its own business bank account for a reason. The company will have its own tax to pay as well as expenses. You shouldn’t pay for personal items with this account. If you do, then it’ll create a director’s loan or benefit in kind. This works out worse overall from a tax efficiency standpoint and generally complicates things with additional form submissions.

So when you’re paying for something with the business card or transferring money to yourself, remember that it will have an impact on your company or personal tax. Always consult a professional (like us!) if you’re not sure.

Reward yourself with dividends

A limited company provides many benefits, including none other than dividend payments. Depending on how many shares you own in the company, or if you’re the only shareholder, you can receive a portion of the profits.

Once you’ve worked out the company’s current profit after tax figure, you can choose to take this as a reward for your initial investment or share(s). So if we use the example above, the current available figure is £8,100 and you would like to take £5,000 this quarter.

The remaining £3,100 will be left in the company as extra reserves. This money can be put back into the company to help it grow, invested into a private pension scheme, or left in the company when there’s no contract work.

In turn, you’ll only be taxed on dividends that have actually been withdrawn. Even though they don’t count as a company expense like salary, their tax is much lower and there is no national insurance to pay.

Repay yourself for expenses

Expense reimbursements are not exactly a form of income, however they are a major benefit to running a limited company.

Why? Well for starters, you won’t ever be out-of-pocket compared to Umbrella arrangements as long as your company is operating outside of IR35. Check out 5 IR35 Questions to Ask Yourself. You also get to receive Corporation Tax relief on valid expenses, reducing your tax bill at the end of the trading year.

Here are some common business expenses that you can claim for with a limited company:

• Use of Home Allowance (£4 per week without receipts)
• Business Phone
• Mileage Allowance (£0.45 per mile up to 10,000 miles)
• Travel & Subsistence Costs
• Equipment (Computers, Laptops, Machinery etc)

When you claim allowances like Use of Home and Mileage, your company physically pays you back for these costs which means more money in your pocket. Keep reading >> Limited Company vs Umbrella – Don’t lose £1,000s

The post How to pay yourself from a Limited Company appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

It’s an important factor to consider not only for tax efficiency, but also as legal protection for your assets.

Contractors, freelancers, small businesses, and startups may be interested in establishing as a (private) limited company whether they are existing or brand new businesses.

Why start a limited company?

The liability of a limited company is merely that – limited! A limited firm is considered a legal entity. Therefore, it can own assets and property, sue and be sued, incur debts although its finances are separate from its owners’ funds.

This is to say that if the business were to flop; neither you nor all the other owners can bear responsibility for any of its debts.

As opposed to business partnerships or sole traders, limited companies are an excellent way to operate a business devoid of any risk to personal assets or wealth. Only when the director has neglected their legal responsibilities would they be personally liable for company affairs.

The company’s ownership is distributed into equal shares that are later allocated to every shareholder. A limited company can be established by one individual who assumes the role of company director and sole shareholder, or by several shareholders.

Steps to setting up a limited company

There are a few steps involved in establishing a limited company.

This includes whether to register it yourself or hire the services of a specialist formation firm, selecting the company name, choosing the company officers, as well as filing the registration documents.

1. Select a company name

Before registering your new venture as a limited company, you will of course need to select a name for it. This new company cannot have a similar name to any other registered company or even a name that is too similar.

You can do a Google search for a background check of the business names that you are considering as well as search the Companies House company name availability checker. You can also check the IPO (Intellectual Property Office) to verify if the name of the company is listed as a trademark in the UK.

Several rules restrict the types of suitable names for business. First, the name cannot feature potentially misleading words like Bank, Chartered, British, Royal, Commission, English or phrases which denote professional qualities you perhaps don’t hold. You can consult the official government guide for how to choose your company name.

Regardless, the name you end up settling for needs to include either Limited or Ltd. You are able to use a different trading name for your business rather than the company name you register, provided it does not contain any sensitive words or is similar to an existing trademark.

2. Choose your company officers

It is essential for all companies to have at least one officer who bears the responsibility of the business.

Moreover Private Limited Companies must have at least one director, while Public Limited Companies which have traded their shares publicly need an official company secretary and at least two directors (usually the individuals starting and operating the company).

3. Decide on the process of registering your company

Registering a limited company with Companies House is pretty straightforward. But depending on your preference, you can choose any of these three main options:

Online: Visit the Companies House official website and register your limited company through the Web Incorporation Service.

Before you start, ensure you already have a name for the company, an official legal address, your director’s personal information (and secretary in case you decide to include one), initial shareholders details as well as your payment for registration (usually £12).

Post: When registering by post, you need to fill out the IN01 application form and also complete a Memorandum of Association (mandates for the signatures and full details of your initial shareholders).

You also need to fill out an Article of Association (the internal rulebook of the company). These forms and the Model Articles, among other essential details, can be found on the official Companies House website.

The fee to setup a company via post is £40 and will take 8-10 days. Or you can pay £100 to get same-day setup.

Agent/Third Party Service: Lastly, you can hire the services of a formation agent who can complete the Incorporation Form on your behalf. Their service charges are varied although most of them will offer specialist advice on how to start your business and what registrations to complete.

It’s best that you select agents who are registered with Companies House to incorporation your company. As part of our accounting service, we include company incorporation for free – just visit our features page for more info.

After registering your limited company, Companies House will require you to prepare and complete annual accounts which are then submitted at the end of every financial year.

At this point it’ll be a good idea to find a trusted accountant to help you keep track of important dates and best practices when running a company if you don’t have much accounting experience.

Essential documents for the formation of a limited company

Whether you choose to complete the registration of your limited company by yourself or go for an agent formation service, you or your agent will need to submit all the necessary registration documents to Companies House before the company begins trading. These documents are mainly:

• Memorandum of Association: a legal statement which all parties who are establishing the company sign and includes both the names of directors and the shareholders as well as their respective addresses.

• Articles of Association: A legal document which outlines the rights of the shareholders together with the company directors’ powers over the company

• IN01 Form: A document outlining full details of the directors (and company secretaries where applicable), the shareholders as well as information on share issues together with the company’s share capital. You can download this form from the official Companies House website. This is primarily for registrations by post.

Open a business bank account

Every limited company needs to have a business bank account. This is mainly because the company is categorised as a separate legal entity. As a result you cannot use your personal bank account. If you do use your personal account, certain tax issues can arise so it’s not recommended.

Unlike standard personal accounts, business accounts can take quite some time (generally between a few days to a couple of weeks) to establish. However, this depends on both the bank as well as your credit history.

The process will require you to provide various identification documents or even schedule a meeting at your nearest branch.

Often financial institutions will be less than enthusiastic about opening a business account for your company if you have a poor credit history. This can result in a rejected application.

High street banks are recommended for the most stable setup such as Barclays, Lloyds, Santander, HSBC, the Co-operative etc. To open an account quickly, you can start with the branch you use for personal banking as they already know who you are.

Recently there have been more reputable options to setup your business account online with providers like Metro Bank or Starling Bank (mobile app only) that can cause you less hassle than a traditional setup and provide a quicker account opening.

Company Registrations

Limited companies may require a payroll service whether they have one or many employees in order to pay out salaries and report monthly figures to HMRC.

You will also need to register for VAT online if your turnover will exceed the registration threshold. Or you can voluntarily register for VAT if there’s a beneficial scheme for your company. See our quick guide of the flat rate scheme.

An accountant can help complete any company registrations for you to ensure they’re correctly handled. Some will charge an additional fee but it can be included with some providers.

Juniper Lynx includes company registrations for your business as part of our all inclusive service.

You’re also more than welcome to complete the registrations yourself by relying on online forms for guidance and calculating the best VAT option for your business.

The post How to Set Up a Limited Company appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

A company is said to become dormant when it does not have any form of relevant or important accounting transactions in a specific accounting period.

In this manner, a significant accounting transaction can be deemed as one which a company is expected to enter into its accounting records.

Your company falls in this category if it is not conducting any business transactions as well as not having any other source of income involving the following:

• Buying and selling
• Acquiring property through renting or purchasing
• Use of payroll
• Disbursing salaries to directors
• Issuance and receiving of dividends
• Gaining interest
• Payment of bank charges and other fees
• Making payments for the company’s formation costs and accounting via the business bank account

On the other hand, if your company makes some sort of transaction, it automatically ceases to be dormant and instead, it is considered liable for corporation tax purposes.

However, the following activities pertaining to your company are not regarded to be important in relation to accounting transactions so the dormant company can carry out the following:

• Paying of shares by the initial shareholders at the moment when the company was incorporated.
• Paying of fees to Companies House for filing annual tax returns or when the company is taking a new name.
• Filing of late penalties as required to Companies House.

What is the status of a dormant company?

There are numerous reasons why a company can be dormant:

• To safeguard the name of your company before launching the business

• To make some restructuring to the previously active business

• When the company owner needs an extended time to attend to personal issues

In this case, settling for the dormant status of your company is the only workable solution to protecting the business name and the legal aspect of the company.

This is the only option for your company rather than choosing to wind up or close it down and incorporate it again some other time.

The concept is common for construction and real estate companies. For example you can incorporate your company and buy some property as a future form of investment at low rates, before acquiring the status of a dormant company.

What are the conditions you should fulfill when applying for a dormant status?

The following are some of the most crucial conditions you are required to fulfill prior to applying for the dormant status of your company:

• Your company should be free of any inspection or investigation carried out for legal reasons

• The company should not be in any situation regarding outstanding public deposits or in any default of payments and interest

• The company should not be under any pending prosecution as far as the law is concerned

• Your company should be free of workmen’s payment default

• The company should not have an outstanding payment to the central government or local authorities in terms of taxes, dues, & duties among others

• The application for the status should not be a way to deceive creditors or defraud other parties

• The securities of your company should not have been enlisted on any stock exchange within or outside the country

• The company should not have any pending loans to be cleared. But you can apply for your company dormant status after you have obtained a ‘no objection’ certificate from the lender

• There should be no dispute over your company’s management or ownership. Therefore, a certificate is required from the management regarding this issue.

What are the Business Transactions a company can carry out after acquiring dormant status?

Despite acquiring dormant status, the company can still undertake the following business transactions:

• Your company can still make payment of fees to the registrar (Companies House)

• Those payments must fulfill the requirements of the law in relation to the company

• Allotment of shares

• Making payments to maintain the company’s assets and records

How do you make your company dormant?

To begin with, you need to register your company as dormant. Simply speaking, you have to change the trading status of your company from active to dormant.

In this case, you need to reach out to your local HMRC corporation tax office and make your request in writing giving the exact date indicating when the company will be dormant.

In the next two weeks, you should receive feedback by post sent to the company’s registered office address stating the acceptance of your company dormant status.

Alternatively, if the company in question was previously trading, you will get a notice to submit your company tax returns after consulting with your local corporation tax office.

This task must be completed during the corporation tax accounting period before the company becomes dormant and should be submitted online to HMRC.

In addition, you will need to make any outstanding payments of corporation tax that the company owes from profit during that period.

Prior to declaring the company’s dormancy, you have to ensure that all pending bills are cleared including salaries, wages, dividends, and direct debits from service providers.

Also if your company is owed any cash from your clients, it is advisable to make arrangements for having those accounts settled as soon as possible.

Once you have fulfilled all of these, you don’t have to worry about getting in touch with HMRC again until the company starts trading.

How do you make your company active?

When you’d like to start your business up again and make your company active, you can contact HMRC within three months of making any kind of business transaction.

If you don’t make the deadline, you must register your company for the online corporation tax service by creating a Government Gateway Account.

Consequently, HMRC will need you to provide the following vital information:

• Your company’s name
• Registration number of your company
• The date when your company became active
• Your company’s address
• The nature of your company (what type of services it provides)
• Your company’s Accounting reference date

On the other hand, there is no need for you to inform Companies House when your dormant company changes to being active again.

You can only give information on its active trading status when filing your next annual accounts and Confirmation Statement.

The post Dormant Company Guide appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

Many businesses usually have a hard time completing their VAT returns; the process has been unusually long and complicated. But thanks to the Flat Rate VAT Scheme, you can now complete your VAT returns for your business in an easier and faster way.

Using the flat rate scheme rather than the traditional route could also save your business a significant amount of money.

What is the Flat Rate VAT Scheme?​

The Flat Rate VAT Scheme is a government incentive designed to assist freelancers, contractors, and businesses by simplifying the process of collecting and paying VAT to the government. Traditionally, you were required to account for VAT on each invoice.

FRS enables you to pay a single flat rate percentage on your entire turnover. You charge a standard 20% when invoicing but remit it to HM Revenue and Customs (HMRC) at a lower rate.

The repayment rate will vary depending on your industry. For instance, businesses in the accounting industry are required to pay just 14.5%. The rates can range from 4% to 14.5%. FRS not only simplifies the process but could also save you money since the rates are usually lower than standard rates.

Who can use the Flat Rate VAT Scheme?

If your business’ annual turnover in the next year will be less than £150,000 before VAT, you can join the scheme. All you need to do is fill an application form by phone, email, post or online, and the HMRC will inform you in writing if your application is successful. An accountant can also do this for you.

You can apply when registering for VAT or at a later date. If you apply when registering for VAT, you can start using the scheme immediately.

Your flat rate turnover includes all supplies including VAT. It is essential to get the calculations right since including extra items means you pay too much VAT. Excluding items, on the other hand, could also attract penalties and interest after the HMRC makes an assessment.

Who cannot join the Flat Rate VAT Scheme?

• If your business is not registered for VAT

• If, when applying afresh, you had stopped using the scheme in the 12 months before your application date

• If you have been registered for VAT as a group or division within the past 24 months

• If you have been eligible to join an existing VAT group treatment within the past 24 months

• If your business is closely associated with another in the special manner described by the HMRC

• If you have been convicted or have accepted a compound penalty for a VAT related offense in the 12 months before your application

How do you determine your flat rate percentage?

The HMRC has a comprehensive list detailing percentage rates for different industries on their official website. The flat rate percentage you use will depend on which industry under which your business falls. Choose an industry that suits your business best.

If you make a mistake while choosing a sector, you will be paying more or less tax than required. Paying less means you could face unexpected VAT bills at a later date. HMRC is not going to change the sector you pick as long as the choice is reasonable.

Keep a record of the reason you chose a particular sector in case HMRC requires you to demonstrate you made a reasonable choice. Some businesses may fit into more than one sector; your current choice could be as reasonable as the next one.

As from April 1st, 2017, the flat rate percentage for a limited business was set at 16.5% regardless of the sector under which the business falls.

You are a limited cost business if your total purchases inclusive of VAT fall below 2% of the VAT flat rate turnover or are above 2% of the VAT flat rate turnover but don’t exceed £1000 per year.

What are the advantages of using the Flat Rate VAT Scheme?

1. Your business can earn thousands of pounds as profit by using the scheme. The government offers this money since it is simpler for them to manage FRS and you are essentially collecting the tax on their behalf.

2. There’s less paperwork to handle and a minimal level of admin is required for your business since you don’t need to account for each individual transaction but rather your total quarterly turnover.

3. If your business is new and is registering for FRS for the first year, you get to enjoy an additional 1% discount on your overall percentage tax.

Are there any disadvantages of using the Flat Rate VAT Scheme?

The scheme may not be favorable to your business if you buy a lot of stock or have high rates of chargeable expenses. You will lose out on the VAT you could reclaim.

You should, therefore, compare the savings you are expected to make under the scheme to the amount of VAT you can claim back on your purchases before you can apply.

What you should know before applying for the Flat Rate VAT Scheme

If the annual turnover for your business is expected to be more than £150,000 in the next year, your business doesn’t qualify to join the scheme. If, after joining the scheme, your annual turnover including VAT exceeds £230,000 in subsequent years, you are required to leave the scheme.

After joining the scheme, your company will not be able to reclaim VAT on any purchases or expenses.

But exceptions can be made on capital assets purchases exceeding £2,000. However, you can only reclaim VAT on capital expenses that appear on the same receipt. For instance, you can’t claim back VAT on a capital asset this month and reclaim it for another asset the following month. They should all appear on the same receipt.

Just like in standard VAT, you will still need to fill a quarterly VAT return form. The only difference is you will pay a single flat rate percentage on your annual turnover rather than accounting for every single payment.

When calculating your flat rate turnover, you can leave out specific things such as non-business income, bank interest, and private income.

The post Flat Rate VAT Scheme Guide appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.

The last thing you want is a backlog of employment taxes and national insurance.

So here are five easy questions you can ask yourself to check your IR35 status. Of course this isn’t an exhaustive list but it’ll give you a pretty good idea without being an expert.

And if you happen to be walking on the borderline of in or outside IR35, you can start making better decisions that would highlight your work as a contractor rather than an employee.

1. Am I being controlled by the client?

I’m sure you’ve heard this one before, but what does it actually mean? There’s no problem with taking reasonable instruction from the client. For example if you’re a graphics designer and your client wanted a different design to your original concept, then that’s completely fine.

The problem lies when you are told what to do by the client with step-by-step instructions.

So if you’re working on a piece of software and your client keeps giving you exact instructions on how to build it, this could be seen as an employment arrangement.

You wouldn’t hire a plumber to work on your leaky sink, only to guide them the entire time. No way! You’d simply check that the leak is fixed when they finish. And if it isn’t… they’d better come back and fix it for free. The same goes for your contracting role.

Just because you may be controlled by the client doesn’t mean you automatically fall inside IR35 – it takes many factors to fully decide your status.

2. Do I bring tools & equipment owned by my own company?

This is a straightforward question. If your limited company owns tools that you regularly use to provide services, then it’s a great plus to your ‘outside IR35’ status.

In some cases it’s actually OK to use client equipment. Let’s say you need access to a secure server that’s only available on an in-house computer. Using this computer won’t negatively impact your status. It’s purely for security reasons.

Generally speaking HMRC doesn’t count laptops or phones as your company’s equipment from an IR35 perspective. But more separation from your client is always better. And if your company only provides services with computers (anything IT), then this would get weighed more heavily in an actual dispute.

3. How am I identified at my client site?

Another really simple one. The way you’re identified by employees of the client and their customers can give you some serious perspective about your status.

Being identified as an independent contractor or even better, as an external company on site can show that you are clearly outside of IR35. Especially if your client’s customers also know about your working arrangement.

So if you have a special email address to contact customers with, just ensure you’ve been labelled as a contractor or working for your own company.

Pro tip: It’s also helpful to list yourself as a company director or contractor on social networks like LinkedIn.

4. Does my contract have an end date or project goal?

Having an end date for your contract is a good indicator the client only wants your company’s services on a temporary basis – not permanently. It also implies that once the contract is fulfilled, you’re not obligated to stick around. And if the client wants to, they can ask your company to stay on longer – otherwise known as an extension.

Projects are great too, since it shows the client has hired contractors that won’t be integrated into their workforce. The contractors are simply there to provide their expertise until the project is completed.

However, a rolling contract has less separation from an employment contract. You’re contracted until further notice which could put you in a risky position for IR35.

5. Do I provide services outside of the original contract?

Although there’s nothing wrong with a client asking your company to provide other services, it becomes an issue when there isn’t a new contract in place to include them. This sort of treatment is dangerously close to an employment relationship.

Let’s say your company has been contracted for a software development project. The client decides they need more staff to handle their logo redesign so they tell you to work on that instead.

An employee would just need to go along with it, no questions asked.

You, the contractor on the other hand would first get the full details of this new project and ask for an amended contract. Alternatively you could ask for a second contract and send one of your own employees to do the logo redesign, or even sub-contract the work out to another company.

More IR35 tips

It’s essential to know what HMRC looks for when deciding your IR35 status. This way you can adjust your working practices and contracting arrangements to fit with what HMRC expects from contractors – from you.

You can try out HMRC’s Tool as a quick check of your status. Answering each question honestly will give the most accurate result.

Contract reviews are also a great way to reduce your risk of being caught. An IR35 expert will be able to identify any issues in your agreement. This way you’ll have the chance to request that your contract is adjusted, or simply find a different client to work with.  Read on>> What is IR35? – IR35 Explained

The post 5 IR35 Questions to Ask Yourself appeared first on The Modern UK Accounting Service For Contractors, Freelancers & Creators.