Création d’entreprise

Opstart af virksomhed

Starting your business

Comptabilité 

Regnskab

Accounting

Facturation

Fakturering

Invoicing

Développer son entreprise

Vækst din virksomhed

Growing your business

Financer son entreprise

Finansiering af din virksomhed

Financing your business

“Do I need an accountant?” is a question commonly asked by most small business owners at some point in their entrepreneurship journey. To answer this requires evaluation of your business growth, your goals and your willingness to give up free time to develop a new skillset.

DirectLine states that:

> _If you have a low volume of transactions, you may choose to undertake your own bookkeeping as the related activity shouldn’t take up a lot of time._

There is no definitive answer to this question and every business is different, so let’s take a deep dive and see whether you need an accountant.

</div>

</main>

</div>

## What do accountants do?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Accountants are trained to help you reduce your tax liability, saving you money by knowing [which deductions you can claim](https://www.zervant.com/en/blog/top-5-tax-deductions-for-uk-self-employed/) for in relation to your business expenses – such as claiming a personal car as a company vehicle.

They’re also well-versed in business operations and will often be able to provide insight into various other financial aspects of your business.

An accountant can:

*   Keep you updated with the latest tax laws
*   File all legal documents
*   Prepare your annual tax statement
*   Maintain records
*   Handle payroll issues
*   Apply for business loans
*   Explain difficult legal jargon
*   Manage your finances as you grow
*   Assist with any tax audits or investigations

Accountants know the tax system – they essentially pay for themselves by helping your business save money. Sometimes your accountant’s understanding of UK tax law will seem like sorcery. Trust us, it is.

> “[An accountant] can spot things in the numbers that on their own might not be problematic, but which could suggest deeper issues with potentially far-reaching implications for your business.”

Remember that anyone can legally claim to be an accountant or tax adviser, even though they might not be accredited to one of UK’s three certified chartered accountant institutions (ICAS/ACCA/ICAEW) – so do your research.

When you sign an agreement with an accountant, you are agreeing to let them be your “tax agent”, which means that they act as a buffer between you and HMRC.

Even if you rely on an accountant to oversee your taxes, you are ultimately liable for their actions in the eyes of HMRC.

Before you hire one, consider these [15 Questions to Ask When Hiring an Accountant](https://www.zervant.com/en/blog/small-business-accounting/).

</div>

</main>

</div>

## Why should you hire an accountant?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Using an accountant will give you peace of mind and make your life easier – it’s that simple.

Navigating your way through the maze-like UK tax system can be confusing to newcomers, especially if numbers are not your strong suit.

Employing a professional will ensure that your business doesn’t take any wrong turns, thereby securing your finances from any accidental tax reporting errors and frees you to focus on the growth and development of your business.

Regardless of the cost, there are times during your business life that you should strongly consider hiring a professional accountant.

</div>

</main>

</div>

## How much is an accountant?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

A well experienced and qualified accountant is going to cost you money at a time when you also know a tax bill is heading your way. However, employing a chartered accountant doesn’t mean that you must give them a full-time contract or have them on retainer.

It is often enough to hire them for one job and then ease your financial anxieties by estimating how many hours it would have taken you to do the same job and then multiply that by your own hourly rate. Don’t forget to add in your mistakes.

You can hire an accountant:

*   by the hour
*   by the job
*   on a monthly retainer

There’s also mix-and-match options that allow you to, for instance, pay for bespoke services by the hour and other services via a monthly fee.

According to [Unbiased.co.uk](https://www.unbiased.co.uk/life/small-business), a platform that connects of consumers to financial and legal advisers, <span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">the monthly fee is approximately £60 to £250</span>. The rate will be higher for larger businesses and will depend on your turnover, depth of accounting service and where you are based.

Depending on the difficulty and scale of your finances, <span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">accountants typically charge a one-off fee ranging from £150 to £250 for an annual self-assessment tax return.</span>

Note: these figures are only a guide and will differ depending on a number of factors including where you live and the complexity of your requirements.

</div>

</main>

</div>

### Cloud invoicing can reduce your accountancy costs

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Since accountancy fees are calculated by the amount of work involved, you can reduce your outlay by undertaking some of the necessary tasks beforehand. Lighten the load for your accountant with technology.

Zervant allows you to send and manage your invoices and export financial data simply and accurately to your accountant in either Excel or PDF format.

Through cloud-based invoicing you will save time and money – plus, there is the added advantage of digital record-keeping which is essential to your company’s future development and means lower-impact, more efficient business processes.

</div>

</main>

</div>

## Can you handle your own accounts?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

*   Are you proficient with handling numbers?
*   Do you have the time?
*   Do you have the confidence?
*   Is an accountant too expensive?

If you answered ‘yes’ then you can perform your own tax return in the form of self-assessment at the end of the financial year. But take note – an accountant will help you save money on your tax bill – maybe even more than they charge. If your tax situation is complicated, it’s best to consult a chartered accountant before making potentially costly mistakes.

On the flipside, full control of your finances means that you can quickly move forward without negotiating with a third party and you will enjoy an unparalleled insight into your business. As you learn more about the tax system, you can adapt and use it to further grow and develop your business.

Where do you start though? Find out more about [how the tax system works](https://www.zervant.com/en/blog/how-does-tax-work-in-the-uk-2021/).

</div>

</main>

</div>

## How to handle your own accounts

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Doing your own books will demand staying up to date with all the latest tax rules and regulations. You will have to fully understand their application and relevance, so you don’t miss out on any helpful tax reliefs and incentives.

Don’t forget that the [HMRC website](https://www.gov.uk/guidance/help-and-support-for-self-assessment) offers a range of help and support products, including webinars, YouTube videos and online guides that cover topics like ‘How to complete your online tax return’ and ‘How do I pay my Self Assessment tax bill?’

In addition, you can give permission to a friend or family member (a ‘trusted helper’) to deal with HMRC on your behalf, plus you might be eligible for free accounting advice.

</div>

</main>

</div>

### How to make handling your accounts easier

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

As mentioned earlier, the rise of dynamic cloud accounting software not only makes life easier for accountants but can also pave the way for you to become completely independent. Online bookkeeping is becoming increasingly user-friendly and is refreshingly jargon-free.

Zervant are rolling out bank integration as of writing this article – when you send an invoice through Zervant, it will automatically be marked as paid when your client finally pays. Your financial records will remain up to date and the automation will save you time and labour.

</div>

</main>

</div>

## Pros and cons of hiring an accountant

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

To summarise, here are some of the advantages and disadvantages of hiring a professional accountant:

</div>

</main>

</div>

#### Pros:

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

*   Give you peace of mind and saves you time
*   Can protect your business from accounting errors
*   Can handle many different financial issues
*   Can save you money and reduce your tax liability

</div>

</main>

</div>

#### Cons:

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

*   Cost can be expensive for a new business
*   Might not be trustworthy/competent
*   You can lose touch with your finances
*   Cloud-based services can help manage your accounts

Accountants may appear expensive in the early days of your business, but they can save you time, money and stress. It’s in your entrepreneurial hands to decide whether you can afford that expense or not. Perhaps you want to hire an accountant as an employee? The our [employment contract template](https://www.zervant.com/blog/employment-contract-template-uk/) can help – it’s free to use and we also have a [zero-hour contract template](https://www.zervant.com/en/blog/zero-hour-contract-template/) if required.

Good luck and please get in touch if we can help you!

</div>

</main>

</div>

Running a small business is hard enough – trust us, we’ve been there. You have taken perhaps the biggest step of your life and set up a business, but now there are costs coming from every angle. No matter how small your business is, the books (your [financial records](https://www.zervant.com/blog/small-business-accounting/)) must be kept in check.

Aside form making sure that you’re [getting paid properly and on time](https://www.zervant.com/blog/how-late-payments-hurt-small-business/), there’s also a great number of savings which can be made by learning how to do various administrative tasks on your own, learning what [tax deductions](https://www.zervant.com/en/blog/top-5-tax-deductions-for-uk-self-employed/) you are eligible for and generally being diligent when running your business.

Let’s dive in and have a look at what bookkeeping is and how to start doing it as a small business owner.

</div>

</main>

</div>

## Bookkeeping basics

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Unfortunately, there is not a one-size-fits-all approach to bookkeeping. You need to decide whether to adopt the single-entry or double-entry system. But fear not, here is a brief description of both to help you choose.

</div>

</main>

</div>

### Double-entry

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

This is the slightly more complicated way of bookkeeping, but the upside is that it reduces mistakes and allows you to keep a detailed account of everything that happens. At the most basic level, double-entry bookkeeping makes two entries for every transaction.

Here’s a simple breakdown of the steps:

*   If you have an increase in assets, you need to write in the debit account
*   If you have a decrease in assets, mark the credit account
*   If you have an increase in liability or capital, you have to mark the credit account
*   A decrease in either of liability or credit means an entry into the debit account

Double-entry bookkeeping uses a double ledger account for every entry in a system – for every transaction, a debit will have a corresponding credit and vice versa.

It’s based on the fundamental accounting equation: <span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">assets = equity + liabilities.</span>

In other words, every time something happens in your company, two of the three fields mentioned above will be affected – i.e. if capital goes up, assets may go up; if liabilities go up, assets may also go up.

In layman’s terms, this means that you need to make two entries in your bookkeeping book for every transaction that occurs meaning the total debits must equal the total credits.

This is easier to understand in practice so download our double-entry template to gain a better understanding. Just remember this: for double-entry bookkeeping you <span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">debit the receiver </span>and <span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">credit the giver.</span>

</div>

</main>

</div>

### Single-entry

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

This is a much simpler form of bookkeeping and is used by smaller firms to simply record what goes in and out. It involves a daily or monthly summary of the incoming and outgoings of a business without detailed information about equipment, capital and inventory – which are marked informally as notes.

You do not need a double ledger to track the whereabouts of every transaction.

However, this allows those who are not familiar with bookkeeping to keep abreast of their transactions while continuing to run their business.

A word of warning: single-entry bookkeeping can lead to errors and therefore bigger issues down the line if not done properly. We recommend you get acquainted with the double entry system by practicing in our template.

</div>

</main>

</div>

## Glossary of Bookkeeping Terms

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

In short, bookkeeping is making sure that you record all of your financial transactions so that you pay the correct amount of tax at the end of the year.

Here’s a glossary of common terms used in bookkeeping:

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Accounting period_ </span>– A period of time over which financial information is tracked. This is usually done monthly, quarterly and annually.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Accounts payable (payable __by __the business)_</span> – The account where all of a company’s outstanding bills are tracked.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Accounts receivable (payable to the business)_</span> – The account which tracks payments to be collected by the company. This might be credit the company has issued or outstanding invoices to be paid by clients.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Assets_</span> – All the things a company owns which are required to do business. Common examples are properties, tools, vehicles, and of course, cash.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Balance sheet_</span> – This is a financial statement which provides an overview of the financial position of a business at a moment in time. “Balance” refers to the equilibrium between assets (which the company owns) and liabilities and equity which make claims against these assets. These things must be in balance.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Capital_ </span>– The resources supplied by the business owners – e.g. money

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Costs of goods sold (COGS)_</span> – This is a straight-forward account of the costs involved in producing or buying the goods and services sold by a business.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Depreciation_ </span>– All held assets depreciate (go down) in value over time and this depreciation must be accounted for. In some instances, assets will appreciate (go up) in value.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Drawing Account_</span> – Will track the cash paid to owners in a small business whereas incorporated companies will pay dividends to shareholders.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Equity_ </span>– The money invested in a company by the owners. In small businesses, the owner’s equity tends to be shown in a “capital account”. In larger, incorporated businesses, owner’s equity is visible in shares of the stocks.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Expenses_</span> – The business running costs – not associated with the sale of goods or services.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_General Ledger_</span> – This is a summary of all accounts and should be considered the “master document” in bookkeeping.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Income statement_ </span>– Ultimately, this calculates net Profit or Loss – beginning with Revenue earned, then subtracting the Costs of Goods Sold (COGS) and Expenses.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Interest_ </span>– We’ve all heard of this one before. Interest is the cost of borrowing money, usually expressed as a percentage of the borrowed sum.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Inventory_ </span>– The account which tracks all of the products which businesses intend to sell.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Journals_ </span>– Bookkeepers keep their daily records in journals – categorized chronologically. The most active accounts have their own journals.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Ledger account_ </span>– Informally known as a “T-account” due to it’s appearance, having debits on the left and credits on the right of a “T” separating the columns. A ledger account is a ledger of debits and credits for _one specific account. _For example, asset accounts like cash and inventory will have their own ledgers accounts.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Liabilities_ </span>– All the debts a company is due to pay out – loans, mortgages, bills etc.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Payroll_</span> – How companies pay their employees. This is a cornerstone of the bookkeeper’s work. Payroll records will include information on pensions, taxes and such.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Retained Earnings_</span> – An important equity account, tracks all company profits that have been reinvested in the business.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Revenue_</span> – Simply put, revenue is all money collected by selling goods and services. There are other ways businesses collect revenue but these differ greatly case by case.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Source documents_</span> – Source documents are the original financial records which make up the paper trail of transactions to support your bookkeeping.

<span style="box-sizing: inherit; font-weight: 700; color: rgb(49, 53, 52);">_Trial balance_</span> – This is the test balancing of the books before making financial reports and closing the books for that accounting period.

There’s more to bookkeeping than just the terms and these only scratch the surface of the jargon used in accounting.

</div>

</main>

</div>

If the UK tax system looks confusing then you are in the right place with our beginner’s guide to income tax, corporate tax and more. Before we go any further, do not forget that it is against the law to:

*   evade tax payments of any amount
*   not register as self-employed with HM Revenue and Customs (HMRC)
*   not register your limited company or limited liability partnership with Companies House

Committing any of these offences could land you with fines, imprisonment or both.

The UK has a progressive tax system, which means that the tax rate progresses from low to high and takes significantly more money from the rich than the poor. The system aims to alleviate income inequality by reducing the impact on lower income families and increasing the tax burden of higher income families.

For businesses, there are several different tax obligations: income tax, National Insurance contributions, value added tax, corporation tax and business rates. The tax revenue generated funds the UK’s health, welfare and social services, transport systems, schools and universities, defence services, as well as financially supporting industry, sport, heritage and culture.

## Company and employment types

The UK has four main types of business structures:

*   Sole trader (self-employed)
*   Partnership
*   Limited liability partnership
*   Limited company

Each of these has its own various tax obligations.

![how-does-tax-work-in-the-uk-_blog-illustration_uk.png](https://broad-malicious-back.media.strapiapp.com/how_does_tax_work_in_the_uk_blog_illustration_uk_38f55eab97.png)

### Employment contract types and tax codes

If you are an employer, there will be additional tax responsibilities that depend on your employee’s contract or their employment status. Contract types include:

*   full-time and part-time contracts
*   fixed-term contracts
*   agency staff
*   freelancers, consultants, contractors
*   zero-hours contracts

There are also special rules if you employ family members, young people or volunteers.

As the employer, you are typically responsible for deducting and paying tax on behalf of your employees before they are paid.

To calculate how much income tax to withhold from their salary, a tax code is worked out by HMRC and it is then used by you or your accountant.

Tax codes usually start with a number and end with a letter. The most common tax code is 1250L and it means that they have a standard Personal Allowance.

Don’t forget that you must set up PAYE (pay-as-you-earn) with HMRC before the first payday so you can deduct the relevant tax and national insurance from salaries.

## National Insurance

National Insurance acts as a form of social security in the UK and the amount paid depends upon your earnings during the 2020/2021 tax year. It affects both individuals and businesses.

If your profits are between £6,365 and £8,631.99 a year, then you will in Class 2\. Contributions are a fixed weekly payment of £3.00 a week and are collected as part of the self-assessment process. There are exemptions available if you are a low earner.

If your profits are between £8,632 and £49,999, you will be categorised in the Lower Profits Limit (LPL) of Class 4\. The amount due is calculated based on figures supplied during self-assessment and is 9% of your profit. If you go over £50,000, then you enter the Upper Profits Limit (UPL) and profits are taxed at 2%. 

## How to pay income tax if you are self-employed or in a partnership

Income tax is what you will pay according to your business’s profits.

If you are self-employed and without any other sources of income, then you are exempt from paying any income tax until your profit goes over your Personal Allowance. For the 2019/20 tax year, the standard tax-free allowance is £12,500.

This also applies if you are in a partnership or limited liability partnership.

With the progressive tax system in use across England, Wales and Northern Ireland, you will move through different income bands the more profit you make:

*   £12,501 to £50,000 – basic rate of 20%
*   £50,001 to £150,000 – higher rate of 40%
*   over £150,000 – additional rate of 45%

Note: Scotland’s income tax bands are different.

It is your responsibility to calculate how much tax to pay on self-employed income, as well as pay your National Insurance liabilities. This means annually completing and submitting a Self Assessment tax return to HMRC, who provide a self-employed income [tax calculator](https://www.gov.uk/estimate-income-tax).

You will be automatically sent a Self Assessment notice at the end of each tax year, which runs annually from April 6 to April 5\. The deadline for submitting a paper tax return is October 31, while January 31 is the deadline for submitting a return online and paying any tax owed.

Watch out for ‘payments on account’, which are advance payments for tax you might owe for the current tax year and could result in a larger tax bill than expected. You can make those payments in two instalments (January 31 and July 31).

### How can you get tax relief?

If you are a sole trader or in a partnership, tax relief allows you to make deductions for work expenses, namely what you spend to run your business.

Some types of tax relief are applied automatically, but some you must apply for, such as office and travel costs, clothing expenses, advertising or marketing, and training courses.

Remember to save every receipt for anything you plan to [deduct from your taxes](https://www.zervant.com/en/blog/top-5-tax-deductions-for-uk-self-employed/).

### What is trading allowance?

A tax emption of up to £1,000 is available to self-employed businesses in the form of a trading allowance. 

If you expect your annual gross income to be less than the threshold, then you do not need to tell HMRC, unless you cannot use the allowance or need to register for Self Assessment.

You will need to register if your gross trading income exceeds the £1,000 threshold.

## What tax does a limited company pay?

Owned by its shareholders and run by its directors, a limited company is a separate legal entity with its own legal rights and obligations. Your company is responsible for everything it does, and its finances are separate from your personal affairs and the other owners.

After your limited company has paid corporation tax (currently 19%) on net earnings, the profits are then distributed to the members or shareholders in the form of dividends. Recipients must claim their distributions on a Self Assessment form.

Note: You will also pay income tax on your personal income.

Corporation tax is paid once your company begins to make a profit. In addition, payment must be made nine months and a day after the end of your accounting year.

## What other taxes does a business have to pay?

### Value Added Tax (VAT)

The VAT registration threshold is £85,000, so register when your annual turnover exceeds that limit. This applies to self-employed, partnerships and limited companies.

### Business rates

Business rates are like a commercial council tax and are one of the largest overheads for businesses, typically equating to approximately 50% of annual rent. 

Generally, if you work from home, you won’t have to pay business rates and council tax.

## Top tax tips

Here are some tips to help you avoid those tax pitfalls:

*   Put tax money immediately into a separate bank account
*   Create a tax liability plan so you fully understand your obligations
*   Remember that all income, including foreign income, is subject to tax
*   Stay organised and keep track of your finances
*   Keep all receipts, bank statements, invoices and paperwork for at least three years

We hope this beginner’s guide has helped to demystify the UK tax system and instil more confidence as you begin to run your own business. Good luck and please get in touch if we can help you with any other taxing issues!

VAT, or Value Added Tax, can be complicated to understand and an area of concern for small and medium-sized businesses. If you are reading this then it is safe to assume that you are looking for some clear answers.
In our beginner’s guide to VAT, we will gently guide you through the essentials and simply explain common terms you will encounter when running your business.

</div>

</main>

</div>

## What is VAT?

### A brief history of VAT

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Introduced to the UK on April 1, 1973, VAT is a tax added to most non-essential products and services by the companies that provide them. It replaced a consumption tax called Purchase Tax, which was levied at different rates depending on goods’ luxuriousness.

The adoption of VAT was a consequence of the UK joining the European Economic Community at the start of 1973\. The Conservative Chancellor Lord Barber, at the time, set a single VAT rate (10%) on most goods and services.

</div>

</main>

</div>

### How much revenue does VAT generate?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

The Office for Budget Responsibility forecast VAT payments to raise £136.6 billion in 2019-20, which averages out at around £4,800 per household a year. It is the third-highest [source of tax](https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/vat/) for HM Revenue and Customs (HMRC), just behind income tax and National Insurance contributions, although it is close to overtaking the latter.

VAT is not a cost to businesses themselves since the customer pays it. Your business, if VAT registered, will collect and pay it on behalf of the government, effectively making you an unpaid tax collector.

</div>

</main>

</div>

### How does VAT work?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

VAT can only be charged by a Taxable Person who is VAT registered with HMRC—this includes any individual, partnership, company, club, association or charity.

It is charged on any goods or services sold or hired out, any commission earned, and applies to business goods used for personal reasons. It is also charged on various non-sale activities like bartering, part-exchanges and gifts. These are collectively referred to as a ‘[Taxable Supply](https://www.pricebailey.co.uk/blog/vat-taxable-supply-basic-definition/)’.

</div>

</main>

</div>

## Should you register your business for VAT?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

You must register your business within 30 days for VAT if during a rolling 12-month period:

– Your taxable turnover exceeds the VAT threshold of more than £85,000

– You receive goods from the EU to the UK worth more than £85,000

Taxable turnover is the total value of everything a Taxable Person sells within over 12 months that isn’t exempt. It does not include capital assets, such as buildings or vehicles—a full 2021 list can be found on the [HMRC website](https://www.gov.uk/guidance/vat-exemption-and-partial-exemption).

Even if your company is not VAT registered, it doesn’t automatically mean that your sales are exempt from VAT.

</div>

</main>

</div>

## Reasons for VAT registration, even if you don’t need to?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Registering early can offer some advantages, such as giving the outward impression that your sales are over the threshold, but it will also immediately make your product or service more expensive with VAT added to the price. In addition, some businesses only deal with VAT-registered suppliers.

Talk with your accountant to calculate your profit margins as a VAT-registered entity to understand if it is worth going the voluntary route and how it will affect your bottom line. You don’t want to suddenly lose your profitability.

It can be [financially beneficial to register early](https://www.yourcompanyformations.co.uk/blog/should-i-voluntarily-register-for-vat/) if you are selling to businesses that are VAT registered because your sales would be no more expensive than if you weren’t VAT registered.

Your business expenses will become cheaper because you can reclaim any VAT paid on business-related goods or services, such as computer equipment, office supplies and even accountant bills.

Note: You can even reclaim the VAT on certain purchases bought up to four years prior to registering, which another reason to register for VAT and save every business-related receipt.

</div>

</main>

</div>

## What are the different VAT rates?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

The UK has three different rates of VAT and you must ensure that you charge the right amount.

Here is an overview of the current UK VAT rate:

<figure class="wp-block-table is-style-stripes" style="box-sizing: inherit; width: 896px; margin-left: auto; margin-right: auto; max-width: 896px; padding-left: var(--content-gap); padding-right: var(--content-gap);">

<table style="box-sizing: inherit; border-collapse: collapse; text-align: center;">

<tbody style="box-sizing: inherit;">

<tr style="box-sizing: inherit;">

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;"><span style="box-sizing: inherit; font-weight: bolder;">% of VAT</span></td>

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;"><span style="box-sizing: inherit; font-weight: bolder;">What the rate applies to</span></td>

</tr>

<tr style="box-sizing: inherit;">

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">Standard rate</td>

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">20%</td>

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">Most goods and services</td>

</tr>

<tr style="box-sizing: inherit;">

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">Reduced rate</td>

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">5%</td>

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">Some goods and services, e.g. children’s car seats and home energy</td>

</tr>

<tr style="box-sizing: inherit;">

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">Zero rate</td>

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">0%</td>

<td style="box-sizing: inherit; vertical-align: top; border: 1px solid; text-align: inherit;">Zero-rated goods and services, e.g. most food and children’s clothes</td>

</tr>

</tbody>

</table>

</figure>

_Source: https://www.gov.uk/vat-rates_

</div>

</main>

</div>

### Standard rate

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Since January 2011, the UK’s standard rate of VAT has been 20%.

It applies to most goods and services, ranging from chocolate and alcoholic drinks to shoes and taxi fares.

In response to the coronavirus pandemic, the government has introduced a [temporary 5% reduced rate](https://www.rjp.co.uk/how-to-apply-the-temporary-5-vat-rate-update-for-the-hospitality-sector) of VAT for certain suppliers of hospitality and tourism. It will be in effect until March 31, 2021.

</div>

</main>

</div>

### Reduced rate

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

A reduced rate of 5% applies to purchases of home energy, as well as goods like children’s car seats, maternity pads and mobility aids for people over 60.

</div>

</main>

</div>

### Zero rate

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Zero rate is used for food, books, newspapers and children’s clothing, for example.

Zero-rated means that the goods and services are still subject to VAT but are charged at 0%. This means that you must record them in your VAT accounts and report them on your VAT Return.

</div>

</main>

</div>

## How does VAT apply to EU exports?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

The zero rate is applicable to most goods you export to EU and non-EU countries.

You must be VAT registered if you export goods to the EU and you will also need the customer’s VAT ID on all paperwork. The invoice should be marked 0%, plus mention ‘reverse charge’.

Reverse VAT means that the buyer is responsible for the sale’s VAT declaration and then deducts the amount when self-assessing in their VAT Return.

It is also the way VAT is collected in the [building and construction industry](https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services).

</div>

</main>

</div>

### VAT exempt

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

Items exempt from VAT include postal services, membership subscriptions, insurance and medical treatment.

Sellers of exempt goods and services are not entitled to reclaim VAT on business purchases.

</div>

</main>

</div>

## How to file a VAT Return

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

If you’re a VAT-registered business, you must report to HMRC the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your [VAT Return](https://www.gov.uk/vat-returns), which is due every three months from the date your company was registered.

Note: With the Annual Accounting Scheme, a business can submit one VAT Return a year.

Virtually all VAT-registered businesses are required by law to submit their returns online and pay VAT online electronically.

Thankfully, most VAT commercial software is compatible with the HMRC site.

</div>

</main>

</div>

## How to calculate your 2021 VAT Return

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

HMRC states that you must account for VAT on the full value of what you sell, even if you:

*   receive goods or services instead of money
*   haven’t charged any VAT to the customer

Here’s an example of how to calculate your VAT:

During a three-month period, you collect £1,000 worth VAT from sales and pay £100 worth of VAT on goods you buy. The £1,000 you collected is referred to as Output VAT, and the £100 of VAT you paid is known as Input VAT.

As a VAT-registered business, you only pay HMRC the Output VAT minus the Input VAT. In this example it’s £900 (the £1,000 minus the £900), so you can keep the £100 difference.

However, if you receive more VAT from sales than you pay on purchases, then you’ll need to pay HMRC the VAT Due.

Note: You must keep all records of your income and expenditure for at least six years.

Calculating your VAT return can be complicated, but here is an [online VAT Calculator](http://www.vatcalculator.co.uk/) to help you.

</div>

</main>

</div>

## What is the Flat Rate Scheme?

##

<div class="columns is-gapless is-desktop" style="box-sizing: inherit; margin: 0px 0px 1.5rem; display: flex; color: rgb(37, 40, 41); font-family: Graphik, &quot;Helvetica Neue&quot;, Helvetica, Arial, sans-serif; font-size: 16px; font-weight: 400; background-color: rgb(255, 255, 255);">

<main class="single-post-container__main column" style="box-sizing: inherit; flex: 1 1 0px; margin: 0px; padding: 0px !important;">

<div class="has-blocks" style="box-sizing: inherit;">

The [Flat Rate Scheme](https://www.sage.com/en-gb/blog/vat-flat-rate-scheme) allows you to pay a fixed rate of VAT to HMRC. However, you cannot reclaim the VAT on your purchases – except for certain capital assets over £2,000.

To be eligible, your VAT turnover must be £150,000 or less (excluding VAT).

The flat rates are set by HMRC and vary depending on the industry sector, from 4% to 14.5%.

Do not use this if you usually receive VAT repayments, have an income that is not VATable, or you are involved in exports or EU imports.

[How to Choose the Right VAT Scheme for Your Business](https://www.zervant.com/en/blog/introduction-to-vat-sole-trader/)

We hope that our beginner’s guide has simplified some of the complex aspects of VAT and you are feeling a little more confident. If you have any further questions, please get in touch and we can help you!

</div>

</main>

<aside class="single-post-container__aside column is-narrow" style="box-sizing: inherit; flex: 0 0 auto; width: unset; margin: 0px; padding: 0px !important;">

<div class="single-post-container__aside__content" style="box-sizing: inherit; margin-bottom: 0px; margin-top: 0px; padding-left: 0px; padding-right: 0px; margin-right: var(--content-gap); width: 15rem;">

<div class="single-post-container__aside__share" style="box-sizing: inherit; margin-top: 0.75rem; padding-bottom: 1.5rem; padding-top: 1.5rem; width: 14rem;">


</div>

</div>

</aside>

</div>

Accounting

Do I need an accountant? | Small business accounting

The Basics Of Bookkeeping For Small Businesses

How UK Tax Works | A Beginner’s Guide

VAT In The UK | VAT Registration & Common VAT Terms