As a limited company owner, contributing to a pension through your company is one of the most tax-efficient ways to save for your retirement while reducing your corporation tax bill. Understanding the rules, limits, and processes ensures you maximise these benefits while keeping your business on track. Below, we’ll explain how this works and the key considerations to bear in mind.
Why Employer Pension Contributions?
When contributing to a pension as a limited company owner, employer pension contributions are particularly tax-efficient because:
Tax Deductibility: Employer pension contributions are treated as an allowable business expense, meaning they reduce your company’s taxable profits and, therefore, your corporation tax bill. This makes it a cost-effective way to save for your retirement.
No National Insurance Contributions (NICs): Unlike salary payments or bonuses, employer pension contributions are not subject to employer or employee NICs, providing further savings.
Reduced Personal Tax: By making pension contributions directly from your limited company, you avoid the need to first pay yourself dividends, which would incur dividend tax. This allows you to save more efficiently, as the company contributes pre-tax funds directly to your pension, bypassing additional personal tax liabilities.
Important: Ensure your contributions are set up as employer contributions with your pension provider, not personal (employee) contributions. The tax treatment differs, so confirm this with your pension provider or financial adviser if you’re unsure.
Using Bookkeeping Software to Track and Plan:
If you use bookkeeping software, it can be a powerful tool to:
Track Profits: Monitor your company’s financial health and determine how much profit you’re generating. This is crucial when deciding the optimum amount to contribute to your pension.
Avoid Over-Contributing: Keep an eye on your cash flow and profit levels to ensure pension contributions remain sustainable and don’t negatively impact your business operations.
Stay Organised: Bookkeeping software makes it easy to categorise pension contributions and keep your records compliant for accounting and tax purposes.
Limits to be aware of:
While employer pension contributions are tax-efficient, there are limits and rules to follow:
1. Annual Allowance:
The total contributions to your pension—both employer and personal—cannot exceed £60,000 per tax year without triggering a tax charge (the limit was £40,000 before 2023/24).
If you’re making personal pension contributions, the maximum you can contribute and still receive tax relief is restricted to the lower of £60,000 or 100% of your relevant earnings. Relevant earnings include employment or self-employment income but do not include dividends, which are often a director’s primary income source.
However, this restriction does not apply to employer pension contributions made by your limited company. Employer contributions are treated as business expenses and are not tied to your personal income.
Why this matters: If you draw a low salary (e.g., £12,570) and take most of your income as dividends, your personal contributions would be restricted. In contrast, your company could contribute significantly more—up to the £60,000 annual allowance or higher if you use unused allowances from the previous three years—as long as the payments pass HMRC’s “wholly and exclusively” test.
2. Wholly and Exclusively Rule:
To qualify as a tax-deductible expense, the contributions must pass HMRC’s “wholly and exclusively” test. This means the contributions must be made for the purpose of the company’s trade (e.g., as part of your remuneration package).
3. Carry Forward Unused Allowances:
If you haven’t used your full annual allowance in the past three tax years, you may be able to carry forward unused amounts, provided you had a pension scheme in place during those years.
4. Lifetime Allowance (LTA):
Although the LTA has been removed as of April 2024, tax charges may still apply when taking large lump sums or drawing income from substantial pensions. If you anticipate significant growth in your pension pot, seeking professional advice remains essential to avoid unexpected tax implications.
Choosing a Pension Provider
Choosing the right pension provider or investment strategy can significantly impact your long-term savings and retirement goals.
Important: As accountants, we are not authorised to provide advice on which pension provider to choose or which investment options to select. This is because choosing a pension provider or making investment decisions is regulated financial advice.
If you need assistance selecting a provider or understanding your investment options, we can recommend a trusted Independent Financial Adviser (IFA). They will guide you in choosing the best pension plan for your needs and ensuring it aligns with your retirement goals.
How We Can Help
At The Orenda Collective, we’re here to help you make the most of pension contributions through your limited company. Here’s how we can support you:
Tax Planning: We can help you understand how pension contributions impact your company’s tax position and ensure you’re operating within HMRC’s rules.
Bookkeeping Assistance: If you’re unsure how to track pension contributions in your bookkeeping software, we can provide guidance.
Referral to an IFA: If you need personalised advice on pension providers or investments, we’d be happy to connect you with a trusted IFA.
Get in touch today to take the next step towards tax-efficient savings and a secure future.
Frequently Asked Questions (FAQs)
1. How much can my limited company contribute to my pension? Your limited company can contribute up to the annual allowance of £60,000 per year. If you have unused allowances from the previous three tax years, you may be able to carry them forward, increasing the amount you can contribute.
2. Do employer pension contributions count as a business expense? Yes, employer pension contributions are treated as an allowable business expense, meaning they reduce your company’s taxable profits and corporation tax liability.
3. Can I make personal contributions as well as employer contributions? Yes, but personal contributions are subject to the relevant earnings rule, meaning you can only contribute up to 100% of your earnings (excluding dividends). Employer contributions are not limited by this rule.
4. Are there any restrictions on employer contributions for directors on a low salary? No, employer pension contributions are not tied to your personal income. Even if you draw a low salary and high dividends, your company can still contribute up to the annual allowance, provided the payments pass the “wholly and exclusively” test.
5. How do I track and record pension contributions in my accounts? Pension contributions should be recorded in your bookkeeping software as an employer expense. If you’re unsure, we can guide you through the process to ensure everything is compliant and properly categorised.
With Christmas approaching, small business owners should take full advantage of tax-efficient ways to spread cheer while remaining compliant with HMRC rules. From trivial benefits to staff parties and charitable donations, there are numerous opportunities to reward your team, thank your clients, and give back to the community while staying compliant with tax. Here’s what you need to know:
Trivial Benefits: Give small, tax-free gifts (up to £50) to bring a little extra joy to directors and employees
Christmas Parties: The £150 per head allowance for staff events is a great way to celebrate and enjoy tax relief.
Branded Gifts: Thoughtful, branded items for clients can promote your business while staying within tax guidelines.
Charitable Donations: Donations to registered charities can be tax-deductible and align with your company values.
Christmas Bonuses: A wonderful way to reward employees but must be handled carefully to ensure compliance with PAYE and NICs.
Now, let’s dive deeper into each topic to help you make the most of this festive season.
Detailed Breakdown
1. Trivial Benefits for Directors and Employees
Trivial benefits are small gifts that can be given to employees and directors without incurring tax or National Insurance. To qualify as a trivial benefit:
It must cost £50 or less per person (including VAT).
It cannot be cash or a cash voucher.
It must not be a reward for work or a contractual obligation.
If you are a director of a close company you can not receive more than 6 x £50 vouchers or gifts across the year – therefore your cap is £300 across the year.
What is a Close Company? A close company is typically a small UK limited company controlled by five or fewer shareholders (or solely by directors). Most small businesses run by owner-directors fall into this category.
Do Store Gift Vouchers Qualify? Yes, a store gift voucher meets the requirements as long as the value is £50 or less and it’s not given as a reward for work. For example, a £40 voucher for a high-street shop is acceptable, but cash or a cash-equivalent gift like a prepaid debit card would not qualify.
2. Staff Christmas Parties – £150 Per Head Allowance
You can host a Christmas party for your employees with up to £150 per head as a tax-free benefit. Key points to remember:
The £150 is an annual allowance, not per event. If you host multiple events, the total cost must remain under £150 per person.
The calculation includes all costs (e.g., food, drinks, entertainment, VAT, and transport).
The event must be available to all employees, ensuring inclusivity.
Bringing Guests Employees can bring a guest, increasing the allowance by £150 per attendee. For instance, if 5 employees each bring a guest, the tax-free limit becomes £1,500 (£150 × 10 attendees). Just ensure the event remains primarily for staff entertaining.
Single Director Companies Inviting Guests If you’re the only director, you can invite one guest, such as a partner or friend, and the event would still qualify as staff entertaining. However, inviting two guests would disqualify it, as the event would no longer be ‘mainly for staff.’
3. Branded Gifts for Clients
Branded gifts are a thoughtful way to thank clients and promote your business. They are tax-deductible if:
The gift features a clear business logo.
It costs £50 or less per recipient in a tax year.
It is not food, drink, tobacco, or a cash equivalent (unless it’s promotional, like branded chocolates).
Be mindful that gifts exceeding £50 per recipient or lacking your business branding will not qualify for tax relief
Exciting Gift Ideas Stand out with creative and thoughtful branded gifts. Examples include:
High-quality reusable coffee cups or water bottles.
Desk plants with a branded pot.
Personalised puzzles or games featuring your brand.
Mini hampers containing promotional, branded items (e.g., branded hot chocolate or cookies).
4. Charitable Donations
Giving back during the festive season can reflect your company’s values while reducing your corporation tax bill. Tax-deductible donations can include:
Cash donations to UK-registered charities.
Donated goods or sponsorships.
Employee time, such as volunteering, though this is not tax-deductible.
Important Note: Only donations to UK-registered charities qualify for tax relief. Make sure the charity is registered with the Charity Commission or a similar regulatory body.
Example: A £500 donation to a UK-registered charity could reduce your corporation tax by £95 if your company pays the 19% rate.
Why This Matters
Making the most of these opportunities ensures your business can spread festive cheer in a tax-efficient way while remaining compliant. From rewarding your team to thanking clients and giving back, these strategies can align with your company’s values and strengthen relationships.
Need Help?
Navigating tax rules can feel overwhelming, especially during the busy festive season. At The Orenda Collective, we’re here to ensure you make the most of tax-efficient opportunities while staying compliant. Contact us today to discuss your plans and how we can support you. Let’s make your Christmas merry, tax efficient and transformative.
On 30th October 2024 the new Labour government unveiled their Autumn 2024 budget. The budget covered a vast array of topics such as public spending, housing, transport, investment and taxes.
In this guide we intend to highlight the specific measures implemented that are going to impact our clients: individuals and small business owners.
For a full view of all areas of the budget please refer to the budget document here.
Over the coming days, as we digest and calculate the impact of the changes, we will complete a more detailed analysis showing specific examples and sharing key impacts.
The Highlights:
Personal Tax
Rates of Income Tax and National Insurance (NI) paid by employees have remained unchanged
Income Tax band thresholds are to rise in line with inflation after 2028
Basic rate Capital Gains Tax on profits from selling shares will increase from 10% to 18%, with the higher rate rising from 20% to 24%
Rates on profits from selling additional properties are unchanged
Subscription limits for Adult ISAs, Junior ISAs and Child Trust Funds will be maintained at current levels
Business Tax
Companies to pay NI at 15% on salaries above £5,000 from April 2025, up from 13.8% on salaries above £9,100
Employment Allowance – which allows companies to reduce their NI liability is to increase from £5,000 to £10,500
Main rate of corporation tax, paid by businesses on taxable profits over £250,000, to stay at 25% until next election
The Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rate will increase from 10% to 14% from 6 April 2025 and to 18% from 6 April 2026.
100% first-year allowances for zero-emission cars and electric vehicle charge-points extended to 31 March 2026 for Corporation Tax and 5 April 2026 for Income Tax
Wages & Pensions
Legal minimum wage for over-21s to rise from £11.44 to £12.21 per hour from April 2025
Rate for 18 to 20-year-olds to go up from £8.60 to £10, as part of a long-term plan to move towards a “single adult rate”
Basic and new state pension payments to go up by 4.1% next year due to the “triple lock”
VAT, Stamp Duty, Inheritance Tax & Other
The standard rate of VAT (20%) will apply to education and boarding services provided by private schools from 1 January 2025.
There will be an increase to the Higher Rates for Additional Dwellings surcharge on Stamp Duty Land Tax (SDLT) from 3% to 5%. It will also increase the single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies from 15% to 17%.
From 6 April 2027 unused pension funds and death benefits payable from a pension will be brought into a person’s estate for Inheritance Tax (IHT) purposes.
The Government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5% to Bank Rate plus 4%.
Fully electric and zero emission vehicle rates will increase by 2% per annum across 2028-29 and 2029-30. Rates for cars with emissions of 1-50g/km of CO2 will increase to 18% in 2028-29 and 19% in 2029-30. Rates for all other emission bands will increase by 1% per annum to maximum of 38% for 2028-29 and 39% for 2029-30.
Section 455 ‘Loans to Participators’ legislation will be amended to prevent close companies recycling loans through two or more companies to avoid tax.
From 1 April 2025, 40% business rates discount (currently 75% discount) available to businesses occupying eligible retail, hospitality and leisure properties in England, up to a cash cap of £110,000 per business for one year. The small business multiplier will be frozen at 49.9p for 12 months.
Confirmation of the payrolling of employment benefits from April 2026
HMRC to recruit 5,000 additional compliance staff by 2029-30
HMRC to recruit 1,800 additional debt management staff
Disclaimer: This newsletter covers the key news headlines from Budget 2024. The authors take great care in its production, but it is not exhaustive and should not be read as a full fiscal summary. The content displayed is correct as of 30 October 2024. We cannot take responsibility for any action taken or not taken from this document alone. Please contact us for personalised advice.
On March 6th, 2024, the government unveiled their Spring 2024 budget. There are many different topics covered in the budget such as public spending, housing, transport, investments etc., so it can be difficult to pinpoint those changes that are relevant to you. Here, we intend to summarise the most relevant updates for individuals and small businesses.
Reduction in National Insurance
After reducing the main National Insurance rate by 2% in Autumn, individuals paid via PAYE will experience another 2% cut, bringing the rate down from 10% to 8% starting April 6, 2024. According to the government estimates, the combined effect of these two national insurance rate cuts would save a worker earning £35,400 over £900 annually.
Taken together these cuts mean:
• an average full-time nurse on £38,900 will receive an annual gain of over £1,000
• an average teacher on £44,300 will receive an annual gain of over £1,250
• an average police officer on £44,300 will receive an annual gain of over £1,250
• a typical junior doctor on £65,000 will receive over £1,500
• and working families with two earners each on the average salary will receive a gain of over £1,800.
Self-employed individuals will also enjoy a national insurance cut, reducing from 8% to 6% (previously 9% for 2023/24). This combined with the abolition of Class 2 NICs altogether would save a self-employed person with taxable profits of £28,000 around £650 per year.
Reaction:
Although it’s positive for those employed or self-employed, we hoped for adjustments to tax-free allowances and brackets in the budget.
The tax-free allowance will remain at £12,570 for the 2024/25 tax year as will the basic rate of tax threshold which is £50,270 (where it has been since 2021/22), this creates ‘fiscal drag’, which is a term that describes the process of pulling more people into paying income tax and pushing others into a higher tax band.
Traditionally tax brackets are adjusted to keep pace with inflation; however, they have been frozen in cash terms since April 2021. This means that as incomes rise, more low earners are pulled into paying the 20% basic-rate income tax (which kicks in at £12,571) and those with earnings nearing £50,000 tip into the higher 40% rate (which kicks in at £50,271).
The government budget lacked substantial support for small, limited companies, despite SMEs constituting 61% of all private sector, meaning that more than 3 in every 5 people are employed in the UK private sector.
Corporation tax rates are at their highest in over 10 years and this coupled with increased minimum wage amounts means that small businesses are under increasing pressure, which is likely in turn to mean that those employed by small businesses are also impacted.
Capital Gains Tax
In an attempt to raise revenue and boost the availability of housing by encouraging residential property disposals, the government has decreased the higher rate of capital gains tax levied on sales of residential property from 28% to 24%.
Previously, basic rate taxpayers would pay tax at 18% on disposals of residential properties whilst higher rate taxpayers would pay 28%. The basic rate of 18% remains the same but higher rate taxpayers will pay 24% from 6 April 2024.
Sales of a main residence are not within the charge of Capital Gains tax, so this only applies to sales of additional residential properties owned.
Reaction:
It will be interesting to see the impact (if any) this has on house prices, and whether it translates to any respite for those renting who have been seeing ever increasing rent prices over previous years.
VAT registration threshold
From 1 April 2024 the VAT registration threshold will be increased from £85,000 to £90,000. This means a business’s 12 month rolling turnover now needs to reach £90,000 for it to be required to register for VAT and begin charging VAT on its taxable supplies.
The de-registration limit has now increased from £83,000 to £88,000 meaning if a VAT registered business’s turnover falls below £88,000 and they do not expect it to breach this threshold within at least the next 12 months then it can de-register from VAT.
The government predicts this will help 28,000 small businesses in 2024/25 from no longer needing to be VAT registered.
Reaction:
The increase to the VAT threshold will be helpful for those hovering around the current £85,000 threshold as they will now be able to increase sales by £5,000 before the need to register.
However, historically the VAT threshold was increased broadly in line with inflation, that was until 2017 when it was frozen. If inflationary increases had persisted, the VAT registration threshold would be approximately £108,000. The change in policy led to a steady increase in the number of businesses within the VAT system, therefore increasing the burden.
We see firsthand that some businesses manage their turnover in order to remain below the VAT threshold. This has the unwelcome effect of deterring business growth, as well as impacting on business owners’ living standards.
While businesses breaching the threshold and registering for VAT will be able to recover VAT on eligible costs, they may not be in a position to simply add 20 per cent to their prices, meaning they may have to absorb some of the VAT cost themselves, so would be worse off as a result. This issue is the most acute in the business to consumer (B2C) space, particularly domestic service suppliers such as plumbers, electricians, hairdressers etc.
High Income Child Benefit Charge
The government has now recognised that it is not fair that a household with two parents each earning £49,000 a year will receive child benefit in full, while a household earning less overall but with one parent earning over £50,000 will see some or all their benefit withdrawn.
The changes to the system have not yet been enacted, they expect them to be in place from April 2026.
In the meantime, the income threshold individuals can earn before they start losing their entitlement to child benefit is increasing from £50,000 to £60,000.
The taper has also been slowed so individuals only lose full child benefit if their income is above £80,000. Previously, child benefit entitlement was decreased by 1% for every £100 earned above the limit, now it is reduced by 1% for every £200 earned above the limit.
This does still mean that a household of two adults with children where one earns £80,000 and the other earns nothing would lose their child benefit entitlement completely, but a household with two adults with children earning £60,000 each will be entitled to full child benefits.
Overall, the government estimates 485,000 families will gain an average of £1,260 in Child Benefit in 2024-25 as a result of these changes.
Reaction:
We are very much in favour of a move to a household approach and are baffled an individual approach was ever introduced. It is however disappointing that this does not look likely to take effect until April 2026.
New British ISA
To improve the competitiveness of the UK’s capital markets and unlock more private capital for the UK’s growth industries, the government is launching a new UK ISA to support savers and open up new investment opportunities for individuals.
The UK ISA will have a £5,000 contribution allowance, which is in addition to the current £20,000 ISA investment limit per tax year.
The government will consult on the details so further specific details are expected in the coming months.
Reaction:
We are all for increased offerings of tax efficiencies on savings and we welcome further details of the ISA so that we can explore using them with our clients.
Furnished Holiday Lettings relief abolished
For a rental property to qualify as a Furnished holiday Let (FHL) the property must be available for letting for at least 210 days a year, it must be actually let for at least 105 days a year and the total of all lettings that exceed 31 continuous days must be no more than 155 days during the year.
Previously there were beneficial tax rules for properties that qualified as FHLs such as mortgage interest deductibility, Capital Gains Tax reliefs, capital allowances on asset purchases and the profits counting as earnings for pension contributions purposes. However, these are to be scrapped from 6 April 2025 and from then FHLs will receive the same treatment as long-term rental properties for tax purposes.
The government state that this will level the playing field between short- term and long-term lets and support people to live in their local area.
This will take effect from April 2025 and draft legislation will be published in due course.
Reaction:
This is a big change for those currently utilising the FHL scheme and will likely result in significant tax increases on this proportion of their income. It is too early to say how it will impact the market, but we will certainly be expecting big shifts.
Other changes to note:
Non-domicile rules update – To help reduce taxes on working people the government will ensure that those with the broadest shoulders pay a bit more, by abolishing the tax rules for non-UK domiciled individuals, or non-doms, and replacing them with a residence-based regime. This will ensure that all UK residents who stay in the UK for over four years will pay the same tax on their foreign income and gains, regardless of their domicile status, creating a modernised regime that is simpler, fairer, and more competitive.
Multiple dwellings relief – From 1 June 2024, the government is abolishing Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax regime. This follows an external evaluation which showed no strong evidence the relief is meeting its original objectives of supporting investment in the private rented sector. Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024.
The government will seek to extend full expensing to assets for leasing when fiscal conditions allow and will publish draft legislation shortly.
The capital gains tax (CGT) annual exemption will drop to £3,000 in 2024/25, down from £6,000 in 2023/24. This change will mean that those selling capital assets such as property or shares will pay more tax.
What’s staying the same?
Your personal allowance
Your tax-free personal allowance will remain at £12,570 in 2024/25. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.
Income tax rates and allowances
For 2024/25, income tax rates and thresholds remain frozen at their 2023/24 levels. After your tax-free ‘personal allowance’ has been deducted, your remaining income is taxed in bands in 2024/25 as follows.
‘Other income’
Savings income
Dividend income
Basic rate
£1 – £37,700
20%
20%
8.75%
Higher rate
£37,701 – £125,140
40%
40%
33.75%
Additional rate
Over £125,140
45%
45%
39.35%
‘Other income’ means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or partner in a business, rental income, pension in
Tax on savings income
A savings allowance determines how much savings income you can receive at 0% taxation, instead of the usual tax rates for savings income as shown above. This continues to be set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Further, interest income from an Individual Savings Account (ISA) continues to be exempt from tax.
Tax on dividend income
A dividend allowance determines how much dividend income you can receive at 0% taxation, instead of the usual tax rates for dividend income as shown above.
As expected, this allowance will drop to £500 in 2024/25, down from the £1,000 2023/24 allowance. However, dividend income from a ‘stocks and shares’ ISA continues to be exempt from tax.
Individual Savings Accounts (ISAs)
The limit on how much you can save into ISAs (including cash and stocks and shares ISAs) in 2024/25 remains at £20,000 overall.
The Chancellor did announce that the government will introduce a new ‘UK ISA’ with an additional allowance of £5,000 a year but this is subject to consultation, and we do not yet have a start date (see above).
For employers
There have been no changes to the rate or thresholds for employer’s Class 1 NICs, which remains at 13.8% for wages paid in excess of £9,100 a year (£175 per week). For eligible employers, the employment allowance remains at £5,000 per year, reducing their total employer’s NIC liability by this sum.
Benefits in kind
Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of benefits.
The set percentages used to calculate company car benefits are fixed until 5 April 2026 before slight increases apply to most car types, including electronic and ultra-low emission, from 6 April 2026.
The figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) remain fixed at their 2023/24 levels in 2024/25.
These are:
Van benefit £3,960
Van fuel benefit £757
Car fuel benefit multiplier £27,800
National minimum wage (NMW)
Employers must pay their employees at least the national living wage (for workers aged over 21) / national minimum wage. The minimum hourly rates change on 1 April each year and depend on the worker’s age and if they are an apprentice.
1 April 2024 – 31 March 2025
1 April 2023 – 31 March 2024
Age 23 and over
£10.42
Age 21 and over
£11.44
21-22 year old rate
£10.18
18-20 year old rate
£8.60
£7.49
16-17 year old rate
£6.40
£5.28
Apprentice rate
£6.40
£5.28
These increases are not insubstantial, and the affordability of the rates will need to be carefully considered by employers when planning their headcount for the year ahead.
Corporate Taxes
Rates from 1 April 2024
Corporation tax rates and thresholds remain at the levels used in the year to 31 March 2024 as follows:
Financial year to 31 March 2025
Main rate 25%
Small profits rate 19%
Lower threshold £50,000
Upper threshold £250,000
Marginal relief fraction 3/200
Effective marginal relief rate 26.5%
Companies with profits between the lower and upper thresholds will qualify for marginal relief, which means they pay tax at 19% up to the lower threshold and at 26.5% on the remainder of the profits.
The thresholds must be equally shared between companies in a group and those controlled by the same person or persons. It has been confirmed in the Budget that the same rates and thresholds will also apply in the year to 31 March 2026.
Conclusion:
If you have been impacted by any of the above changes or have concerns you would like to discuss, please do not hesitate to reach out to us so that we can support you on a 1-1 basis.
As always, we welcome you to share this information with any one you feel it can benefit.
We’d love to hear from you about your thoughts on the budget through social media or via email using [email protected]
Disclaimer: This newsletter covers the key news headlines from Budget 2024. The authors take great care in its production, but it is not exhaustive and should not be read as a full fiscal summary. The content displayed is correct as of 6 March 2024. We cannot take responsibility for any action taken or not taken from this document alone. Please contact us for personalised advice.
This guide will show you how to create a government gateway account in the simplest way and link it to all your relevant taxes.
Creating a government gateway account will allow you to manage all of your taxes and their associated details effectively.
We have split this guide into two sections:
Section 1: Creating your government gateway account – which should only be done once per business/individual Section 2: Adding taxes to your government gateway account – which will need to be done a number of times depending on how many taxes you or your business is registered for.
TIP: You do not need to add taxes that you are not registered for. For example if you are not a company you would not need to add corporation tax, if you are not VAT registered you would not need to add VAT etc.
Section 1: Creating a government gateway account
Go to HMRC’s log in page
Click the green ‘sign in’ button
Click ‘Create sign in details’
Enter your email address when asked
You will now be emailed a confirmation code, use this code to confirm your email address
Once your email is verified you will be asked for your full name and to create a password
You will now be issued with a user ID for your government gateway account – see TIP.
You will then be asked to select what type of account you need, it will either be ‘individual’ if you are self-employed or ‘organisation’ if you are a limited company (you can add your self-assessment for directors to the same account if you are a company so there is no need for two government gateway accounts)
You will then be asked to add an additional security step
TIP: Print this page to PDF and save it somewhere safe in your documents. Losing this ID can create a lot more trouble for you in the future.
You have now created your government gateway account.
Section 2: Adding taxes to your government gateway account
Now that you have set up your government gateway account, you will need to add each tax that is relevant to you.
These taxes could include:
Corporation tax (companies)
PAYE for Employers (if your business operates a payroll)
VAT (if your business is VAT registered)
Self-assessment (for self-employed people or limited company directors)
To add a service, you will need to do the following:
From the business tax summary page, click ‘manage account’
Then select ‘Get online access to a tax, duty or scheme’
Select the tax you want to add and click the green button
Each specific tax will require specific information relating to that tax
• Corporation tax – Company UTR
• PAYE for Employers – PAYE reference and accounts office reference
• VAT – VAT number
• Self-assessment – Personal UTR
If you are a client of The Orenda Collective, you can access all this information from the portal.
After you have added the tax, HMRC will then post an activation code to your registered address
Once the code arrives, log back in, and input the code
You will now be set up for the relevant tax on your government gateway account.
A workplace pension is a way of allowing an employee to save for their retirement that’s arranged by the employer.
Some workplace pensions are called ‘occupational’, ‘works’, ‘company’ or ‘work-based’ pensions.
Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute towards it. This is called ‘automatic enrolment’. If you employ at least one person you are an employer and you have certain legal duties.
How do workplace pensions work?
A percentage of your employee’s pay is put into the pension scheme automatically every payday.
In most cases, the employer adds money into the pension scheme too. The employee may also get tax relief from the government.
Does Auto-enrolment apply to my business?
Whether you’re a coach, a graphic designer, have a marketing business, or a photographer, you are an employer from the day your first member of staff started working for you and you have legal duties.
If you are employing staff for the first time, your legal duties for automatic enrolment begin on the day your first member of staff starts work. This is known as your duties start date. You should start preparing early in anticipation of this, so you know what you’ll need to do.
Does my business have to operate a workplace pension?
All employers must provide a workplace pension scheme. This is called ‘automatic enrolment’.
Employers must automatically enrol employees into a pension scheme and make contributions to the pension if all of the following apply:
They are classed as a ‘worker’
They are aged between 22 and State Pension age
They earn at least £10,000 per year
They usually (‘ordinarily’) work in the UK (read the detailed guidance if you’re not sure)
Are there any situations when my business does not have to operate a workplace pension?
The employer usually does not have to automatically enrol a worker if they do not meet the previous criteria noted above or if any of the following apply:
They’ve already given notice to you that they’re leaving their job, or you’ve given them notice
They have evidence of their lifetime allowance protection (for example, a certificate from HMRC)
You have already included the worker on a pension that meets the automatic enrolment rules and you the employer arranged it
You made a one-off payment to a workplace pension scheme that’s closed (a ‘winding-up lump sum’), and then the worker leaves and re-joins the same job within 12 months of getting the payment
more than 12 months before the staging date, the worker left (‘opted out’) of a pension arranged by your employer
The worker is from an EU member state and they are in an EU cross-border pension scheme
The worker is in a limited liability partnership
The worker is a director without an employment contract and employs at least one other person in your company
Does my business have to contribute to a workplace pension for my employees?
An employer does not have to contribute to an employee’s pension if they earn these amounts or less:
£520 a month
£120 a week
£480 over 4 weeks
If an employee earns less than £10,000, but above £6,240, the employer doesn’t have to automatically enrol the employee in their scheme however, if they join, the employer will be unable to refuse you and must make contributions on the employees behalf.
Do I need to auto-enrol my employees?
What you need to do will depend on whether you’re about to start your automatic enrolment duties or whether you’re coming back for re-enrolment.
The pension regulator has a useful Q&A tool that will help you determine when and if you need to auto-enrol your employees that we recommend you use, but below is a useful summary.
Type of employee
Eligible jobholder
Non-eligible jobholder
Entitled worker
Age
22-State Pension age
16-74
16-74
Earns
£10,000+
£6,240-£10,000
Below £6,240
Auto enrolment status
Must be auto enrolled
Can ask to join
Can ask to join
Employer contribution status
Employer contributions required
Employer contributions required
Employer contributions are required in line with our Scheme rules.
You’re only required to auto enrol eligible jobholders. You must pay contributions towards their pension savings. You must enrol eligible jobholders even if they say they don’t want to join the Scheme.
Non-eligible jobholders can ask to join the Scheme. If they ask, you must put them in and pay contributions towards their pension savings.
Unless you have alternative pension arrangements for entitled workers, they can also ask to join the Scheme and you must put them in.
What does my business have to tell an employee when they are auto-enrolled?
The business must write to the employee when they’ve been automatically enrolled into the workplace pension scheme. You must tell them:
the date you added them to the pension scheme
the type of pension scheme and who runs it
how much they’ll have to pay in and how much you’ll contribute
how to leave the scheme, if they want to
how tax relief applies to them
So you have established you need to auto-enrol your employees, what next?
Your automatic enrolment duties start when you employ your first member of staff (duties start date).
You have 6 weeks from your duties start date to set up a pension scheme.
Step by step guide to fulfil your duties:
Choose a pension scheme: Choose a pension scheme that can be used for automatic enrolment and put your staff into it. Do this as soon as possible as it may take time.
Write to your staff: Use the pension regulator letter templates to write to each member of staff individually to tell them how automatic enrolment applies to them. Do this within 6 weeks after your duties start date.
Declare your compliance: Use the pension regulator declaration of compliance checklist to find out what information you’ll need to provide to them how you’ve met your duties. You must complete your declaration by your deadline or you may be fined. Do this within 5 months after your duties start date
How much has to be contributed to the auto-enrolment pension scheme?
Any worker who earns over the lower threshold for qualifying earnings is called a jobholder. You’ll have to make a minimum contribution into their retirement pot.
Workers earning less than the lower threshold of qualifying earnings are called ‘entitled workers’ or ‘workers without qualifying earnings’. For these workers, you don’t have to make a minimum contribution, but you can if you want to.
There are several ways you can calculate contributions for auto enrolment. There are statutory minimum contribution levels, but you can choose to set higher contribution levels if you want to.
Qualifying earnings
This is the minimum basis for calculating auto enrolment pension contributions.
Basic earnings
These include basic pay, holiday pay, and statutory pay such as sick pay or parental leave pay. They don’t include bonuses, commission, overtime, and similar payments.
If you use basic earnings to calculate auto enrolment pension contributions, the minimum contribution to an employee’s pension savings is 9%. Employers must pay at least 4% and the employee the remaining 5%.
Total earnings
These are all earnings including basic pay, holiday pay, sick pay, bonuses, commission, overtime and similar payments. If you use total earnings to calculate auto enrolment pension contributions, the minimum contribution to an employee’s pension savings is 7%. Employers must pay at least 3% and the employee the remaining 4%.
These are all earnings including basic pay, holiday pay, sick pay, bonuses, commission, overtime and similar payments. If you use total earnings to calculate auto enrolment pension contributions, the minimum contribution to an employee’s pension savings is 7%. Employers must pay at least 3% and the employee the remaining 4%.
Definition
Qualifying earnings
Basic earnings
Total earnings
Includes
All earnings between a lower and upper limit set by the government and reviewed each year.
Basic pay, holiday pay and statutory pay such as sick pay, but not bonuses, commission, overtime and similar payments.
All earnings including basic pay, holiday pay, sick pay, bonuses, commission, overtime and similar payments.
Total minimum contribution
8%
9%
7%
Employer
3%
4%
3%
Employee
5%
5%
4%
What are qualifying earnings?
Qualifying earnings is a band of gross annual earnings that can be used to work out what contributions a worker should get. It includes a worker’s salary, overtime, bonuses and commission, as well as statutory sick, maternity, paternity or adoption pay.
For the 2023/24 tax year it’s anything over £6,240 and up to £50,270.
How much is the minimum contribution?
The legal minimum for jobholders is currently 8 percent of their qualifying earnings. Of this, you need to pay at least 3 percent. The remainder comes from your workers’ pay, which you’ll have to collect and send to your pension provider, and tax relief from the government. The pension provider will claim the tax relief on your workers’ behalf.
You can pay more if you want to. Some employers pay all of their workers’ minimum contributions or pay additional amounts on top of the minimum. This is a good way of attracting and keeping good workers in your organisation.
The table below outlines the minimum contributions:
Date
Minimum contribution
What you’ll pay
What your worker pays
What the government pays
From 6 April 2019
8%
3%
4%
1%
How do you work out the minimum contributions?
The minimum contribution is a percentage of a worker’s gross annual earnings that fall within the qualifying earnings band.
For the 2023/24 tax year this means that the first £6,240 of their earnings isn’t included in the calculation. For example, if a worker earned £20,000 in 2023/24 their qualifying earnings would be £13,864 and their annual minimum contribution would be based on that.
Because you pay contributions every time you pay your workers, you’ll need to work out qualifying earnings for each pay period and make your contribution based on these amounts. There may be pay periods when workers don’t earn enough to qualify for a minimum contribution.
The table below shows the lower and upper levels of qualifying earnings for some commonly-used pay periods. You’ll need to make a contribution based on everything they’re paid over the lower level and up to the upper level.
Pay period
Lower Level of qualifying earnings
Upper level of qualifying earnings
Weekly
£120
£967
Fortnightly
£240
£1,934
Four-weekly
£480
£3,867
Monthly
£520
£4,189
What is the duties start date?
Your legal duties for automatic enrolment begin on the day your first member of staff starts work. This is known as your duties start date and you cannot change this date.
Can I use postponement?
One of the main reasons you might decide to delay working out who to put into a pension scheme is if you have seasonal or temporary staff who you know will stop working for you within three months. You can also use it for staff who begin work on a probationary period or if you need more time to set up your pension scheme or other business processes. But you can choose to use postponement for any other business reason.
When you can postpone?
You can only postpone automatic enrolment from:
your duties start date
a staff member’s first day of employment
the date a staff member first meets the age and earnings criteria to be put into a pension scheme that you also pay into.
Remember, if you use postponement on your duties start date it only changes the day on which you need to assess your staff, it doesn’t change your duties start date or your declaration of compliance deadline. You can only use postponement if you’re within six weeks of the date that your member of staff met the age and earnings criteria to be put into a pension scheme.
How do I use postponement?
You must write to each member of staff individually to tell them that you have delayed working out who to put into a scheme and how automatic enrolment applies to them. You will have six weeks to write to them from the date after postponement starts. There’s no need to tell us that you’ve decided to use postponement.
You can postpone for up to three months. You can postpone as many or as few staff as you like and the postponement period doesn’t have to be the same length for everyone.
If any of your staff write to you asking to join a pension scheme during the postponement period, you must put them into one once you have received their request.
You will have to pay into the pension scheme if they are:
aged 16-74
and earn at least £520 a month or £120 per week.
To find out how much you will need to pay you should ask your pension scheme provider.
Do I have any on-going duties?
Each time you pay your staff (including new starters), you must monitor their age and earnings to see if they need to be put into a pension scheme and how much you need to pay in. Find out more about your ongoing duties.
When does automatic enrolment apply to a director?
You will have automatic enrolment duties:
if the director has a contract of employment with your organisation and at least one other person (who can be another director or a member of staff) also has a contract of employment with your organisation
if you have multiple directors and no other staff – and at least two of the directors have employment contracts – all the directors with employment contracts will be members of staff and subject to automatic enrolment duties
When does automatic enrolment not apply to a director?
You will not have automatic enrolment duties:
if a director does not have an employment contract, they are not considered a member of staff and do not need to be assessed for automatic enrolment – however if you have other staff, you’re an employer and will have duties for these staff – even if none of these staff meet the age and earnings criteria to be put into a pension scheme you must still complete a declaration of compliance
if your organisation only has directors without contracts of employment and no other staff
if your organisation only has one director with a contract of employment and no other staff
When should I reach out to an accountant?
Operating a payroll with or without auto-enrolment can be complex and time consuming. There is also a real possibility for penalties and employee disputes if the appropriate procedures are not followed.
We therefore recommend you reach out to an accountant ahead of employing any staff or paying yourself through payroll to reduce your risk.
There are many reasons why you may want to go freelance. It might be that you are fed up of working for someone else, you would love to be your own boss or you want to choose your own hours and work from home. Whatever the reason, we have put together a guide to talk you through the steps on how to become a photographer.
How to become a photographer:
Choose your business structure
Register your business
Get a business bank account
Get appropriate insurance
Understanding record keeping requirements
Understanding accounting and tax requirements
In this guide we walk through each of these steps in detail to give you the confidence and knowledge required to become a photographer.
Choose your business structure to become a Photographer
You have decided you want to become a photographer, but don’t know where to start. There are multiple options when deciding what structure is for you, the most common structures include:
Other, such as; Joint ventures, charities and community interest companies
For the purposes of our becoming a photographer guide there are two structures that we will focus on; Self-employed and Limited Companies. For further detail on other business types please get in touch.
Do you need an accountant which specialises in photographers?
So what is the difference between being a sole trader and a limited company?
To put it simply, being a self-employed/sole trader means you are trading as an individual, while being a limited company means you are trading as a company, albeit a company of one.
Self-employed/Sole Trader
A self-employed individual, often known as a sole trader, does not work for a specific employer who pays them a consistent salary or wage. Self-employed individuals earn an income by offering their services or products directly to customers or businesses. They are required to win photography work or customers themselves and take responsibility for the success or failure of their work. As a photographer this would mean you would have to go out and find clients yourself.
Benefits of a photographer being self-employed
Simple freelance business structure without the administration burden of a Limited Company
Free and simple registration of your business with HMRC
Flexible freelance business structure that can later transition to a Limited Company
Considerations of a photographer being self-employed
You are personally responsible for any losses the freelance business makes
You are taxed at income tax rates which can be less tax efficient than operating as a Limited Company
Potential Clients may see sole-traders as less attractive than Limited Companies
What is required of you as a self-employed individual
Register with HMRC at gov.uk
Record keeping of all income and expenses
Submit a tax return each year
Limited Company
Many of the indicators of a self-employed individual also apply to owners of a limited company, however, instead of being self-employed you are considered both an owner (shareholder) and office holder (director) of a limited company.
A Limited Company is a general form of incorporation that limits the amount of personal liability undertaken by the company’s shareholders and directors. This means that as a director and shareholder of a Limited Company, the business and you are seen as separate legal entities, which provides a layer of protection to your personal assets as a photographer.
Benefits of a photographer operating as a Limited Company
Retain more of profits by utilising tax efficiencies
Limited personal liability, this means that if a Company is in debt, the personal assets and finances of the shareholders will be protected by law
Limited companies have a certain level of prestige in terms of brand image that sole traders do not
Considerations for a photographer operating as a Limited Company
More complex and expensive to set up than a sole trader
Limited company accounts and taxes are more technical than a sole trader
There are additional costs incurred when operating a limited company
What is required if you register as a Limited Company
Incorporate your company with Companies house and register for company tax with HMRC
Record keeping of income and expenses in line with company regulation
Submit Financial Accounts and Corporation tax return each year (as well as a self-assessment tax return for you as a director and shareholder)
Ultimately the choice as to whether operate as a sole trader or a limited company is completely up to you and personal to your specific situation.
If you are looking for a simple way to set up as a photographer then a sole trader is probably the best place to start. However, there are certainly many advantages to operating as a limited company, especially if you intend to grow and scale your business in the future.
Whichever option you are leaning to we always recommend you discuss it with an accountant to get their professional opinion and ensure you are set up correctly from the start. We offer a free consultation call for new clients, contact us here.
Register yourself as a photographer
Once you have decided on an operating structure you will register your photography business. The process is different for sole traders and limited companies.
Self-employed/Sole trader registration
Registering as a sole trader is fairly straightforward, you must create a government gateway account with HMRC and complete the registration from.
You’ll receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days and subsequently you will receive an activation code. You will need your government gateway log in details and UTR number to file your taxes, so make sure to keep it safe.
Once you are registered you will be required to keep on top of your record keeping and deadlines for filing your tax return.
Limited company registration
To start up as a limited company there are a few more steps that need to be taken.
Decide on a company name
Decide who will be the director(s) of the company
Decide who will be the shareholder(s) of the company
Prepare documents on how to run the company (articles of association)
Incorporate your company with Companies House
Register for Corporation Tax (and other taxes such as PAYE and VAT as appropriate) with HMRC
We would recommend using a professional to help you with registration of a Limited Company to ensure you meet all of the legislation requirements.
Apply for a bank account for your photography business
The number one thing you should always do when you set up as a photographer, whether you are self-employed or a limited company, is set up a business bank account specific to your photography work.
Setting up a business bank account means that you are able to keep all of your photography income and expenditure separate from your personal finances. This makes is much easier when you come to your tax and accounts at year end. Furthermore, as a Limited Company you are required to have a company bank account as the company is a separate legal entity in its own right.
What is required to set up a bank account?
It is easy to set up a bank account. You will provide the bank with the following information:
Business name and address
Photo identification such as a driver’s license or passport and proof of address
They may require a letter from your accountant
What banks could I look at?
You can apply for a business bank account from most banks. You could choose a traditional high street bank or an online bank.
There are a few things you should consider whilst deciding which bank to go with such as:
Are there any extras/benefits you will receive as part of using that bank account?
How quick is it to set up?
Is there a fee? If so, is it a one off fee or monthly?
Is there an app?
Apply for appropriate insurance
As a photographer there are many types of insurance that may be applicable to you, such as public liability insurance, employers liability and professional liability insurance.
Public Liability Insurance
Public liability insurance is an insurance product for business owners. It protects you in case your business is brought to court by a client, a customer or a member of the public. If your business is sued, public liability insurance will cover the cost of your legal defence, plus any compensation or settlement money you have to pay out.
Public liability doesn’t cover any injury to yourself or your employees. It covers the cost of legal action and compensation claims made against your business if a third party is injured or their property suffers damage while at your business premises or when you are working in their home, office or business property.
You’re not legally required to have public liability insurance, but if you’re a business owner the chances are you’ll need it. Public liability insurance covers your costs if someone else sues your business – and without cover, unexpected legal costs could bankrupt your business.
Public liability insurance is particularly important if your business involves interacting with the public. If a customer has an accident on your premises, they might sue. You may still need public liability insurance if your business doesn’t have a physical premises. If you’re a photographer, you could accidentally damage a client’s property while visiting them. Even if you sell your services from home, there’s always a chance that a customer could bring you to court.
Employers Liability Insurance
Employers’ liability insurance covers you and your business for compensation costs if an employee becomes ill or injured as a result of the work they do for you. It’s legally required of all businesses with one or more employees.
Employers’ liability insurance is a legal requirement if you have employees – including many types of subcontractor. If you are caught without cover, your business can be fined up to £2,500 per employee per day.
Professional Liability Insurance
Professional indemnity insurance can cover compensation payments and legal fees if a client makes a claim against you. The compensation payment will usually take into account the financial loss that the client has suffered.
Imagine, for example, that you are handling client data, but you or an employee copies the wrong person into an email when sending on the data. Your client sues you for breach of confidentiality. In this case, your professional indemnity insurance could pay for the cost of the compensation claim, along with legal expenses.
Professional indemnity insurance isn’t mandatory under the law, but, as mentioned above, protects you and your business if something goes wrong. It’s also required by some client contracts.
How much is insurance for a photographer?
The cost of insurance will differ depending on the size of your business and the services you provide. There are a lot of comparison search engines online which will help you decide which insurance is best for you and your business, speaking to an insurance broker will also allow you to get quotes from a variety of insurers.
Understanding your record-keeping requirements
The requirements for record keeping for sole traders and limited companies are different.
Self-employed/Sole Trader
As a sole trader you must keep records of your photography income and expenses for your tax return.
Types of proof include:
All receipts for goods, services and stock
Bank statements
Sales invoices, till rolls and bank slips etc.
How to keep track of records?
As a sole trader it is possible to keep track of records in a spreadsheet (though this is likely to change in the future with the implementation of Making Tax Digital for income tax). We would recommend looking at your records on a regular basis e.g. once a month and entering all income and expenditure. This means when you come to complete your tax return at the end of the year you have all your details in one place. As a sole trader you could also use an accounting software system, see limited company section for further details regarding accounting software.
Limited company
As a limited company you are required to keep more records than as a sole trader.
Records about the company
Details of directors, shareholders and company secretaries
The results of any shareholder votes and resolutions
Any details for the company to repay loans at a specific date in the future and who they must be paid back to
Details for the company to make payments if something goes wrong and it’s the company’s fault
Transactions when someone buys shares in the company
Loans or mortgages secured against the company’s assets
Accounting records
All money received and spent by the company, including grants and payments from support schemes e.g. coronavirus support scheme
Details of assets owned by the company
Debts the company owes or is owed
Stock the company owns at the end of the financial year
All goods/services bought and sold and who you bought and sold them to and from
How to keep track of records?
As a limited company we would not recommend keeping track of your records using a spreadsheet. We would instead recommend you use an accounting software.
The benefits of using cloud accounting software is that it provides 24/7 access to all your financial data from anywhere in the world, electronic filing for all of your invoices and receipts to minimise the need for paper and integration with multiple applications such as Hubdoc, Shopify and PayPal.
This could mean for example that when you invoice for a piece of branding work you have completed for a client the software will automatically speak to PayPal and when the client pays the records will be updated in the system to show the invoice as paid without you having to do anything. The other great thing is that your accountant has real time access to the software to help you with any queries you have.
Examples of accounting software are Xero, Quickbooks and Freeagent. As partners of Xero we would highly recommend this as a great tool but as always research to decide which software suits you best.
Understanding your accounting and tax requirements
There are different requirements for sole traders and limited companies when it comes to accounting and tax.
Self-employed/Sole trader
As a sole trader you are required to complete a self-assessment tax return at the end of each tax year. You will be required to complete the tax return including detail from the 6th April in one year to the 5th April the following year and you have until the 31st January after the tax year ends to file your tax return (assuming your year end is in line with the tax year).
For example:
You register as a photographer on the 6th April 2020, you will complete a tax return for the year ending the 5th April 2021 and you will have until the 31st January 2022 to complete the return.
You must include all taxable income on your self-assessment tax return.
As a sole trader you can complete the return yourself on the HMRC website or you can engage an accountant to complete it for you.
Limited Company
In keeping with the trend of limited companies being more complex, there are more accounting and tax requirements for a company.
As a limited company you must complete the following:
Corporation tax return to the financial year end
Company accounts to the financial year end
Confirmation statement
Dividend vouchers & minutes
VAT returns (if appliable)
PAYE returns (if applicable)
For your corporation tax and company accounts you have until 9 months after your financial year end to complete them.
For limited companies, the financial year is generally set according to when the company was incorporated. In the UK, companies are given an accounting reference date (ARD) which refers to the last day in the month the company was incorporated.
For example, if a company incorporated on 20th of May, their ARD would be the 31st of May. Their financial year would therefore run from June 1st – May 31st.
What happens if you miss your deadlines?
If your deadlines are not met, as either a sole trader or a limited company you will incur penalties and often interest.
To ensure you comply with financial regulatory standards we would recommend using an accountant to complete these for your company.
Round up
You may be feeling overwhelmed by the information detailed within this guide, so to break it down the next steps to do are:
Decide if you will operate as a sole trader or as a limited company
Register as self-employed or incorporate your company
Open a business bank account
Apply for appropriate business insurance
Decide how you will maintain your records; spreadsheet or accounting software
Put the accounting deadlines in your calendar so you ensure you meet all requirements
A great idea before deciding on any of the above, would be to speak to us about becoming a photographer. We will make sure you understand exactly how to get started and ensure you are being tax efficient and complying with all the rules and legislation.
If you would like to get in touch with us, we offer a free no obligation consultation where we can discuss all of the above steps and support you in your journey to becoming a photographer.
Related questions
Can I claim travel costs to shoot locations?
If you are required to travel to a shoot, this is an expense that is ‘wholly and exclusively’ required for you to carry out your trade. As a result, it is allowable from a tax perspective so you will be able to claim the expense.
What is a confirmation statement?
A confirmation statement (CS01) is a snapshot of general information about a company’s directors, secretary (where one has been appointed), registered office address, shareholders, share capital and people with significant control.
What is a Limited Liability Partnership?
A Partnership is an arrangement between two or more people to manage and operate a business and share its profits. The profits are shared in line with the agreed partnership terms, for example if there were two partners this could be 50% for each partner or 75% for one partner and 25% for the other.
For example, Accountants, Doctors, Dentists or Solicitors often operate in a partnership.
Value added tax is a general tax that applies to all commercial activities involving the production and distribution of goods and/or provision of services. VAT is a tax on consumer expenditure and is collected on business transactions, imports and acquisitions.
Most business transactions involve supplies of goods or services. VAT is payable if they’re supplies made:
in the UK or the Isle of Man
by a taxable person
in the course or furtherance of business
that are not specifically exempted or zero-rated
Supplies which are made in the UK or the Isle of Man and which are not exempt are called taxable supplies.
A taxable person is an individual, firm, company and so on who is, or is required to be, registered for VAT. A person who makes taxable supplies above certain value limits is required to be registered.
If the annual turnover of a business is less than a certain limit (the threshold), which does differ accordingly, the person or business does not have to charge VAT on the sales of services or products.
VAT is charged as a percentage of your product or service price. So if for example your product or service is £100 and the applicable VAT rate is 20%, you would charge £20 VAT (£100 x 20%) on top of your product or service price. This makes the total cost to your customer £120. You would then pass that £20 VAT over to HMRC via your VAT returns and keep the £100 as your sale value.
It’s important to understand how VAT works and how to calculate the correct amount that applies to your business. If in doubt we recommend reaching out to your accountant.
When do I need to register for VAT?
You must register for VAT when your VAT taxable turnover is over £85,000 (known as the threshold), or if you know it will be. Your VAT taxable turnover is the total of everything sold that is not VAT exempt.
When is it compulsory for my business to VAT register?
You must register for VAT if:
you expect your VAT taxable turnover to be more than £85,000 in the next 30-day period
your business had a VAT taxable turnover of more than £85,000 over the last 12 months
You might also need to register in some other cases, depending on the kinds of goods or services you sell and where you sell them.
If you’ll exceed the VAT threshold in the next 30-day period
You must register if you realise that your total VAT taxable turnover is going to be more than £85,000 in the next 30-day period.
You have to register by the end of that 30-day period. Your effective date of registration is the date you realised, not the date your turnover went over the threshold.
Example
On 1 May, you realise that your VAT taxable turnover in the next 30-day period will take you over the threshold. You must register by 30 May. Your effective date of registration is 1 May.
If you exceeded the VAT threshold in the past 12 months
You must register if, by the end of any month, your total VAT taxable turnover for the last 12 months was over £85,000.
You must register if it goes over the current registration threshold in a rolling 12-month period. This is not a fixed period like the tax year or the calendar year – it could be any period, for example the start of June to the end of May.
You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.
Example
Between 10 July 2020 and 9 July 2021 your VAT taxable turnover was £100,000. That’s the first time it has gone over the VAT threshold. You must register by 30 August 2021. Your effective date of registration is 1 September 2021.
What if neither you or your business are based in the UK?
There’s no threshold if neither your nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK.
What if I register late for VAT?
If you register late, you must pay what you owe from when you should have registered.
You may get a penalty depending on how much you owe and how late your registration is.
Can I register for VAT even if I am not over the threshold?
You can register voluntarily if your business turnover is below £85,000. You must pay HMRC any VAT you owe from the date they register you.
What counts towards my VAT taxable turnover?
VAT taxable turnover is the total value of everything you sell that is not exempt from VAT.
To check if you’ve gone over the threshold in any 12-month period, add together the total value of your UK sales that are not VAT exempt, including in addition:
goods you hired or loaned to customers
business goods used for personal reasons
goods you bartered, part-exchanged or gave as gifts
services you received from businesses in other countries that you had to ‘reverse charge’
building work over £100,000 your business did for itself
Include any zero-rated items – only exclude VAT-exempt sales, and goods or services you supply outside of the UK.
Example:
Month
Sales that are not exempt from VAT
Rolling 12 month total
Over £85,000 in VAT taxable supplies?
Start of trading:
February
5,000.00
March
5,500.00
April
5,700.00
May
5,900.00
June
6,000.00
July
4,500.00
August
8,000.00
September
7,500.00
October
7,000.00
November
7,800.00
December
5,600.00
January
8,200.00
76,700.00
No
February
9,000.00
80,700.00
No
March
9,500.00
84,700.00
No
April
7,600.00
86,600.00
Yes – must register
May
7,800.00
88,500.00
Yes – stayed over
June
8,200.00
90,700.00
Yes – stayed over
What happens after I VAT register?
Once registered, you’ll need to complete regular VAT returns, these are usually quarterly, however other periods do sometimes apply.
This is where you declare how much VAT you have charged (output VAT) and how much you have paid (input VAT).
If you’ve charged more VAT than you’ve paid, you’ll have to pay the difference to HMRC. Conversely, if the company has paid more than you charged, you can claim this back from HMRC.
Are there different VAT schemes available?
Yes there are different schemes available, some of which listed below:
Retail schemes
Cash accounting
Second hand schemes
Annual accounting scheme
Flat-rate scheme
If you intend to use any of these schemes we recommend you discuss them with your accountant beforehand.
Can I reclaim VAT on my expenses?
VAT you have been charged on business expenses is called input VAT.
Input tax is the VAT you’re charged on your business purchases and expenses, including:
any services supplied in the UK which you receive from abroad
overheads and research and development costs
What can be claimed as input tax on your VAT returns?
You can usually reclaim the VAT paid on goods and services purchased for use in your business.
Examples of items that may have VAT reclaimable (please note this list is not exhaustive):
Materials or goods purchased to enable you to make your product of provide your service
Computer of software costs
Accountants fees
Printing & Stationery
Marketing costs
Consulting costs
Equipment costs
Office costs
If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT.
Be careful to review the invoice/receipt to check whether the item actually had VAT on it before you reclaim input VAT. Also be sure to keep evidence of your input VAT.
business assets that are transferred to you as a going concern
What about expenses / purchases incurred pre-registration for VAT?
There’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:
4 years for goods you still have, or that were used to make other goods you still have
6 months for services
You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.
You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including:
invoices and receipts
a description and purchase dates
information about how they relate to your business now
What are the VAT rates?
Standard rate of VAT: The standard rate applies to most goods and services, which is currently set at 20%. You should charge the standard VAT rate of 20% on all goods and services unless they are classified as reduced, zero-rated or exempt.
Reduced rate of VAT: The reduced rate is set at 5% and only applies to some goods and services, for example children’s car seats, health, heating, mobility aids, energy and protective products and services. This rate depends on the type of item being sold as well as circumstances of it being sold.
Zero rate of VAT: Zero rated is as the name implies, it’s items that have a 0% rate applied to them. Zero rated isn’t the same as exempt items. Zero rate counts as a taxable supply, but you do not add any VAT to your selling price. Zero rate items include health, building, publishing, books, newspaper, motorcycle helmets, most goods you export to outside the UK and children’s clothes and shoes. Even though there is no VAT applied on zero rate goods, it is still a rate of tax. Therefore, it must be recorded in all VAT accounts and reported in VAT returns.
Exempt supplies:
Some goods and services are exempt from VAT. If all the goods and services you sell are exempt, your business is exempt and you will not be able to register for VAT. This means you cannot reclaim any VAT on your business purchases or expenses.
If you are VAT-registered and incur VAT on any items that will be used to make exempt supplies, you are classed as partly exempt.
There are some goods and services on which VAT is not charged, including: insurance, finance and credit, education and training, fundraising events by charities, subscriptions to membership organisations, selling, leasing and letting of commercial land and buildings – this exemption can be waived
VAT rates may change and you must apply these changes to the rates from the date they do change.
What should I include on my VAT invoices?
Only VAT-registered businesses can issue VAT invoices and you must:
issue and keep valid invoices – these can be paper or electronic
keep copies of all the sales invoices you issue even if you cancel them or produce one by mistake
keep all purchase invoices for items you buy
Valid invoices
You’ll use a full VAT invoice for most transactions. You can use:
a modified invoice for retail supplies over £250
a simplified invoice for retail supplies under £250 – and for other supplies from 1 January 2013
You cannot reclaim VAT using an invalid invoice, pro-forma invoice, statement or delivery note.
Include the following on your invoice, depending on which type you use:
Invoice information
Full invoice
Simplified invoice
Modified invoice
Unique invoice number that follows on from the last invoice
Yes
Yes
Yes
Your business name and address
Yes
Yes
Yes
Your VAT number
Yes
Yes
Yes
Date
Yes
No
Yes
The tax point (or ‘time of supply’) if this is different from the invoice date
Yes
Yes
Yes
Customer’s name or trading name, and address
Yes
No
Yes
Description of the goods or services
Yes
Yes
Yes
Total amount excluding VAT
Yes
No
Yes
Total amount of VAT
Yes
No
Yes
Price per item, excluding VAT
Yes
No
Yes
Quantity of each type of item
Yes
No
Yes
Rate of any discount per item
Yes
No
Yes
Rate of VAT charged per item – if an item is exempt or zero-rated make clear no VAT on these items
Yes
Yes (1)
Yes
Total amount including VAT
No
Yes (1)
Yes
(1) If items are charged at different VAT rates, then show this for each.
Are there any other areas of VAT I should be mindful of?
Yes, VAT is a complex tax and there are lots of things you should be mindful of, some of which we have listed below:
If you trade with customers in the EU you should review the VAT and import/export changes as a result of Brexit
There are specific rules for trading with customers in Ireland that you should check and ensure compliance with
The ‘place of supply’ rules are intricate and complex and we recommend you ensure you are clear on the place of supply based on legislation
Record keeping is key, you must maintain specific records in support of the information included on your VAT return
Different products and services have different VAT rates
Making Tax Digital for VAT requires VAT-registered businesses, with taxable turnover above the VAT registration threshold, to keep records digitally and file their VAT Returns using software
Special rules that apply to digital sales
When should I reach out to an accountant?
Regardless of what type of business you have, VAT is very important and not something you can ignore.
Understanding the VAT rate that applies to your business and how you charge it correctly will help you to avoid any penalties, reclaim any VAT owed and to ensure your business is running successfully and efficiently.
Having the right accountant who understands your business, is on hand to answer questions and provide support will help you to stay organised and compliant with all of the VAT rules and regulations.
Failure to comply with the rules or registering late can be very costly and we highly recommend you reach out to an accountant to understand your obligations and get advice.
There are many reasons why you may want to go freelance. It might be that you are fed up of working for someone else, you would love to be your own boss or you want to choose your own hours and work from home. Whatever the reason, we have put together a guide to talk you through the steps on how to become a personal trainer.
How to become a personal trainer
Choose your business structure
Register your business
Get a business bank account
Get appropriate insurance
Understanding record keeping requirements
Understanding accounting and tax requirements
In this guide we walk through each of these steps in detail to give you the confidence and knowledge required to become a personal trainer.
Choose your business structure for your personal training business
You have decided you want to become a personal trainer, but don’t know where to start. There are multiple options when deciding what structure is for you, the most common structures include:
Other, such as; Joint ventures, charities and community interest companies
For the purposes of our becoming a personal trainer guide there are two structures that we will focus on; Self-employed and Limited Companies. For further detail on other business types please get in touch.
Do you need an accountant which specialises in personal trainers?
So what is the difference between being a sole trader and a limited company?
To put it simply, being a self-employed/sole trader means you are trading as an individual, while being a limited company means you are trading as a company, albeit a company of one.
Self-employed/Sole Trader
A self-employed individual, often known as a sole trader, does not work for a specific employer who pays them a consistent salary or wage. Self-employed individuals earn an income by offering their services or products directly to customers or businesses. They are required to win personal training clients themselves and take responsibility for the success or failure of their sessions with clients. As a personal trainer this would mean you would have to go out and find clients yourself. You may be able to do this as a self-employed trainer within a gym, therefore helping you increase your chances of finding clients.
Benefits of a personal trainer being self-employed
Simple freelance business structure without the administration burden of a Limited Company
Free and simple registration of your business with HMRC
Flexible freelance business structure that can later transition to a Limited Company
Considerations of a personal trainer being self-employed
You are personally responsible for any losses the freelance business makes
You are taxed at income tax rates which can be less tax efficient than operating as a Limited Company
Potential Clients may see sole-traders as less attractive than Limited Companies
What is required of you as a self-employed individual
Register with HMRC at gov.uk
Record keeping of all income and expenses
Submit a tax return each year
Limited Company
Many of the indicators of a self-employed individual also apply to owners of a limited company, however, instead of being self-employed you are considered both an owner (shareholder) and office holder (director) of a limited company.
A Limited Company is a general form of incorporation that limits the amount of personal liability undertaken by the company’s shareholders and directors. This means that as a director and shareholder of a Limited Company, the business and you are seen as separate legal entities, which provides a layer of protection to your personal assets as a personal trainer.
Benefits of a personal trainer operating as a Limited Company
Retain more of profits by utilising tax efficiencies
Limited personal liability, this means that if a Company is in debt, the personal assets and finances of the shareholders will be protected by law
Limited companies have a certain level of prestige in terms of brand image that sole traders do not
Considerations for a personal trainer operating as a Limited Company
More complex and expensive to set up than a sole trader
Limited company accounts and tax are more technical than a sole trader
There are additional costs incurred when operating a limited company
What is required if you register as a Limited Company
Incorporate your company with Companies house and register for company tax with HMRC
Record keeping of income and expenses in line with company regulation
Submit Financial Accounts and Corporation tax return each year (as well as a self-assessment tax return for you as a director and shareholder)
Ultimately the choice as to whether operate as a sole trader or a limited company is completely up to you and personal to your specific situation.
If you are looking for a simple way to set up as a personal trainer then a sole trader is probably the best place to start. However, there are certainly many advantages to operating as a limited company, especially if you intend to grow and scale your business in the future.
Whichever option you are leaning to we always recommend you discuss it with an accountant to get their professional opinion and ensure you are set up correctly from the start. We offer a free consultation call for new clients, contact us here.
Register yourself as a personal trainer
Once you have decided on an operating structure you will register your personal training business. The process is different for sole traders and limited companies.
Self-employed/Sole trader registration
Registering as a sole trader is fairly straightforward, you must create a government gateway account with HMRC and complete the registration from.
You’ll receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days and subsequently you will receive an activation code. You will need your government gateway log in details and UTR number to file your taxes, so make sure to keep it safe.
Once you are registered you will be required to keep on top of your record keeping and deadlines for filing your tax return.
Limited company registration
To start up as a limited company there are a few more steps that need to be taken.
Decide on a company name
Decide who will be the director(s) of the company
Decide who will be the shareholder(s) of the company
Prepare documents on how to run the company (articles of association)
Incorporate your company with Companies House
Register for Corporation Tax (and other taxes such as PAYE and VAT as appropriate) with HMRC
We would recommend using a professional to help you with registration of a Limited Company to ensure you meet all of the legislation requirements.
Apply for a bank account for your personal training business
The number one thing you should always do when you set up as a personal trainer, whether you are self-employed or a limited company, is set up a business bank account specific to your personal training work.
Setting up a business bank account means that you are able to keep all of your personal training income and expenditure separate from your personal finances. This makes is much easier when you come to your tax and accounts at year end. Furthermore, as a Limited Company you are required to have a company bank account as the company is a separate legal entity in its own right.
What is required to set up a bank account?
It is easy to set up a bank account. You will provide the bank with the following information:
Business name and address
Photo identification such as a driver’s license or passport and proof of address
They may require a letter from your accountant
What banks could I look at?
You can apply for a business bank account from most banks. You could choose a traditional high street bank or an online bank.
There are a few things you should consider whilst deciding which bank to go with such as:
Are there any extras/benefits you will receive as part of using that bank account?
How quick is it to set up?
Is there a fee? If so, is it a one off fee or monthly?
Is there an app?
Apply for appropriate insurance
As a personal trainer there are many types of insurance that may be applicable to you, such as public liability insurance, employers liability and professional liability insurance.
Public Liability Insurance
Public liability insurance is an insurance product for business owners. It protects you in case your business is brought to court by a client, a customer or a member of the public. If your business is sued, public liability insurance will cover the cost of your legal defence, plus any compensation or settlement money you have to pay out.
Public liability doesn’t cover any injury to yourself or your employees. It covers the cost of legal action and compensation claims made against your business if a third party is injured or their property suffers damage while at your business premises or when you are working in their home, office or business property.
You’re not legally required to have public liability insurance, but if you’re a business owner the chances are you’ll need it. Public liability insurance covers your costs if someone else sues your business – and without cover, unexpected legal costs could bankrupt your business.
Public liability insurance is particularly important if your business involves interacting with the public. If a customer has an accident on your premises, they might sue. You may still need public liability insurance if your business doesn’t have a physical premises. If you’re a personal trainer, you could accidentally damage a client’s property while visiting them. Even if you sell your services from home, there’s always a chance that a customer could bring you to court.
Employers Liability Insurance
Employers’ liability insurance covers you and your business for compensation costs if an employee becomes ill or injured as a result of the work they do for you. It’s legally required of all businesses with one or more employees.
Employers’ liability insurance is a legal requirement if you have employees – including many types of subcontractor. If you are caught without cover, your business can be fined up to £2,500 per employee per day.
Professional Liability Insurance
Professional indemnity insurance can cover compensation payments and legal fees if a client makes a claim against you. The compensation payment will usually take into account the financial loss that the client has suffered.
Imagine, for example, that you are handling client data, but you or an employee copies the wrong person into an email when sending on the data. Your client sues you for breach of confidentiality. In this case, your professional indemnity insurance could pay for the cost of the compensation claim, along with legal expenses.
Professional indemnity insurance isn’t mandatory under the law, but, as mentioned above, protects you and your business if something goes wrong. It’s also required by some client contracts.
How much is insurance for personal training?
The cost of insurance will differ depending on the size of your business and the services you provide. There are a lot of comparison search engines online which will help you decide which insurance is best for you and your business, speaking to an insurance broker will also allow you to get quotes from a variety of insurers.
Understand your record keeping requirements
The requirements for record keeping for sole traders and limited companies are different.
Self-employed/Sole Trader
As a sole trader you must keep records of your personal training income and expenses for your tax return.
Types of proof include:
All receipts for goods, services and stock
Bank statements
Sales invoices, till rolls and bank slips etc.
How to keep track of records?
As a sole trader it is possible to keep track of records in a spreadsheet (though this is likely to change in the future with the implementation of Making Tax Digital for income tax). We would recommend looking at your records on a regular basis e.g. once a month and entering all income and expenditure. This means when you come to complete your tax return at the end of the year you have all your details in one place. As a sole trader you could also use an accounting software system, see limited company section for further details regarding accounting software.
Limited company
As a limited company you are required to keep more records than as a sole trader.
Records about the company
Details of directors, shareholders and company secretaries
The results of any shareholder votes and resolutions
Any details for the company to repay loans at a specific date in the future and who they must be paid back to
Details for the company to make payments if something goes wrong and it’s the company’s fault
Transactions when someone buys shares in the company
Loans or mortgages secured against the company’s assets
Accounting records
All money received and spent by the company, including grants and payments from support schemes e.g. coronavirus support scheme
Details of assets owned by the company
Debts the company owes or is owed
Stock the company owns at the end of the financial year
All goods/services bought and sold and who you bought and sold them to and from
How to keep track of records?
As a limited company we would not recommend keeping track of your records using a spreadsheet. We would instead recommend you use an accounting software.
The benefits of using cloud accounting software is that it provides 24/7 access to all your financial data from anywhere in the world, electronic filing for all of your invoices and receipts to minimise the need for paper and integration with multiple applications such as Hubdoc, Shopify and PayPal.
This could mean for example that when you invoice for a piece of branding work you have completed for a client the software will automatically speak to PayPal and when the client pays the records will be updated in the system to show the invoice as paid without you having to do anything. The other great thing is that your accountant has real time access to the software to help you with any queries you have.
Examples of accounting software are Xero, Quickbooks and Freeagent. As partners of Xero we would highly recommend this as a great tool but as always research to decide which software suits you best.
Understanding you accounting and tax requirements
There are different requirements for sole traders and limited companies when it comes to accounting and tax.
Self-employed/Sole trader
As a sole trader you are required to complete a self-assessment tax return at the end of each tax year. You will be required to complete the tax return including detail from the 6th April in one year to the 5th April the following year and you have until the 31st January after the tax year ends to file your tax return (assuming your year end is in line with the tax year).
For example:
You register as a personal trainer on the 6th April 2020, you will complete a tax return for the year ending the 5th April 2021 and you will have until the 31st January 2022 to complete the return.
You must include all taxable income on your self-assessment tax return.
As a sole trader you can complete the return yourself on the HMRC website or you can engage an accountant to complete it for you.
Limited Company
In keeping with the trend of limited companies being more complex, there are more accounting and tax requirements for a company.
As a limited company you must complete the following:
Corporation tax return to the financial year end
Company accounts to the financial year end
Confirmation statement
Dividend vouchers & minutes
VAT returns (if appliable)
PAYE returns (if applicable)
For your corporation tax and company accounts you have until 9 months after your financial year end to complete them.
For limited companies, the financial year is generally set according to when the company was incorporated. In the UK, companies are given an accounting reference date (ARD) which refers to the last day in the month the company was incorporated.
For example, if a company incorporated on 20th of May, their ARD would be the 31st of May. Their financial year would therefore run from June 1st – May 31st.
What happens if you miss your deadlines?
If your deadlines are not met, as either a sole trader or a limited company you will incur penalties and often interest.
To ensure you comply with financial regulatory standards we would recommend using an accountant to complete these for your company.
Round up
You may be feeling overwhelmed by the information detailed within this guide, so to break it down the next steps to do are:
Decide if you will operate as a sole trader or as a limited company
Register as self-employed or incorporate your company
Open a business bank account
Apply for appropriate business insurance
Decide how you will maintain your records; spreadsheet or accounting software
Put the accounting deadlines in your calendar so you ensure you meet all requirements
A great idea before deciding on any of the above, would be to speak to us about becoming a personal trainer. We will make sure you understand exactly how to get started and ensure you are being tax efficient and complying with all the rules and legislation.
If you would like to get in touch with us, we offer a free no obligation consultation where we can discuss all of the above steps and support you in your journey to becoming a personal trainer.
Related questions
What is a confirmation statement?
A confirmation statement (CS01) is a snapshot of general information about a company’s directors, secretary (where one has been appointed), registered office address, shareholders, share capital and people with significant control.
What is a Limited Liability Partnership?
A Partnership is an arrangement between two or more people to manage and operate a business and share its profits. The profits are shared in line with the agreed partnership terms, for example if there were two partners this could be 50% for each partner or 75% for one partner and 25% for the other.
For example, Accountants, Doctors, Dentists or Solicitors often operate in a partnership.
What is Business premises and contents insurance for personal trainers?
If you’re based in a fitness studio and have all your equipment on site, don’t forget you’ll need to get that covered too – making sure your business premises and contents cover is up-to-date and tailored to cater to your needs.
And if you travel with your work, check that your van insurance or car insurance policy also covers any kit being stored in the vehicle.
There are many reasons why you may want to go freelance. It might be that you are fed up of working for someone else, you would love to be your own boss or you want to choose your own hours and work from home. Whatever the reason, we have put together a guide to talk you through the steps on how to become a freelance beautician.
How to become a freelance beautician
Choose your business structure
Register your business
Get a business bank account
Get appropriate insurance
Understanding record keeping requirements
Understanding accounting and tax requirements
In this guide we walk through each of these steps in detail to give you the confidence and knowledge required to become a freelance beautician.
Choose your business structure to become a freelance beautician
You have decided you want to become a freelance beautician, but don’t know where to start. There are multiple options when deciding what structure is for you, the most common structures include:
Other, such as; Joint ventures, charities and community interest companies
For the purposes of our becoming a freelance beautician guide there are two structures that we will focus on; Self-employed and Limited Companies. For further detail on other business types please get in touch.
So what is the difference between being a sole trader and a limited company?
To put it simply, being a self-employed/sole trader means you are trading as an individual, while being a limited company means you are trading as a company, albeit a company of one.
Do you need an accountant which specialises in beauticians?
A self-employed individual, often known as a sole trader, does not work for a specific employer who pays them a consistent salary or wage. Self-employed individuals earn an income by offering their services or products directly to customers or businesses. They are required to win work or customers themselves and take responsibility for the success or failure of their freelance beautician work. As a freelance beautician this would mean you would have to go out and find clients yourself.
Benefits of a freelance beautician being self-employed
Simple freelance business structure without the administration burden of a Limited Company
Free and easy registration of your business with HMRC
Flexible freelance business structure that can later transition to a Limited Company
Considerations of a freelance beautician being self-employed
You are personally responsible for any losses the freelance business makes
You are taxed at income tax rates which can be less tax efficient than operating as a Limited Company
Potential Clients may see sole-traders as less attractive than Limited Companies
What is required of you as a self-employed individual
Register with HMRC at gov.uk
Record keeping of all income and expenses
Submit a tax return each year
Limited Company
Many of the indicators of a self-employed individual also apply to owners of a limited company, however, instead of being self-employed you are considered both an owner (shareholder) and office holder (director) of a limited company.
A Limited Company is a general form of incorporation that limits the amount of personal liability undertaken by the company’s shareholders and directors. This means that as a director and shareholder of a Limited Company, the business and you are seen as separate legal entities, which provides a layer of protection to your personal assets as a freelance beautician.
Benefits of a freelance beautician operating as a Limited Company
Retain more of profits by utilising tax efficiencies
Limited personal liability, this means that if a Company is in debt, the personal assets and finances of the shareholders will be protected by law
Limited companies have a certain level of prestige in terms of brand image that sole traders do not
Considerations of a freelance beautician operating as a Limited Company
More complex and expensive to set up than a sole trader
Limited company accounts and tax are more technical than a sole trader
There are additional costs incurred when operating a limited company
What is required if you register as a Limited Company
Incorporate your company with Companies house and register for company tax with HMRC
Record keeping of income and expenses in line with company regulation
Submit Financial Accounts and Corporation tax return each year (as well as a self-assessment tax return for you as a director and shareholder)
Ultimately the choice as to whether operate as a sole trader or a limited company is completely up to you and personal to your specific situation.
If you are looking for a simple way to set up as a freelance beautician then a sole trader is probably the best place to start. However, there are certainly many advantages to operating as a limited company, especially if you intend to grow and scale your business in the future.
Whichever option you are leaning to we always recommend you discuss it with an accountant to get their professional opinion and ensure you are set up correctly from the start. We offer a free consultation call for new clients, contact us here.
Register yourself as a freelance beautician
Once you have decided on an operating structure you will register your freelance beautician business. The process is different for sole traders and limited companies.
Self-employed/Sole trader registration
Registering as a sole trader is fairly straightforward, you must create a government gateway account with HMRC and complete the registration form.
You’ll receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days and subsequently you will receive an activation code. You will need your government gateway log in details and UTR number to file your taxes, so make sure to keep it safe.
Once you are registered you will be required to keep on top of your record keeping and deadlines for filing your tax return.
Limited company registration
To start up as a limited company there are a few more steps that need to be taken.
Decide on a company name
Decide who will be the director(s) of the company
Decide who will be the shareholder(s) of the company
Prepare documents on how to run the company (articles of association)
Incorporate your company with Companies House
Register for Corporation Tax (and other taxes such as PAYE and VAT as appropriate) with HMRC
We would recommend using a professional to help you with registration of a Limited Company to ensure you meet all of the legislation requirements.
Apply for a bank account for your freelance beautician business
The number one thing you should always do when you set up as a freelance beautician, whether you are self-employed or a limited company, is set up a business bank account specific to your beauty work.
Setting up a business bank account means that you are able to keep all of your beautician income and expenditure separate from your personal finances. This makes is much easier when you come to your tax and accounts at year end. Furthermore, as a Limited Company you are required to have a company bank account as the company is a separate legal entity in its own right.
What is required to set up a bank account?
It is easy to set up a bank account. You will provide the bank with the following information:
Business name and address
Photo identification such as a driver’s license or passport and proof of address
They may require a letter from your accountant
What banks could I look at?
You can apply for a business bank account from most banks. You could choose a traditional high street bank or an online bank.
There are a few things you should consider whilst deciding which bank to go with such as:
Are there any extras/benefits you will receive as part of using that bank account?
How quick is it to set up?
Is there a fee? If so, is it a one off fee or monthly?
Is there an app?
Apply for appropriate insurance
As a freelance beautician there are many types of insurance that may be applicable to you, such as public liability insurance, employers liability and professional liability insurance.
What is Public Liability Insurance?
Public liability insurance is an insurance product for business owners. It protects you in case your business is brought to court by a client, a customer or a member of the public. If your business is sued, public liability insurance will cover the cost of your legal defence, plus any compensation or settlement money you have to pay out.
Public liability doesn’t cover any injury to yourself or your employees. It covers the cost of legal action and compensation claims made against your business if a third party is injured or their property suffers damage while at your business premises or when you are working in their home, office or business property.
You’re not legally required to have public liability insurance, but if you’re a business owner the chances are you’ll need it. Public liability insurance covers your costs if someone else sues your business – and without cover, unexpected legal costs could bankrupt your business.
Public liability insurance is particularly important if your business involves interacting with the public. If a customer has an accident on your premises, they might sue. You may still need public liability insurance if your business doesn’t have a physical premises. If you’re a freelance beautician, you could accidentally damage a client’s property while visiting them. Even if you sell your services from home, there’s always a chance that a customer could bring you to court.
What is Treatment Liability Insurance?
Treatment liability cover is vitally important to protect you if a client sustains an illness or injury as a result of the treatment administered by you. For example, a client could claim you have caused irritation, burn or reaction from the treatment you’ve provided.
What is Product Liability Insurance?
Product liability cover is important for beauticians who sell products in connection with their treatments, for example, creams for aftercare or products used during facials. This type of cover will protect you if a client suffers an allergic reaction from products sold by you.
Professional Liability Insurance
Professional indemnity insurance can cover compensation payments and legal fees if a client makes a claim against you. The compensation payment will usually take into account the financial loss that the client has suffered.
Imagine, for example, that you are handling client data, but you or an employee copies the wrong person into an email when sending on the data. Your client sues you for breach of confidentiality. In this case, your professional indemnity insurance could pay for the cost of the compensation claim, along with legal expenses.
Professional indemnity insurance isn’t mandatory under the law, but, as mentioned above, protects you and your business if something goes wrong. It’s also required by some client contracts.
How much is Insurance for freelance beauticians?
The cost of insurance will differ depending on the size of your business and the services you provide. There are a lot of comparison search engines online which will help you decide which insurance is best for you and your business, speaking to an insurance broker will also allow you to get quotes from a variety of insurers.
Understand your record keeping requirements
The requirements for record keeping for sole traders and limited companies are different.
Self-employed/Sole Trader
As a sole trader you must keep records of your beauty income and expenses for your tax return.
Types of proof include:
All receipts for goods, services and stock
Bank statements
Sales invoices, till rolls and bank slips etc.
How to keep track of records?
As a sole trader it is possible to keep track of records in a spreadsheet (though this is likely to change in the future with the implementation of Making Tax Digital for income tax). We would recommend looking at your records on a regular basis e.g. once a month and entering all income and expenditure. This means when you come to complete your tax return at the end of the year you have all your details in one place. As a sole trader you could also use an accounting software system, see limited company section for further details regarding accounting software.
Limited company
As a limited company you are required to keep more records than as a sole trader.
Records about the company
Details of directors, shareholders and company secretaries
The results of any shareholder votes and resolutions
Any details for the company to repay loans at a specific date in the future and who they must be paid back to
Details for the company to make payments if something goes wrong and it’s the company’s fault
Transactions when someone buys shares in the company
Loans or mortgages secured against the company’s assets
Accounting records
All money received and spent by the company, including grants and payments from support schemes e.g. coronavirus support scheme
Details of assets owned by the company
Debts the company owes or is owed
Stock the company owns at the end of the financial year
All goods/services bought and sold and who you bought and sold them to and from
How to keep track of records?
As a limited company we would not recommend keeping track of your records using a spreadsheet. We would instead recommend you use an accounting software.
The benefits of using cloud accounting software is that it provides 24/7 access to all your financial data from anywhere in the world, electronic filing for all of your invoices and receipts to minimise the need for paper and integration with multiple applications such as Hubdoc, Shopify and PayPal.
This could mean for example that when you invoice for a piece of branding work you have completed for a client the software will automatically speak to PayPal and when the client pays the records will be updated in the system to show the invoice as paid without you having to do anything. The other great thing is that your accountant has real time access to the software to help you with any queries you have.
Examples of accounting software are Xero, Quickbooks and Freeagent. As partners of Xero we would highly recommend this as a great tool but as always research to decide which software suits you best.
Understanding your accounting and tax requirements
There are different requirements for sole traders and limited companies when it comes to accounting and tax.
Self-employed/Sole trader
As a sole trader you are required to complete a self-assessment tax return at the end of each tax year. You will be required to complete the tax return including detail from the 6th April in one year to the 5th April the following year and you have until the 31st January after the tax year ends to file your tax return (assuming your year end is in line with the tax year).
For example:
You register as a freelance beautician on the 6th April 2020, you will complete a tax return for the year ending the 5th April 2021 and you will have until the 31st January 2022 to complete the return.
You must include all taxable income on your self-assessment tax return.
As a sole trader you can complete the return yourself on the HMRC website or you can engage an accountant to complete it for you.
Limited Company
In keeping with the trend of limited companies being more complex, there are more accounting and tax requirements for a company.
As a limited company you must complete the following:
Corporation tax return to the financial year end
Company accounts to the financial year end
Confirmation statement
Dividend vouchers & minutes
VAT returns (if appliable)
PAYE returns (if applicable)
For your corporation tax and company accounts you have until 9 months after your financial year end to complete them.
For limited companies, the financial year is generally set according to when the company was incorporated. In the UK, companies are given an accounting reference date (ARD) which refers to the last day in the month the company was incorporated.
For example, if a company incorporated on 20th of May, their ARD would be the 31st of May. Their financial year would therefore run from June 1st – May 31st.
What happens if you miss your deadlines?
If your deadlines are not met, as either a sole trader or a limited company you will incur penalties and often interest.
To ensure you comply with financial regulatory standards we would recommend using an accountant to complete these for your company.
Round up – How to become a freelance beautician?
You may be feeling overwhelmed by the information detailed within this guide, so to break it down the next steps to do are:
Decide if you will operate as a sole trader or as a limited company
Register as self-employed or incorporate your company
Open a business bank account
Apply for appropriate business insurance
Decide how you will maintain your records; spreadsheet or accounting software
Put the accounting deadlines in your calendar so you ensure you meet all requirements
A great idea before deciding on any of the above, would be to speak to us about becoming a freelance beautician. We will make sure you understand exactly how to get started and ensure you are being tax efficient and complying with all the rules and legislation.
If you would like to get in touch with us, we offer a free no obligation consultation where we can discuss all of the above steps and support you in your journey to becoming a freelance beautician.
A great idea before deciding on any of the above, would be to speak to an accountant. They will make sure you understand exactly how to become a freelance beautician and ensure tax efficiencies.
Related questions
What is Xero?
Xero is a Cloud Accounting Software. It provides 24/7 access to all your financial data from anywhere in the world, electronic filing for all of your invoices and receipts to minimise the need for paper, integration with multiple applications such as Hubdoc, Shopify and Paypal and your accountant has real time information.
What pension should I get as a Limited Company Director?
As a director of a limited company you can pay into a personal pension from your company. This means that you are able to obtain tax relief within the company. A few providers that are great for small companies are Get Penfold and Pension Bee.
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