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Spring Budget 2024 Update & Our Reaction

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 incomeDividend income
Basic rate£1 – £37,70020%20%8.75%
Higher rate£37,701 – £125,14040%40%33.75%
Additional rateOver £125,14045%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 20251 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.

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How to set up a Government Gateway Account

Setting up a Government Gateway Account

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

  1. Go to HMRC’s log in page
  2. Click the green ‘sign in’ button
  3. Click ‘Create sign in details’
  4. Enter your email address when asked
  5. You will now be emailed a confirmation code, use this code to confirm your email address
  6. Once your email is verified you will be asked for your full name and to create a password
  7. You will now be issued with a user ID for your government gateway account – see TIP.
  8. 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)
  9. 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:

  1. From the business tax summary page, click ‘manage account’
  2. Then select ‘Get online access to a tax, duty or scheme’
  3. Select the tax you want to add and click the green button
  4. 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.
  5. After you have added the tax, HMRC will then post an activation code to your registered address
  6. 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.

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Does my business need to operate a workplace pension?

What is a workplace pension?

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:

  1. 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.
  2. Work out who to put into a pension scheme: Work out who you need to put into a pension scheme on your duties start date. Do this on your duties start date.
  3. 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.
  4. 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.

If you need any support please do not hesitate to contact The Orenda Collective.

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How to Become a Photographer

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:

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)

Further information on both structures can be found in our blog on setting up as Self-employed versus Limited Company.

So which should I choose?

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.

Related reading:

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Guide to Value Added Tax for Businesses | VAT Explained

What is VAT?

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:

  • goods and services supplied to you in the UK
  • goods you import from outside the UK
  • goods you acquire into Northern Ireland from a taxable person in an EU member state (see The single market (VAT Notice 725))
  • goods you remove from a warehouse
  • 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.

What cannot be claimed as input tax?

You cannot reclaim VAT for:

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.

If you would like support please do get in contact with The Orenda Collective.

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How to Become a Personal Trainer

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:

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)

Further information on both structures can be found in our blog on setting up as Self-employed versus Limited Company.

So which should I choose?

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.

Posted on

How to Become a Freelance Beautician

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:

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?

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 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)

Further information on both structures can be found in our blog on setting up as Self-employed versus Limited Company.

So which should I choose?

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.

Posted on

How to Become a Life Coach

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 life coach.

How to become a freelance life coach:

  • 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 life coach.

Choose your business structure for your freelance life coaching business

You have decided you want to become a freelance life coach, but don’t know where to start. There are multiple options when deciding what structure is for you, the most common structures include:

For the purposes of our becoming a freelance life coach 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 life coaches?

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 coaching work or customers themselves and take responsibility for the success or failure of their freelance life coach work. As a freelance life coach this would mean you would have to go out and find clients yourself.

Benefits of a life coach 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 life coach 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 life coach.

Benefits of a life coach 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 life coach 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)

Further information on both structures can be found in our blog on setting up as Self-employed versus Limited Company.

So which should I choose?

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 life coach 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 life coach

Once you have decided on an operating structure you will register your life coach 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 life coaching business

The number one thing you should always do when you set up as a freelance coach, whether you are self-employed or a limited company, is set up a business bank account specific to your freelance coaching work.

Setting up a business bank account means that you are able to keep all of your life coaching 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 life coach 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 freelance life coach, 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 life coaching?

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 coaching 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 life coach 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 freelance life coach. 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 life coach.

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 Community Interest Company?

CICs are limited companies which operate to provide a benefit to the community they serve. They are not strictly ‘not for profit’, and CICs can, and do, deliver returns to investors. However, the purpose of CIC is primarily one of community benefit rather than private profit.

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Client Spotlight – Our Sisterhood

1. Who are Rebecca and Rachita?

Rebecca and Rachita are creatives and co-founders of Sisterhood. We met whilst studying visual communication design at Central Saint Martins and really bonded over our interest in using design to create social impact. We wanted to use the skills and experience we had gained to contribute towards creating services, systems and places that really work for the people who use them.

Fun fact: we were also flat mates, so naturally we decided to start a business together.

Photographer: Edith Whitehead 

2. Who/what is Our Sisterhood?

Sisterhood is a design led social business – it comprises of Sisterhood Studio specialising in socially conscious design and Sisterhood School, our creative social action programme for young girls (aged 13-17) to build confidence by addressing and creating real world solutions to issues they face in their everyday lives such as online safety, body image to larger issues such as street harassment.

3. What is your vision or mission?

Sisterhood is where all self-identifying girls design their place in the world. We use design and creative education as a vehicle for social change to positively impact young girls and their futures.

Photographer: Edith Whitehead

4. What drove you to start Our Sisterhood?

Sisterhood started as a final project whilst we were at University, we were about to start our creative careers and noticed a real drop-off of women in the creative industry. This was really surprising to us as we came from a cohort that was 70% female – so we started enquiring as to why this was happening.

When we started this as a design research, we spoke to women from a breath of careers and from all different stages in their careers as well. We soon realised this isn’t only limited to the creative industry and the two main things that kept on coming up again and again were that a lot of changes in a young girls lives stemmed when they were younger, in school e.g. drop in confidence and the second was lack of opportunities as they were growing up.

Form our own experiences, our research and studies we found all this to be true; so we decided that in order to change this cycle, we have to go to the root. We have to meet girls where they are, in their formative years and work with them to create this change.

5. Explain the 3 C’s, impact on girls and women etc.

The 3 C’s – confidence, courage & charisma are some of the most celebrated, promoted, rewarded and employable attributes and yet studies show these three traits still sit uncomfortably with young girls.

What this means is that at an early age, a girls self-esteem and aspirations are affected, having devastating impact on their future ambitions. These disadvantages trickle down affecting women in their later life.

6. How design fits into your mission?

When we decided that we were going to approach this through the lens of design and creativity – we really had to take stock and do in-depth research about the benefits of design. We had first hand experience as to what creative education did for us as individuals but we were also very weary that when working with schools we had to prove and show hard evidence of the benefits of design.

Creative education offers you more than just the skills to be able to communicate something through visual language. Particularly the design thinking and making process it is a framework through which you problem solve. It has so many transferrable skills such as building empathy, being a self-directed learner, leadership, project management, grit & resilience, critical & entrepreneurial skills. All of these are essential for young people to be able to thrive in future careers.

Design at its core enables you to imagine a better future and then gives you the tools to actually create it.

Photographer: Edith Whitehead

7. What projects you offer and what the impact of them is?

Through Sisterhood School we work with schools, cultural organisations, clubs, brands & companies in a couple of ways:

  • Social Action Programme – These are 15 week programmes embedded into the curriculum or hosted after-school hours with a group of 12-15 young girls, through which they create a real world social impact project.
  • Design Sprints – 1-2 Day Workshops that give young people an insight into different industries, young people collaborate with industry experts to create a prototype project.
  • Social Action Workshop – Condensing the 15 week programme into 1 or 2 week workshops held in the school holidays.
  • Partnerships – Programmes in which girls are creating projects that apply to the work your business is doing.

8. What does the future look like for Our Sisterhood?

Where do we even begin. The most exciting thing to look out for is a 2 week pop store coming in May/June 2021 which has been made possible through Appear Here’s ‘Space for Idea’ competition. We’ll be popping up as a storytelling lab & bookstore for young girls. There’s lots of work going on behind the scenes to make this happen and some announcements to come about that soon.

We are also really working towards scaling our reach and impact, at the end of the day we want to make sure we are reaching girls in areas that really don’t have access to opportunities such as these and those who particularly face inequalities. This means we are now starting to reach girls, schools, clubs beyond the city and making sure ALL girls have the chance to build a future for themselves.

9. How people can support you?

You can support us in a variety of exciting ways!

Make sure you are following us on social media (@oursisterhood) and are signed up to our newsletter on our website which tells you all about exciting opportunities and events we have going on at Sisterhood.

If you have any wonderful teachers, schools or after-school clubs in your neighbourhood who would really benefit from a programme like this, connect us with them as we do offer taster workshops.

We couldn’t the work we do without our community so if you would like to support young womxn, girls and gender expanding youth through Sisterhood please visit our patreon page  and join our community of incredible supporters.

Finally, if you or your organisation are in need of design services and you would like to work in a meaningful way that creates real, measurable benefit to your users and business – please get in touch.

10. Best place for people to connect?

You can connect with us on Instagram – @oursisterhood or email us directly: [email protected]

If you want to find out more about our programmes, you can find this on www.oursisterhood.co.uk

Photographer: Edith Whitehead

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Self-Employed Training Expenses

Can you expense training costs when self-employed or a sole-trader?

We get lots of questions when it comes to understanding what expenses you can offset against your income as self-employed, and training costs is often one people find confusing. In this guide we are going to provide you with an overview of training costs and the tax implications to help you make decisions for your business.

Can I include training costs as a tax deductible expense if I am self-employed?

The tax deductibility of training costs depends on whether the expense is considered to be training for a new skill or specialism or whether it is updating current skills and professional expertise, for example, continuing professional development (CPD).

CPD and skill updating is generally allowable for self-employed, whereas training for a new specialism or qualification is generally not allowable.

HMRC state:

Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of updating their skills and professional expertise is normally revenue expenditure, which is deductible from the profits of the business.

In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only updates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade.

Expenditure incurred by the proprietor of a business on training courses for themselves is revenue expenditure if the course merely updates existing expertise or knowledge. Expenditure on a course which provides new expertise or knowledge is capital.

We are going to explain in more detail what training costs can be defined as, the types of training costs that exists and which of these are allowable to offset against your income as self-employed to get to your taxable profits.

What are training costs?

Training costs consist of courses, seminars, webinars and CPD. We can usually put training costs into two buckets:

1) Training for a new skill or specialism (often where a qualification is gained)

For example, you were a hairdresser and you decide to train to become a Personal Trainer. This would be considered a new specialisation and qualification and not linked to your current trade, therefore not tax deductible.

2) Updating skills or expertise (CPD)

Training to update skills within your current trade, for example you are a hairdresser and you attend a course to learn a new colouring technique available. This would be considered tax deductible as its updating a skill used and linked to your current trade.

What is included as training for a new specialism or qualification for a self-employed individual?

Training for a new specialism or qualification falls into bucket 1 above and these costs are generally not deductible for tax purposes. According to HMRC you cannot claim for training courses if they are in relation to:

  • A new trade or business
  • Expanding into new areas of business, including anything not related to your current trade, for example, if you are currently a personal trainer and you train to teach Yoga this would be considered a new area of business.

What counts as updating skills/CPD?

Updating skills means growing or expanding skills you currently already possess or use within your business.

CPD is a term used to describe the learning activities professionals engage in to develop and enhance their abilities. For tax purposes CPD training costs are generally deductible for tax purposes.

According to HMRC ‘You can claim allowable business expenses for training that helps you improve the skills and knowledge you use in your business (for example, refresher courses)’.

For example, if you are a photographer and you attend a course to improve your knowledge in Photography lighting this would count as CPD and is tax deductible.

What is the tax impact?

What does allowable and disallowable mean?

Training for a new skill or specialism is generally not allowable from a tax perspective meaning you cannot offset this expense against your income when calculating your taxable profit.

Skill updating or CPD is generally an allowable expense from a tax perspective, meaning you can offset this expense against your income when calculating your taxable profit. Here is an example:

Income for the year – £10,000

New skill course – £2,000

CPD course – £1,500

For tax you can reduce your income by the CPD amount but not the new skill course, so:

£10,000 – £1,500 = £8,500 = Taxable Profit

You will only be taxed on the £8,500.

What about costs connected to my training course?

It is also worth highlighting that some costs incurred as a result of your ‘CPD/updating skills’ course are also allowable for tax relief, and these include:

  • Public transport
  • Parking
  • Congestion charges and tolls
  • Hotel accommodation if you have to stay overnight
  • Subsistence (food and drink)
  • Business telephone calls and printing costs

An exception to the above is that you can’t claim for travel if the training is taking place at your usual place of work.

Associated training costs, such as books may also be claimed, as long as the training costs themselves are allowable.

Conclusion:

Generally training costs that allow you to start trading or providing a new skill or qualification are not allowable. Whereas training that enhances a current skill you use within your trade is allowable.

We understand this is a complex area with judgement involved so do not hesitate to ask us questions. Our number one rule for clients is ‘No question is a silly question’!

Related questions:

What is a dual purpose expense?

As a sole trader there are some expenses that may fall under ‘dual purpose’ expenses, for example if you have a mobile phone that is used for both business and personal use. You are able to expense the proportion that relates to business use, for example, you could use your phone 60% personal use and 40% business use, you would be able to then claim 40% of the phone cost as a deductible expense against your profits.

We always recommend checking with your accountant before claiming though.

What are Capital Allowances?

Capital allowances can be claimed for assets that you have bought for use over the longer term within the business, such as a laptop. You are often able to claim ‘Annual Investment Allowance’ in the year that you buy the item to save tax in the year of acquisition, rather than over the life of the asset. The rules around capital allowances are complex and we always recommend checking with an accountant like The Orenda Collective.

First time here?

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