Tax FAQs

Q: How much tax will I pay – and when?

A: If you are a sole trader or in partnership, income tax and capital gains tax* are due by 31 January following the end of the income tax year.  From April 2026, the income tax year will end on 31 March 2026.  Prior to this the tax year ended on 5 April each year.

Beware of the ‘payments on account’ regime for income tax.  This is a system operated by HMRC whereby each January and July, you will be expected to pay half of the previous year’s liability in anticipation of the tax due for the current tax year.  This regime often catches taxpayers by surprise.  In truth it is a cashflow issue, not additional tax.  It takes account of the fact that by the time you pay your prior year income tax liability (10 months after the income tax year ends) the current tax year is almost at an end.

A: If you run your business as a limited company, corporation taxes are due 9 months after your company’s financial year end.  E.g., if your company year ends on 31 July 2025, you should pay your tax liability for that year by 30 April 2026.

We can forecast your tax liabilities in advance so there are no surprises, and we can help you you’re your cashflow to cover each payment.

Q: How do I reduce my tax bill legally?

A: There are a number of deductions you can legitimately make from your income to reduce your tax liabilities:

• Expenses that are wholly, exclusively (and necessarily) incurred in the furtherance of your business can be deducted from your income;
• Some asset purchases cannot be fully expensed against your business from an accounting perspective but there is a ‘capital allowances’ regime within the tax legislation that allows such items to be fully deducted for tax purposes;
• If you work from home and do not have the option of an office, there are certain home expenses that can be apportioned and claimed as deductible business expenses;
• Travel costs and mileage can often be claimed subject to certain rules along with the costs of accommodation and subsistence;
• Often training costs, material costs, and specialist clothing necessarily incurred in the fulfilment of your business objectives are deductible from business income, but these are again subject to a number of rules.

We will work with you to identify allowable deductible expenses and, at the same time, we will look at all available reliefs and allowances – including looking at pension and charitable contributions – to minimise your tax bill.

Q: What expenses can I claim?

A: Allowable expenses include many day-to-day costs of running your business.

These include:

• Expenses that are wholly, exclusively (and necessarily) incurred in the furtherance of your business;
• Asset purchases that cannot be fully expensed against your business from an accounting perspective may be deductible under the ‘capital allowances’ regime within the tax legislation;
• If you work from home and do not have the option of an office, you may be able to claim a proportion of certain home expenses as deductible business expenses;
• Travel costs and mileage can often be claimed subject to certain rules along with the costs of accommodation and subsistence where you are required to work away from your normal office;
• Training costs, material costs, and specialist clothing necessarily incurred in the fulfilment of your business objectives may be deductible from business income.  These are subject to certain rules.

As part of our ongoing support for your business, we will guide and assist you in identifying everything you are entitled to claim for both accounting and tax purposes.

Q: Can I put my car, phone, or home office through the business?

A: Often yes, but there are specific rules we must follow.

It must be demonstrated that these expenses are incurred wholly and necessarily for business purposes.  We will ensure that we identify, calculate and claim the maximum allowable amounts on your behalf, whilst keeping you compliant.

Q: What’s the most tax-efficient way to pay myself – salary, dividends, or both?

A: This is a very good question – a simple question to ask but complicated to provide a proper answer.  Usually, a combination provides the lowest tax liability.

This is because different taxes (income tax and corporation tax) have different tax rates and different thresholds.  This is exacerbated because salaries are subject to Scottish or UK tax rates and thresholds, whereas dividends are subject only to UK rates and thresholds.  Add to this the complications surrounding national insurance contributions that have separate rates. 

Unfortunately, this area is another complex one and advice can only be provided after considering your business structure, how much you wish to extract from your business and your other earnings. 

We can undertake a bespoke exercise for you and advise on the right balance for your profit level and personal circumstances.

Q: How much should I set aside for corporation tax?

A: Corporation tax rates are 19% for profits below £50,000, effectively 26.5% between £50,000 and £250,000 and 25% thereafter. However, profits are subject to certain deductible expenses and capital allowances.

We would be happy to provide you with a tailored percentage to save each month based on real-time profit figures, provided your bookkeeping records are kept up to date.  With the advent of automation and digitalisation and AI tools, we have a great cost effective time saving solution that will be of enormous value to your business in this context.  

Q: Can I claim R&D tax credits – and how?

A: If your business develops new products, processes, or software, you may qualify for these specialist reliefs.  As a consequence of questionable operators within this area, historically, HMRC has introduced further stringent tests and requirements to qualify for such reliefs.

We are well equipped to guide you through the new rules and the more stringent claims process.  This area is now no longer for the faint hearted and can be a more expensive exercise.  It is worth reviewing the new regime here.

Q: Do I need to register for VAT – and when?

A: You must register when your VATable turnover exceeds £90,000 in any 12-month period (from 2024). Not all sales are VATable, so it is necessary to review your income to determine the nature of your supplies.  It may be beneficial to register for VAT even before you reach the regulatory threshold. 

We can undertake a review of your income or projected income to determine the cumulative VATable supplies for your business.  We can also review the nature of your business and your expenditure to see if voluntary registration might be beneficial, and which of the various available VAT schemes might be the best for your business.

Q: Which VAT scheme is best for me (Flat Rate, Standard, Cash Accounting)?
A: This is a particularly good question.  However, without full knowledge of your industry, a clear understanding of the nature and level of your turnover level and whether there are related businesses, we cannot provide a straight answer.

We can, however, review the nature and size of your business, as well as your business or group structure, then run the numbers and recommend the most cost-effective option for your industry.

Q: How do I handle VAT on international sales or purchases?

A: This is another exceptionally good question.  However, without full knowledge of your industry and a clear understanding of the nature of your supplies, we cannot provide a sensible answer. 

Much depends on whether you provide business to business sales or business to consumer sales, the place of your supply and the nature of your supply.  Under the current regime, there are standard rated supplies, reduced rated supplies, zero rated supplies, exempt supplies and supplies considered outside of the scope of UK VAT. 

We will be delighted to explain these complex rules for imports and exports, and reverse charge VAT, so you have a general understanding and, with our guidance and support, remain compliant.

Q: What if I go over the VAT threshold accidentally?

A: We would recommend contacting us right away.  Firstly, we will review your turnover to assess whether your VATable supplies exceed the VAT threshold.  If so, we will manage your registration for VAT quickly and minimise penalties as far as we can.

Q: Can I claim VAT back on a van, car, or home office expenses?

A: In many cases yes, but the rules vary and are constantly evolving.  Commercial vehicles and home office expenses can be apportioned where private use is more than incidental.  Use of cars for any private use would preclude any VAT reclaim for business purposes.

We would be happy to clarify what you can and can’t reclaim, subject to the item purchased and the use to which it is to be put.

Q: What’s the tax treatment of staff benefits (cars, health insurance, lunches)?

A: Most staff benefits are subject to tax and NI.  There is a new benefit in kind regime on its way, in which the majority of these benefits will have to be included within the business payroll.  A few will remain outside of the payroll system.  For these exceptions and if you are self employed or are in a partnership the previous P11D regime continues.

This is a complex area, and we will be happy to calculate the Benefit in Kind values and ensure correct reporting via P11Ds or payroll.

Q: How do I report P11Ds correctly?

A: P11Ds are now reported via the payroll system or using a P11D e-Form.  However, payroll and pension operations, reporting and submitting is not an arena for small business owners to attempt to undertake (unless already a payroll expert).  It is too complicated and too full of hoops and potholes.  We strongly recommend you consider an outsourced payroll provider such as FBD, unless your business is big enough to justify employing an in-house expert.  Even then you may wish to engage an outsourced payroll provider to undertake a review of your payroll function to ensure everything is compliant.

Our Team has been providing payroll services to a wide range of clients at the highest level for many years.  We can prepare and file P11Ds on your behalf, so that benefits are reported accurately and on time.

Q: Can I pay family members through payroll?

A: Yes, provided they’re genuinely working for the business.  This can be a very tax efficient method of extracting money from your business.

We would recommend a proper contract and a ‘roles and responsibilities’ document to demonstrate legitimacy.  We would also recommend recording the work that is carried out by the family members, so as to be able to provide evidence in the event of an enquiry.

We would be happy to advise on a fair, tax-compliant salary and assist you with putting together the necessary contracts and documentation.

Q: What are the latest PAYE and NI thresholds?

A: These can be found on our website here and here.  We will be happy to keep you up to date with annual changes, so your payroll (or understanding thereof) remains correct.  We can also advise you on National Minimum Wages.  The current NMW rates are provided on our website here.

Q: How do I stay compliant with Real Time Information (RTI)?

A: Submissions to HMRC must now be made on or before payment of wages and salaries to staff.  This new regime is referred to as RTI.  This system is operated through payroll software.  Unless you manage payroll in house, we would not recommend you consider tackling this area of business.

We would be very happy to manage your RTI submissions, so that you never miss a deadline.

Q: What happens if I sell a business asset (property, shares, equipment)?

A: Assets acquired for use in your business that are subsequently disposed of for an amount greater than their acquisition cost are subject to Capital Gains (and Capital Losses if the reverse is true).  These are not part of the trade of the business.

In a sole trade or partnership these gains are subject to Capital Gains Tax (CGT).  CGT is calculated taking into account your other income (salary, dividends, bank interest etc.), and the rate applied (current rates are shown here) will depend on how much of that gain is exposed over the basic UK income tax band.

In a limited company the gain is subject to corporation tax at the same rate as that applied to your normal trading profits.  Corporation tax rates are itemised here.

As with all aspects of tax this is a complicated area. 

We have considerable expertise when it comes to projecting or calculating the gain on asset disposals, identifying the available reliefs, and calculating the tax due.  It is advisable to have a pre financial year end meeting so you can plan ahead, maximise your financial and / or cashflow position, whilst minimising your tax liability.

Q: Will I qualify for Business Asset Disposal Relief (Entrepreneurs’ Relief)?

A: As with all tax rules, there are a series of conditions that must be met to qualify for relief.  Our website provides some insight into the conditions that need to be met, the thresholds of relief and rates of tax payable.  This can be found here.

We will use your expertise to check your eligibility, calculate your tax liability (taking into account your other income) and advise on timing.

Q: Should I buy assets personally or through the business?

A: This is a very good question.  The answer, unfortunately, is not simple. The right choice depends on the tax treatment of the asset type (vehicle, property, computer etc.), the funding (loans, grants etc.), and your future plans.

We will weigh up the options for you and provide you with an executive summary and detailed response, bespoke to your circumstances.

Q: What’s the best way to extract profits if I sell the business?

A: Whether through dividends, payroll, or asset or share disposal, we will create a tax-efficient exit strategy to maximise what you keep, taking into account whether you intend to retire or to use your company value to move onto something new.

Q: Should I put my spouse or partner on the payroll or as a shareholder?
A: This can be very tax-efficient if done correctly. Tax allowances, reliefs and preferential rates of tax can be harnessed.

However, there are a range of legal and HMRC obligations attached to such arrangements and these need to be considered carefully before implementation and the correct measures put in place.

We can discuss the issues and options available to you and will ensure this planning is done legitimately and compliantly.

Q: Is it worth setting up a company pension scheme?
A: Pension contributions can be highly tax efficient. Contributions to pensions can extend the lower rate tax bands and can qualify for corporation tax relief.

We can discuss the implications and limits of the pension contribution benefits, and we can help design a scheme that works for you and your team.

Q: How do I make the most of my personal allowance and dividend allowance?
A: Tax allowances, including personal, savings and dividend allowances can be found here. 

Finding your ‘sweet spot’ can be quite technical.  This is not something we would recommend you attempt to calculate yourself, with or without the aid of artificial intelligence tools.  We will structure your pay and dividends to use all available allowances, taking into account your other sources of income.

Q: Should I buy or lease equipment and vehicles for tax efficiency?
A: This decision must necessarily consider issues such as lease premiums, cashflow and tax and ‘benefit in kind’ implications.  There may also be VAT issues to consider.

We will look at each of these areas and compare options, including capital allowances, to find the most cost-effective route.

Q: How do I structure bonuses to minimise tax?
A: Bonuses must motivate staff and should take into account tax and national insurance implications. 

Getting the right system to achieve the desired results can be challenging and iterative.  We will help you to design a bonus structure that encourages and motivates staff and, of course, is tax smart.

Q: What do I do if I get a letter from HMRC?
A: Firstly, don’t panic.  But do not ignore it!

We recommend you send it to us to review.  We will help you understand why HMRC has written to you, what’s required and how we recommend you reply.  We can also respond on your behalf and liaise with HMRC going forward.

Q: How can I avoid penalties for late submissions?
A: Late submissions arise from lack of capacity, lack of capability, lack of attention to record keeping or lack of knowledge of the modern software systems that simplify the entire process.  This area is the third pillar of successful business – looking after the business.  Penalties for late submissions can be found here.

This is where we come in.  This is our forte.  We can manage your deadlines and send reminders, so nothing gets missed.  We can set you up on appropriate bookkeeping / accounting software and related data capture systems.

Q: What are my risks of a tax investigation – and how can I prepare?
A: No longer does HMRC pick businesses or taxpayers at random and come out for a chance visit.  If HMRC writes to you today with a view to conducting an investigation, it is because they have identified something within your submissions or returns that doesn’t look correct. 

Whilst potentially a scary prospect for you, we deal with these investigations on an ongoing basis.  We know how to manage HMRC fairly and robustly.

In preparation for the investigation, we can conduct a risk review to identify possible issues before responding to HMRC.  We also offer HMRC enquiry protection cover for our ongoing clients to give them more peace of mind when dealing with HMRC.  Once in place, the costs of dealing with HMRC are covered by our insurer.

Q: What happens if I make a mistake on a return?
A: Everyone makes mistakes.  It is a mistake.  Provided there has been no deliberate intent, it is easily resolvable.  Whether considered careless or innocent by HMRC, it needs to be dealt with, up front, professionally and promptly.

We will correct it promptly and liaise with HMRC to reduce any potential penalties.  HMRC’s penalty regime for inaccuracies in returns can be found here.