Autumn Statement Nov 17th, 2022

Ihelm Enterprises - Autumn Statement Nov 22

On Thursday, November 17th, 2022, the Chancellor, Jeremy Hunt, made several announcements during the autumn statement that will impact businesses and individuals. I have explained some of the items that will impact businesses below.

  1. All personal income tax allowances and national insurance thresholds have been frozen until 2028. This means that the personal allowance will remain at £12,750 before someone has to pay tax until April 2028. What this does mean though, is that as a person’s salary rises above the personal allowance or the relevant tax threshold, they will start to pay tax, whereas, in previous years, the personal tax allowance has usually increased each year, which would reduce the chances of this happening.
  2. The threshold for the highest tax bracket (45%) will be reduced from £150,000/year to £125,140/year from April 2023. This will mean people who earn over £125,140 will no longer pay 40% tax on their income, but 45%.
  3. The current National Insurance Employment Allowance of £5,000 will continue to be available which will help businesses reduce what they need to pay for National Insurance.
  4. The tax relief on Research and Development is being lowered to 10% from April 2023 which may discourage businesses from investing in this area.
  5. Businesses, and individuals, that invested in electronic vehicles will have to start paying Road Tax from April 2025.
  6. The National Living Wage for those over 23 years old will rise from £9.50/hour to £10.42/hour from April 2023. This will affect many businesses as there will be a significant increase in their wage expenses – especially in sectors where the hourly rate is usually low.
  7. The dividend allowance will be lowered to £1,000 in April 2023 and then to £500 from April 2024. This will mean that those shareholders and directors who take dividends will have to start paying tax on them at a much lower amount than before.
  8. The VAT threshold of £85,000 will remain until March 31st, 2026.
  9. The Corporation Tax increase to 25% from April 2023 has been put back into action. This affects businesses with profits over £250,000. Businesses with profits of up to £50,000 will be able to use the “small profit rate” of 19%.
  10. The annual Capital Gains Tax exemption amount will be lowered to £6,000 from April 2023 and then to £3,000 from April 2024.
  11. Business Rates:
    – business rates across England will be updated to reflect changes in property values
    – business rates multipliers will be frozen in 2023/2024
    – bill increases for ratepayers will be capping any increases caused by changes in rateable values at the 2023 revaluation
    – support for any eligible businesses in retail, hospitality and leisure is being extended and increased to 75% business rates relief (capped at £110,000 per business) from April 2023
    – any business that has lost eligibility or seen reductions in the Small Business Rate Relief or Rural Rate Relief will be capped at £600/year
    – if a ratepayer makes qualifying improvements to a property they occupy, they will not see an increase in their rates for 12 months from April 2024 to 2028

There is a lot more to the Autumn Statement, but I have covered the main points that will affect businesses of all sizes.

You can read more about the Autumn Statement here: https://www.gov.uk/government/publications/autumn-statement-2022-documents/autumn-statement-2022-html

How often should I do my bookkeeping?

Ihelm Enterprises Limited - How often should I do my bookkeeping

During this month’s Facebook Live, I talked about how often a business should do their bookkeeping.

There is no hard and fast rule about how often a business needs to do its bookkeeping.  However, there are legal deadlines every business will need to meet, and these deadlines dictate how often you should do your bookkeeping.  There are also many other reasons to do your bookkeeping on a regular basis.

I am going to cover the legal obligations first.

VAT Registered Businesses

If your business is VAT registered, you will be legally required to file VAT returns with HMRC on a regular basis.  The frequency you will need to do this will depend on what HMRC have instructed you to do, but for most businesses, this will be on a quarterly basis.

There are some businesses, especially those within agriculture, that will be required to file monthly returns.

To file your returns, you will need to collate all your financial information for the business.  In this instance, especially if your business has a lot of transactions, getting your accounts up to date monthly, would be a very good idea.  It will help you to ensure you are able to file your returns on time and ensure they are accurate.  It will also help to give you an idea of how much money you owe to HMRC ahead of time so that you can plan for those payments.

CIS Contractors

If you are in the construction industry and must file CIS returns, you will need to do these monthly.  Therefore, it is a very good idea to work on your accounts either on a weekly basis or a monthly basis, so that you can get your CIS return filed on time with HMRC.

Sole Traders

If you are a simple sole trader who is not VAT registered, up to April 2024, you only have a legal obligation to submit your accounts to HMRC at the end of the tax year.  Even though you do not need to submit your accounts until after the end of the tax year, it is not advisable to only do them once a year.  I will cover the reasons why in just a little bit.

From April 2024, the legal requirements will be changing due to MTD ITSA (Making Tax Digital for Income Tax and Self-Assessment).  All sole traders, and those with rental income, who have a gross income of over £10,000, will have to file their accounts with HMRC on a quarterly basis. At this point, it would be a very good idea to ensure you are keeping your accounts up to date monthly.

Partnerships

Currently, partnerships that are not VAT registered, only have to file their tax returns after the end of the financial year.  The partnership return needs to be filed before the partners can file their self-assessments.  Like sole traders, it isn’t advisable to only complete your accounts when the return is due.  It is best practice to complete your accounts monthly.

From April 2025, general partnerships will be legally required to file their accounts through MTD ITSA on a quarterly basis.  Any partnerships that have corporate partners or are a Limited Liability partnership will not be required to file through MTD ITSA at this point in time.  Once this legal requirement comes into place, it makes it more beneficial to complete your accounts monthly.

Limited Companies

All limited companies are legally required to file a corporation tax return after the end of the tax year, and their accounts to Companies House 9 months after the end of the tax year.  It is not advisable to only prepare your accounts once a year but to complete them monthly.

There currently isn’t a set date for limited companies to file through MTD, but HMRC has said it will not come into force until at least 2026.  Once further information is released, I will share it across my social media platforms.

Best Practice

Now that I have covered the legal requirements for submitting accounts, I am going to go through reasons why getting your accounts up to date on a monthly, and sometimes a weekly, basis is so important.

Completing your accounts on a regular monthly basis will be beneficial to your business for a number of reasons:

  • You have a better idea of the financial position of your business
  • You can make more informed business decisions about the business such as can I afford to hire new staff or did that marketing campaign work
  • You will have a better idea of how much tax you owe
  • You will reduce your stress as you won’t be scrambling to get everything together all at once at the end of the year
  • You have a better chance of knowing what a transaction was for
  • You will be less likely to lose any small receipts
  • You will be able to spot fraudulent transactions sooner
  • It helps with your cash flow as you will know who owes you money and who you owe money too
  • It makes it easier to spot any mistakes
  • If you need to provide financial reports to a bank or other finance companies to raise funding for the business, you will be able to prepare the reports faster
  • You can measure the performance of the business more accurately

Some businesses, especially if they have a high volume of transactions, would benefit by doing their accounts on a weekly basis.

If you would like further information about keeping your accounts up to date monthly, feel free to e-mail me.

Mini Budget – Oct 17, 2022

Ihelm Enterprises Limited - Changes to Mini Budget Oct 2022

Since the old Chancellor, Kwasi Kwarteng, was removed from the position last week, and the new Chancellor, Jeremy Hunt, was installed in the position, there have been several changes to the mini budget announced on Sept 23rd, 2022. Here are the changes that have now been announced. Anything in Bold highlights the announcements that have been changed.

  1. The Basic rate of income tax for those in England, Wales and Northern Ireland will be being lowered to 19% from April 2023 – has now been scrapped. The basic rate will stay at 20% indefinitely at this stage.

  2. The 45% higher rate of income tax, which is charged on incomes over £150,000 will be abolished for all those in England, Wales and Northern Ireland. It was announced on October 3rd, 2022 that this change has now been rescinded. There will continue to be a 45% higher rate of income tax.

  3. There will be one single higher rate of income tax of 40% from April 2023 for all those in England, Wales and Northern Ireland that earn over £50,270 a year. It was announced on October 3rd, 2022 that this change has now been rescinded. There will continue to be a 45% higher rate of income tax.

    It is important to note that Scotland has different income tax bands, so the changes outlined in points 1 to 3 do not apply to them.

  4. The National Insurance increase of 1.25 percentage points that was implemented in April 2022, will be removed from November 6th, 2022. This was applied to Class 1 NIC paid by employers and employees and Class 4 NIC paid by the self-employed. The amount of National Insurance paid by an individual is based on what their income is. For those who earn less than £12,570, they won’t see any benefit of this as National Insurance is not paid on any amounts under £12,570. As the amount of money earned increases, the benefit of the reduction in NI will increase. This also means that the planned Health and Social Care levy will also be cancelled. This change has been kept.

  5. The announcement about the increase for Corporation Tax from 19% to 25% in April 2023 being scrapped, has now been reversed. The rate of Corporation Tax will now increase to 25% in April 2023.

  6. The rules around IR35 will be simplified from April 2023. This will include removing the responsibility of businesses to determine a worker’s tax status. Employees will be able to determine their own tax status instead. This will now no longer be taking place and the current rules around IR35 will be retained.
  7. The freeze on alcohol duty has been lifted and will not be kept.
  8. New measures to help businesses with rising energy costs were announced on Wednesday, Sept 21, 2022. This includes a cap on costs per unit. All businesses, charities and public sector organisations who are on existing fixed price contracts agreed on or after April 1st, 2022, signing new fixed price contracts, are on deemed or out of contract or variable tariffs or are on flexible purchase or similar contracts will be eligible for the scheme. It will automatically be applied to your bills from October 1st, 2022 to March 31st, 2023. You can read more about this specific measure here: https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers.

You can read more about the changes to the mini-budget here: https://www.gov.uk/government/news/chancellor-brings-forward-further-medium-term-fiscal-plan-measures. As more information is released, I will update this blog post.

There is supposed to be a budget announced on October 31st, 2022. Once that has been announced and I have read through all of the information provided on the government website, I will share that information across my social media platforms and on the website.

When should I register for VAT?

Ihelm Enterprises - When should I register for VAT

During this month’s Facebook Live, I talked about VAT – specifically about when you should register for VAT.

Before I talk about when you should register for VAT, I want to start by explaining what VAT is.

VAT is a value-added tax that is charged on almost everything you buy within the UK.  When you buy something in the UK, whether it’s in a shop or online, the price displayed will likely include VAT.  If the price doesn’t include VAT, it will state that the price is excluding, or is exclusive of, VAT.  Not all products/services have the same VAT rate, and it is important that businesses know what VAT rate they should be charging on their products/services.

VAT only affects the consumer in terms of the price they pay for the products/services.  However, if you are a business, it can create additional work for you and the records you need to keep.  All VAT-registered businesses must track the VAT they charge and pay, submit their returns to HMRC on a regular basis, and then pay them the VAT that is owed.  It is very important to know that the VAT that is charged on your sales does not belong to you – it is a tax that you are collecting on behalf of HMRC.

When do I need to register for VAT?

The majority of businesses won’t need to register for VAT unless they expect their income (total sales that are not VAT exempt) to reach the VAT threshold in the next 30-day period or they met the threshold during the last 12 months.    The current threshold as of 09/09/2022 is £85,000 and it will remain at that amount until 31/03/2024.  It is calculated on a rolling 12-month period, so you need to be aware of what value your sales are at continuously so you can register if you need to.  Once you reach the threshold, you will have 30 days after the end of the month in which you reached that threshold, to register with HMRC.

Some businesses may also need to register for VAT even if they are not based in the UK, but sell goods/services to the UK.  In that instance, they are classed as a non-established-taxable-person and must register for VAT.  There is more information on NETPs on the government website.

It is also possible to register for VAT voluntarily if your turnover is less than £85,000.  I would advise that you speak with an accountant or tax adviser before registering for VAT voluntarily to ensure doing so would benefit your business.

As soon as you notice that your income has gone over the VAT threshold, you must register within 30 days of the end of the month that you went over the threshold.  If you notice that your income is likely to go over the VAT threshold during the next 30 days, you need to register for VAT by the end of that 30-day period.

You may need to pay a fine if you are late registering for VAT, and you will also be liable to pay any VAT on the sales you’ve made since the date you needed to register.

What happens once I register?

When you register for VAT, you will be asked which scheme you will be using as there are several different VAT schemes.  The main ones are the Accrual scheme where you would record the VAT for all your sales and purchases as of the invoice date, the Cash VAT scheme where you would record the VAT for all of your sales and purchases as of the date they were paid, and the Flat Rate Scheme which is where the amount of VAT a business pays is a fixed rate and is only based on your sales.

You can register for VAT online through the government website.

Once you have completed the registration, you will receive your VAT registration number from HMRC which you must display on all your invoices and sales receipts that you issue to your customers.  You will also receive information about when to submit your first return and payment, as well as a VAT registration certificate which confirms your registration date and number.  This information will be accessible in your online VAT account but may be sent to you in the post depending on how you registered.

After you have received your VAT registration number, you can start to charge VAT on your sales.  There are several legal requirements you must meet as soon as you have registered:

  • you must record the VAT on your sales and purchases
  • add VAT to your prices
  • file your VAT returns as instructed and pay any VAT due to HMRC
  • keep digital VAT records and a VAT account
  • ensure that you are charging the correct VAT rate on all products/services that you sell.

The amount of VAT you will pay to HMRC each time you submit your VAT return will depend on which scheme you are using and whether you charged more VAT on your sales than you reclaimed on your purchases.  If you are using accounts software like QuickBooks Online, you will be able to see how much VAT you will owe at any point in time based on the information entered into your accounts.

As the VAT portion of your sales and purchases doesn’t belong to you and is owed to HMRC, it is a good idea that you set up a business savings account so that you are holding back 10-15% of the amount you are paid for sales, and you will then be able to pay any VAT you owe to HMRC.  Normally, you would charge your customers 20% VAT which is the standard rate, but you would also have purchases that you have paid VAT on, so by setting aside 10-15% of the amount you are paid for sales, you won’t then be scrambling at the end of each quarter to find the money to pay HMRC as you will have saved at least some of what you may owe to them.

The frequency that you must file your VAT return and when by will depend upon the scheme you are using and when you registered.  Usually, it is once every quarter, and you will have 1 month plus 7 days to file and pay your return.  For example, if you had to file a VAT return that covered April to June, you would have until August 7th to file the return and pay any amount due to HMRC.

What else do I need to know?

HMRC have many pages about the different VAT rates and how to treat items, so you can read about the different rules on there.  If you are VAT registered, it is a good idea to have an accountant who can help you to know how to deal with anything that does not follow the standard VAT rules, especially if you are dealing with importing/exporting products with the EU.

Even though I am a bookkeeper and understand the fundamentals of VAT and how it is to be dealt with, some areas like dealing with importing/exporting products with the EU are quite specialist areas, so I always work closely with a client’s accountant to make sure we are recording the information within the accounts correctly.

If you would like further information about why having a bookkeeper helps you with your business, or when you should hire one, feel free to e-mail me.

Mini Budget – Sept, 23, 2022

Ihelm Enterprises - Mini Budget Sept 2022

On Sept 23rd, 2022, the Chancellor, Kwasi Kwarteng, announced a mini-budget to help businesses and individuals with the increasing costs of living. I have summarised the announcements that will help businesses below.

  1. Basic rate of income tax for those in England, Wales and Northern Ireland will be lowered to 19% from April 2023 – this will affect all self-employed businesses and employees who earn between £12,571 and £50,270 a year. This is the proposed tax reduction that the previous Chancellor, Rishi Sunak, promised would happen before the end of Parliament in 2024. The new Chancellor has brought this forward.

  2. The 45% higher rate of income tax, which is charged on incomes over £150,000 will be abolished for all those in England, Wales and Northern Ireland. It was announced on October 3rd, 2022 that this change has now been rescinded. There will continue to be a 45% higher rate of income tax.

  3. There will be one single higher rate of income tax of 40% from April 2023 for all those in England, Wales and Northern Ireland that earn over £50,270 a year. It was announced on October 3rd, 2022 that this change has now been rescinded. There will continue to be a 45% higher rate of income tax.

    It is important to note that Scotland has different income tax bands, so the changes outlined in points 1 to 3 do not apply to them.

  4. The National Insurance increase of 1.25 percentage points that was implemented in April 2022, will be removed from November 6th, 2022. This was applied to Class 1 NIC paid by employers and employees and Class 4 NIC paid by the self-employed. The amount of National Insurance paid by an individual is based on what their income is. For those who earn less than £12,570, they won’t see any benefit of this as National Insurance is not paid on any amounts under £12,570. As the amount of money earned increases, the benefit of the reduction in NI will increase. This also means that the planned Health and Social Care levy will also be cancelled.

  5. The announced increase for Corporation Tax from 19% to 25% in April 2023 will no longer go ahead.

  6. The rules around IR35 will be simplified from April 2023. This will include removing the responsibility of businesses to determine a worker’s tax status. Employees will be able to determine their own tax status instead.

  7. The amount of money companies can invest tax-free in plant and machinery, known as the Annual Investment Allowance, will remain at £1m indefinitely to help promote business investment and productivity.

  8. There will be a regulation change so that pension funds can increase UK investments to help stimulate growth in the economy and help with investment in science and tech companies.

  9. All new and start-up companies will be able to raise up to £250,000 under a scheme giving tax relief to investors.

  10. Share options for employees have doubled from £30,000 to £60,000.

  11. In 38 local authorities within England, Investment Zones will be set up which will provide businesses with more targeted and time-limited tax cuts. More land will able to be released for housing and commercial development due to changing the planning rules, which will help to create new jobs and houses for the areas.

  12. The hospitality sector will benefit from the freeze on alcohol duty for another year.

  13. New measures to help businesses with rising energy costs were announced on Wednesday, Sept 21, 2022. This includes a cap on costs per unit. All businesses, charities and public sector organisations who are on existing fixed price contracts agreed on or after April 1st, 2022, signing new fixed price contracts, are on deemed or out of contract or variable tariffs or are on flexible purchase or similar contracts will be eligible for the scheme. It will automatically be applied to your bills from October 1st, 2022 to March 31st, 2023. You can read more about this specific measure here: https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers.

You can read more about the mini-budget here: https://www.gov.uk/government/news/chancellor-announces-new-growth-plan-with-biggest-package-of-tax-cuts-in-generations. As more information is released by the government, I will continue to provide updates across social media and through the blog.

Why and when should I appoint a bookkeeper?

Why and when should I appoint a bookkeeper?

During the July 2022 Facebook Live, I talked about why and when a business should appoint a bookkeeper.

Every business is different and is going to have different ways of doing things – so the answer to the questions “why should I appoint a bookkeeper?” and “when?” will depend on your specific circumstances.

Let’s look at the question of “when should I appoint a bookkeeper?”

If you have just started out with your business and your income and expenditure are relatively low, you may decide not to appoint a bookkeeper at this time.  However, six months down the line, your business has grown – you are trying to keep on top of orders, the marketing, replenishing stock, maybe even managing staff – as well as making sure the accounts are kept up to date.  You are struggling to find that work/life balance, so you decide now is the time to hire a bookkeeper.

As a qualified bookkeeper with 18 years of experience, I would actually advise that you get a bookkeeper right at the start of your business.  This doesn’t necessarily mean having them do the accounts, it could be that you have them provide you with support to ensure that you are accounting for everything correctly and over time you could then have them take on more of the bookkeeping tasks.

To help you to decide when to hire a bookkeeper, think about the following question: “do I really understand how to correctly record my financial information?”.  If you aren’t sure how to accurately record a transaction, it could end up costing you a lot of additional money in tax.  For example, I have had clients come to me where they have recorded transfers of funds from their main bank account to their savings account as income, which is incorrect.  This error, if I had not seen it and corrected it could have cost the client several thousand pounds in additional tax.

Software companies have also been quite clever in their marketing.  They have made it look like using the software is as easy as clicking a couple of buttons – but before you can click those buttons, you need to have an understanding of how to enter the information into the accounts correctly, so that the numbers appear in the right place in your accounts, which then provides you with an accurate picture of your business, allowing you to make informed business decisions.

Now, let’s look at some reasons why a business owner should hire a bookkeeper.

We’ve already touched on the fact that having a bookkeeper can help you to ensure your financial information is being entered accurately, but having a knowledgeable bookkeeper by your side can also help you to make sure that you are meeting all of the legal requirements a business has in terms of their accounts:

  • Submitting VAT returns on time
  • Using the correct VAT treatment for sales and purchases
  • Making sure you have accurate records of all transactions
  • Making sure the accounts are ready for submitting to HMRC and Companies House – this is going to be even more important with MTD ITSA coming into effect in April 2024

Another great reason to have a bookkeeper is that they can free up your time.  By having a bookkeeper to do the accounts, you can put the time to better use by working on promoting your business, helping your customers or being able to spend time with friends and family.  You will still need to provide all the paperwork to the bookkeeper, but the time you have spent and the stress you were under will be greatly reduced.

Do you know how your business is doing?  Can you afford to hire staff?  With the bookkeeper keeping the accounts up to date and ensuring they are accurate; you will have a better idea of the financial picture of the business.  By having a more accurate picture of the financial situation of your business, you will be able to make more informed business decisions that will allow you to grow the business and achieve your goals.

There are many other reasons having a bookkeeper is a good idea, but I have touched on some of the most important ones.

Having a bookkeeper, and even an accountant, working with you on your business as a team is a great collaboration that will benefit you as a business owner.

If you would like further information about why having a bookkeeper helps you with your business, or when you should hire one, feel free to e-mail me.

Sole Trader VS Limited Company

Sole Trader VS Limited Company - Ihelm Enterprises Limited

During the June 2022 Facebook Live, I talked about the differences between sole traders and limited companies.

What is a sole trader (self-employed)?

A sole trader runs the business as their own and owns everything the business has – the profit of the business is their income.  As you and the business are the same legal entity, you are responsible for any debt the business has.  You are also responsible for registering with HMRC as self-employed, filing a self-assessment tax return every year, paying tax on all the profits and paying your own NI Contributions.

What is a limited company?

A limited company is owned by shareholders and run by directors.  It is a separate legal entity.  Everything relating to the limited company is separate from your personal finances and the company is responsible for its own debt. Any profit the business makes belongs to the company, and it must file a corporation tax return at the end of the financial year.  The company must also file annual accounts with Companies House each year.

What other differences are there between a sole trader and a limited company?

Business Name – The name of a self-employed business is not protected.  There can be a lot of businesses using the same name as you, and you would not be able to do anything.  However, the name of a limited company is protected and that means that in the UK, there can only be one company by that name. It is possible that if someone sets up a limited company, and you have been running a self-employed business with the same name, they could require you to change it.  It is a very good idea to check the name you want to use for the business on Companies House to make sure it isn’t registered.  Some sole traders even set up a dormant limited company to protect their name. This is the link to the Companies House website.

Responsibility – A sole trader is 100% responsible for making all the decisions about their business and for ensuring all legal requirements are met.  This can be a good thing as you don’t have to ask anyone else for permission to implement an idea, but it can also be a downside.  As you are the only person responsible, even if you have staff, you still have to spend many hours making sure everything is running as it should, and you often have to wear many hats as you try to do everything. 

As there is usually more than one person involved in a limited company, though there are many sole-director companies, the decision-making and responsibility for the day-to-day running of the company is spread across more people.  However, if you are running a sole-director company, then like a sole trader, the responsibility relies solely with you.

Admin – There is a lot less admin involved for a sole trader.  You need to keep accurate records for your accounts, but you then only need to submit a self-assessment at the end of the tax year.  However, once MTD ITSA comes into play in 2024, you will be required to submit information to HMRC on a quarterly basis, though if your accounts are up to date it should be fairly straightforward.

A limited company, on the other hand, has a lot more admin to deal with.  At the end of the year, a Corporation Tax Return must be filed with HMRC, the accounts must be submitted to Companies House, and each director may have to submit a self-assessment tax return.  The company must also submit an annual return to Companies House every year, verifying the information on file.

Taxation – When it comes to being self-employed, as long as you have no other income, the tax side is relatively straightforward.  You will be liable for paying tax on any profit over the personal annual allowance, which for this tax year is £12,570.00.  For any profit between £12,571 and £50,270 you will pay 20%, for any profit between £50,271 and £150,000, you will pay 40% and for any profit over £150,000 you will pay 45%.  You will also need to pay Class 2 NI which you pay on any profit over £6725 which is £3.15/week for this tax year.  You may also be required to pay Class 4 NI which will be 10.25% on any profits between £9,881 and £50,270.  If you have profits of over £50,270 you will pay 3.25%.

If you are a limited company, things are a bit more rigid.  There are stricter rules about what allowable expenses can be claimed and directors cannot freely take money out of the business.  For every pence of profit, a limited company makes, in the 2022/2023 tax year they will pay 19% in Corporation Tax.  This rate will be going up to 25% for companies with profits over £250,000 from April 1st, 2023.  If the limited company pays dividends to its shareholders, each shareholder will have to pay tax on any dividends received that are over the £2000 limit.  The amount of tax paid will depend on the individual’s income.  Each director may then also have to pay tax to HMRC when they file their self-assessment, depending on how they received money from the company, whether they have any other income and whether they received any dividends.

This is just a brief overview of some of the differences between a sole trader and a limited company.

If you would like further information about the differences between a sole trader and a limited company, feel free to e-mail me.

How do I register as self-employed?

Ihelm Enterprises - How do I register as self-employed

During the May 2022 Facebook Live, I talked about how to register as self-employed.

A lot of people start businesses at home for many reasons – to generate a second income, to fit around childcare or health issues and some people don’t even realise that they are running a business – they think they are just enjoying a hobby.

It is important to note that if you are running a self-employed business, you will need to register with HMRC by October 5th after the end of the first tax year to avoid any penalties, though it is a good idea to register asap.

How do I know if I am running a business or if it is a hobby?

There are a few indicators set out by HMRC to help you to figure out if you are running a business or if it is a hobby.

  1. Are you buying/making goods with the intention of selling them for a profit?
  2. What frequency are you making and selling the items? For example, if you are making cakes and selling them every week/month – it is not a hobby.
  3. What are you charging for the item?  Have you provided a fixed cost for the item and the buyer has agreed to that price? If so, this is a contract.
  4. Are you responsible for fixing errors with the item in your own time?
  5. Are you able to hire people at your own expense to help you do the work?

While these are indicators that you are indeed running a business, if you decide you are just doing a hobby – HMRC will contact you and potentially fine you, if they think you are running a business. There is another blog post I have written about whether you are running a hobby or a business and you can read it here.

When do I need to register?

Now that you’ve determined that you are running a business, you need to ensure that you are keeping accurate records for your accounts.

If your self-employed business makes less than £1,000 in the tax year, you do not need to register as self-employed.  You still need to keep your accounts though so that you can prove your income. However, as soon as your income goes over £1,000, you do need to register – even if the next year your income is lower.

You will also need to register if you need to prove you are self-employed or want to make voluntary Class 2 NI contributions to help you qualify for benefits.

How do I register?

To register as self-employed visit www.gov.uk/register-for-self-assessment and click on the link “Register if you’re self-employed”.  Follow the steps outlined. 

If you have never filed a self-assessment before, you will need to register through your business tax account.  Don’t worry if you don’t have one as you can create one at the time.

Once you have registered, HMRC will post out your Unique Taxpayer Reference (UTR) and login details for your Government Gateway account along with any additional instructions.  Make sure you keep these details safe as you will need them.

There are different instructions for how to register if you have filed a return before and these are provided on the page.

What else should I think about?

Once you have registered as self-employed, there may be other tax services you need to register for.

  1. VAT – if your turnover goes above the VAT threshold of £85,000, you will need to register for VAT, so it is very important that you keep on top of your accounts and monitor your income.
  2. If you are working as a contractor or a subcontractor in the construction industry, you will need to register for the Construction Industry Scheme.
  3. If you start to employ staff, you will need to register as an employer.

There are also other items you need to take into consideration like business insurance and whether your product needs any sort of safety testing.

You want to ensure that you are not only meeting your legal requirements in terms of taxes and accounts but also all responsibilities of a business owner.

Make sure you start to record all your income and expenses correctly from the start and even start out using a separate bank account for the business.  These two things can really help you to keep on top of your accounts and grow your business.

If you would like further information about how to register as self-employed, feel free to e-mail me.

Spring Budget March 23rd, 2022

Ihelm Enterprises - Spring Budget 2022

On March 23rd, 2022, Rishi Sunak, Chancellor for the UK, announced the Spring Budget.

There were some unexpected announcements during the Spring Budget in relation to businesses,

  1. Change to National Insurance Contributions Threshold

    From July 2022, the threshold for paying National Insurance Contributions will increase to £12,570. This means that NI Contributions will not be deducted from employee wages until they have met the threshold. It is important to note, that this new rate only applies from July 2022. From April 2022 to July 2022, the threshold is £9,880 before NI Contributions need to be paid.

  2. Increase to Employment NI Allowance

    Small businesses that employ at least two people who are paid above the Class 1 NIC Secondary Threshold are allowed to claim Employment Allowance. This has allowed them to claim the first £4,000 towards Employer NI Contributions, reducing how much they pay to the government per year. The government has announced that this will be increasing to £5,000 from April 6th, 2022.

  3. Health and Social Care Levy

    The new tax announced in September 2021 – the Health and Social Care Levy. From April 6th, 2022, Class 1 NIC paid by employers and employees, and Class 4 NIC paid by those who are self-employed, will increase by 1.25 percentage points. From April 6, 2023, this tax will be split away from National Insurance and be calculated separately, meaning that the NI contributions will return to their previous levels, with the Health and Social Care Levy being calculated separately.

  4. Working from Home

    During the pandemic, the government allowed employees to claim for various expenses for working from home – either from their employer or directly from HMRC. This has now been stopped for the 2022/2023 tax year.

  5. Decrease of Basic Rate of Income Tax

    The Chancellor announced that by the end of the current government in 2024, he is aiming to cut the basic rate of income tax from 20% to 19%.

  6. Dividend Income

    The tax rates on dividend income over £2,000 will increase for the 2022/2023 tax year. The new rates are as follows:
    Basic Rate: 8.75%
    Upper Rate: 33.75%
    Additional Rate: 39.35%

    The rates of tax paid are based on your income tax rate.

  7. Reform of Tax Basis Period

    The government has announced the basis period for businesses and how their taxable profits will be calculated differently. This will only affect businesses who have a different year-end to March 31st or April 5th. From April 6th, 2024, all businesses will need to submit their tax returns following the same timeframe as the tax year. You can read more about it here.

  8. Corporation Tax

    The current rate of corporation tax – 19% – will remain in effect until March 31st, 2023. At that point, it will increase to 25% for all companies with profits over £250,000.

You can read more about the Spring Budget here.

What expenses can I claim?

Ihelm Enterprises - FB Live - March 2022 - What expenses can I claim?

During the March 2022 Facebook Live, I talked about what expenses businesses can claim on their accounts and tax return.

Every business, whether they are self-employed, a partnership or a limited company, will have expenses – some of these might be related directly to sales so stock you’ve purchased for resale or perhaps a template for a client’s website if you are a website designer – and some of these will be regular overheads for running the business – stationery, advertising, software, utilities, payroll expenses, insurance etc.  Some of the expenses that businesses encounter are legitimately able to be entered into the accounts, but when it comes time to file the self-assessment or corporation tax return, they aren’t allowed for tax purposes (like depreciation, entertainment of clients, charity donations).  There are also expenses that require special treatment before you even enter them into the accounts.  I won’t be covering every type of expense as there are quite a lot, but I will touch on some of the most common ones.

Before you enter an expense into your accounts, the first thing you need to think about is whether it is “wholly and exclusively” for business use.  If it isn’t, you may not be able to claim it in the accounts, or you may only be able to claim a portion of it.

There are other transactions that aren’t as straightforward to deal with.

HMRC have very strict rules regarding what you are allowed to claim when it comes to clothing, and this is where the “wholly and exclusively” rule comes in.  A business can claim for uniforms, protective clothing needed for work and actors, or entertainers can claim for costumes.  However, if the clothes could be worn outside of work or they don’t have your logo on them – you cannot claim for them in your accounts or on your tax return.  For example, if you worked in a bank and you needed to wear a suit – you could not claim on your accounts or tax return for a suit you bought from M&S as that suit could be worn outside of work.  If you were a delivery driver for Domino’s and you had to buy a jacket or t-shirt in the business colours with their logo on it – you could claim it on your business accounts and tax return.

One of the expenses that can cause a lot of issues for businesses is utilities.  A lot of self-employed businesses, and small limited companies, are run from home which means they are using electricity, gas, water etc.  HMRC do allow businesses to claim for a portion of these costs – you can either work out a percentage of use for each item or use one of the simplified expenses methods. For self-employed businesses, the easiest way to do this is by using the simplified expenses method that HMRC has developed.  This is based on the number of hours you work from home each week and you are then able to claim a set amount for each month.  It is only able to be used by those who work more than 25 hours per month from home.  This set amount only covers things like gas, electricity, mortgage, and council tax.  If you work from home for less than 25 hours per month, you will need to calculate the proportion of business use for your home.  For a limited company, the amount you can claim for “Use of Home” is currently £6.00/week. 

The two methods mentioned above don’t include claiming for the phone or internet – HMRC has very strict rules about what you are allowed to claim for these expenses when you work from home.  The only way to ensure that you can claim for telephone and internet use 100% is to have a separate phone line, mobile phone, and internet connection for the business If you can’t do this, you will need to calculate out a reasonable percentage of business use that can be claimed – for the phones you cannot claim for the rental of the line, just for the business-related calls. 

Another type of expense where there is a lot of confusion is related to travel.  You are not able to claim mileage for travelling to your business premises, or your regular place of work, from home.  You are only able to claim for travel to meetings, events, to deliver goods and other situations.  If your journey includes personal reasons, you can only claim for the mileage related to the business portion.  If the car is in your name, and not the business, it can be difficult to accurately calculate the business portion of all car/van related expenses, so using the flat rate per mile that HMRC set, is the easiest way to claim for these expenses.  HMRC allow you to claim a flat rate per mile which covers the costs of fuel, repairs, insurance etc.  The current rate as of 01/03/2022 is 45p per mile for cars and goods vehicles.  You do need to ensure that you keep proper records that show the starting and ending mileage and location, date, and the reason for your journey.  You can check the rates that can be claimed here.

If you travel somewhere for work on a plane, train or using public transport and part of the reason for the journey is for personal reasons, you can only claim for the part of the journey that relates directly to the business.  Again, this is where the “wholly and exclusively” rule comes in.  It’s also important to note that you cannot claim for travel between your home and your main place of work.

This is only a brief overview of what expenses a business can claim on their accounts and tax returns.  The majority of expenses a business incurs are going to be allowed to be claimed without any issues on both the accounts and tax returns, other items can only be claimed on the accounts but must be removed, or added back, when it comes to the tax returns, and some items are simply not allowed to be claimed at all.

If you would like further information on what expenses are allowable for a business to claim, feel free to e-mail me.

Are you a UK Business Owner and use QuickBooks Online Simple Start, Essentials or Plus?  Are you unsure of how to use the software correctly?

If so, why not take a look at the 5-Day Online Video Training Course I have created to help UK Business Owners learn how to use the basic features of QuickBooks Online?

Over the course of 5-days, you will be guided through how to set up your products and services, how to set up for VAT, how to invoice customers and receive payments, how to track purchases and expenses, how to properly use the bank feed, and how to access some of the most common reports that every business needs.  You will have access to this course for life, so you can work at your own pace and keep going back to it!

For a one-off fee of £79.00, you will receive full access to the course and can continue to return back to it anytime you need to!

Visit: https://courses.ihelm-enterprises.co.uk/courses/the-basics-of-quickbooks-online-a-5-day-training-course/ to read more about the course and buy it today!


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