Startup expenses: what you can and can’t claim

Money’s tight when you’re a startup. The last thing you want is to miss out on reclaiming expenses you incur as you start to build your business.

But while you’re busy assembling a team, working on developing your product or service, marketing your brand and doing all the other things that new business owners need to do worry about, it’s easy to forget about keeping an eye on the finances.

Looking for help online isn’t always easy either. There’s plenty of information spread around on gov.uk, but its guides run to more than 100 pages and finding and reading all that certainly can be … “taxing”.

So, what expenses can startup businesses claim? Here’s our roundup of the most common areas where you can (and can’t!) claim expenses for your startup.

If you’re in any doubt about what you can or can’t claim, speak to your accountant. Or get in touch with us and let’s talk about how we can support your startup business as it grows.


The golden rule for what you can claim as a business expense

Claim only for the expenses that you incur which are wholly, exclusively and necessary during the everyday running of your business.

Capturing all your costs is the key to not missing out. We often see startups not claiming for expenses that are perfectly legitimate. So, hold on to your receipts, because expense claims for the following are likely to be tax deductible.


Pre-setup costs

It’s easy to assume that you can claim for expenses only after you start your business. In fact, limited companies can claim relevant expenses for up to 7 years before the business begins operations.

Here are some areas where business expenses may be tax deductible:

  • computers & software
  • internet & web domain fees
  • travel costs
  • professional services

Laptops and tablets can be a grey area for expenses, because their portability means they’re often used at work and at home. If you’re confident that you can justify the expenditure based on a real business need, you should be fine to claim these.

Professional services can include the costs associated with accounting and legal help, such as company formation and the drafting of contracts.

There may be some items that count as business expenses but that are not allowable as tax deductions. Not all business expenses are tax deductible.

Try to maintain an accurate record of pre-formation and running costs, including VAT receipts. Doing so helps you justify your actions should your business expenses claims be queried.


Business insurance expenses

You can claim the cost of your business insurance policies as limited company expenses, so long as they’re used strictly for business purposes.

Allowable expenses for business insurances include:

  • public liability insurance
  • employers’ liability insurance
  • professional indemnity insurance
  • contents insurance
  • vehicle insurance (if you have company vehicles)

Advertising, marketing and PR expenses

Promoting your startup is an important part of building momentum for your new business. So, the following are claimable on your company expenses:

  • advertising (online, print & other media)
  • social media campaigns
  • PR

These expenses can be for one-off promotions or ongoing costs, so long as the investment relates solely to business purposes.


Travel and accommodation expenses

Travelling and overnight stays put a strain on your time as a business owner, but many of the related expenses can be reclaimed:

  • accommodation costs for business trips with overnight stays
  • reasonable food, drink and subsistence costs
  • business mileage costs

There is an HMRC-approved scheme for claiming mileage. Keeping a mileage log and using this scheme is a quick, easy way to reclaim travel costs. Keep in mind that you have to satisfy the following for your expenses to be valid:

  • You’re responsible for paying the travel costs.
  • The travel is necessary for work purposes and you need to be present at the destination in question for business purposes. (This doesn’t include the everyday commute between your home and permanent workplace.)

If you use your personal car or van to travel to a temporary place of work and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:

  • car/van – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
  • motorcycle – 24p per mile
  • bicycle – 20p per mile

Claiming the above rates doesn’t just lower your total Corporation Tax bill, it also means you can reimburse yourself for the amount claimed.

As well as the mileage rates listed above you can also claim the following as business expenses:

  • parking costs (but parking fines are not allowable)
  • road toll fees
  • congestion charges
  • hotel rooms (within reason)
  • food and drink on overnight trips
  • public transport, including train, bus, air and taxi fares
  • vehicle Insurance (company vehicles only)
  • vehicle repairs and servicing (company vehicles only)

Note that travel doesn’t have to mean long distances: trips to banks, solicitors and other short but necessary business travel can all be claimed. It may not seem like much, but it all adds up over the course of a year. 


Bank charges

Keeping your money safe and handling transactions are necessary parts of doing business. Therefore, bank fees charged to your business accounts can be claimed as valid business expenses. That also includes claims for credit card and loan interest.


Use of home as office

While most businesses run on their own or rented property, but it’s also possible to run a business from home.

If you do this, you’re able to claim a percentage of your household costs and utility bills as business expenses.

The easy approach is to claim a simple rate of £4 per week (£208 per year). Alternatively, you may wish to work out what rooms you use for your business needs and the amount of time they’re used for work purposes.

You’ll also be able to claim back other related costs related to working from home, so long as they’re incurred solely for the purposes of business:

  • lighting
  • heating
  • postage & printing

Gifts, entertainment and trivial benefits

Staff entertainment and staff gifts can be claimed as business expenses. However, there are limits to what can be allowed for tax purposes.

Cash gifts to staff, or gifts that are performance related (such as rewards), are taxable on the employee, whereas flowers for a staff member would be perfectly acceptable.

For staff events and parties, the costs of entertaining your employees can be claimed as a business expense if it’s an annual event open to all staff members and costing less than £150 per person.

Any client entertaining, even if it’s a genuine business expense, is not allowable for tax purposes.


Phone bills

Communication utilities, including phone and broadband access, can be claimed as a limited company expense.

If your mobile phone contract is in your company’s name and it relates solely to business purposes, you can claim the entire bill as a business expense.

If it’s a personal contract, you’ll need to separate the business and personal use and then claim for only the business-related expenses. You can also claim limited company expenses for the business calls you’ve made from your home phone line.

HMRC have looked closely at this issue in recent years. If your phone contract is used for both personal and business but you easily identify what the business costs are, you’re advised not to claim any of it.


Equipment expenses

Plant and equipment purchases can be claimed so long as they’re used mainly for business purposes. Examples include:

  • computers
  • company vehicles
  • furniture

These costs will likely be treated as capital expenditure and end up as assets on your Balance Sheet rather than your normal expenditure. You’ll get the tax deduction for them in your Corporation tax return, under HMRC’s Capital allowance rules.


Professional development expenses

Personal development and training courses can be claimed as limited company expenses. Any training has to be wholly and exclusively for the purposes of your trade. If in doubt, check eligibility before adding such expenses to your records. 

You’re also allowed to claim expenses for magazine subscriptions, journals and books.


Salary

If your startup is a limited company and you’re a director, it’s normal for you to pay yourself a salary as an employee of your business. That salary and the corresponding National Insurance Contributions (NIC) can be claimed as allowable expenses.

Once you reach the National Insurance threshold, you’ll have to start paying NIC.

Though it goes beyond the scope of this article, we’d encourage you to think about how you’re paying yourself. For example, some business owners take a minimal salary and then use dividends to help with their personal allowance.

Our team are used to talking people through what’s best for their personal tax circumstances. Get in touch if you’d like to explore this further with us.


Pensions

Thoughts of pensions might be a long way off when you’re just getting rolling with a startup business.

But if you’re the type to think ahead, keep in mind that your limited company can pay into your pension scheme. 

As an employer contribution, this would be an allowable tax deduction from the company profits, therefore reducing the tax payable by the company.

There are limits on how much money the company can pay into your pension in any one tax year.


Common expenses that your startup business can’t claim for

Remember that you can claim only for the expenses that you incur which are wholly, exclusively and necessary during the everyday running of your business.

You can’t claim for expenses that have a dual purpose for business and personal use. For example, if you decide to extend a business trip abroad for leisure purposes, you can claim only for the business days.

As per the section about phone bills, you need to differentiate clearly between business and personal use in order to claim expenses on a personal mobile contract. That’s why it’s probably best to set up your contracts in your business name.

Here are some general examples of expenses that can’t be claimed for:

  • home to work journey
  • most client entertaining
  • business trips that you extend for personal holiday
  • anything for personal use

In practice, that hasn’t stopped some of our clients trying to claim for expenses that were never going to make it through.

Here are some real examples that again can’t be claimed for:

  • trips abroad being claimed as annual AGM costs for their spouse’s company
  • family meals out being claimed as shareholder meetings
  • sports season tickets being claimed as “sponsorship”
  • kids’ bikes being claimed through the cycle to work scheme
  • petrol receipts being claimed through the business, when the company owns only a diesel vehicle
  • multiple iPhones/iPads going through the business around December time, despite there being only one director/employee in the company
  • games consoles described as computers in the client’s cashbooks

Remember to stick with what’s reasonable: only genuine business expenses count.

If you’re in doubt about what’s a reasonable expense, do check with your accountant. And if there’s a grey area, you might be safest not to claim.

Business expenses may be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your company.


In summary

As you can see from the lists above, there’s a vast array of things that startup businesses can claim for as well as a few things that definitely can’t be claimed for! Most business owners can easily overlook one or more of these areas, so keep this article handy and make sure you’re always holding on to your receipts for your expenditures.

And again, if your expenditure is for something wholly, exclusively and necessary during the everyday running of your business, you can probably claim for it as a business expense.

If you’d like to find out more about how we can help you get your tax right and not miss any of the expenses your startup business can claim, contact us now.

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Why should I move to online accounting software? (Pros & cons)

We get asked regularly by our clients – ‘why should I move to online accounting software?’. The question is a good one because we understand that if you are going to move systems, you will want to make sure that you are making the right decision. In this article, we look at the pros and cons of switching to online accounting software to enable you to decide if it would be the right choice for you.


Pros of moving to online accounting software

Mobile online accounting

With online accounting software, you can access your data anywhere in the world with a desktop, laptop or mobile device and an internet connection.


Cashflow

Online accounting allows you to get a ‘real-time’ view of your financial position, who you owe and who owes you, which you can access at any time.


Team access and collaboration

Everyone in your team can access the same data at the same time, no matter where they are based. Your accountant can access the same information as you which means you can go through your financial position together, whilst in different locations.  There is also the functionality to restrict access to certain areas of the accounting system.


Tracking

It’s easy to invoice and track inventory and you can schedule and make batch payments to suppliers. You can also review and approve receipts in expense claims which can be uploaded from multiple members of staff. Also, your latest banking, credit card and PayPal transactions can be imported and categorised reducing data entry.


Updates

For most cloud-based packages, updates tend to be automatic, so you do not need to factor in any down-time whilst updates are being made, saving you time and money. This also means that you are always on the latest version.


Get paid faster

Some clients find that using online accounting software allows them to get paid quicker, as you can track when invoices have been opened or not, so non-payment of invoices can be actioned quicker.


Disaster recovery

Your data is backed-up automatically in the cloud and in the event of a disaster or cyber-attack for example, your data can be easily restored.


Easily integrated

Online accounting software can be easily integrated into your existing systems and in most cases will improve your processes. Also, with some planning, it’s easy to migrate data over to the cloud.


Fraud reduction

Automating some processes can increase the accuracy of financial reporting and there is some evidence to suggest that online accounting software reduces fraud as businesses have more control over data and access to data so anomalies can often be identified quicker.


Paperless

Using the cloud can support an organisation’s aim to become paperless. All accounting paperwork and records can be stored in the cloud and even receipts can be photographed from mobile devices and automatically filed into the online accounting software.


Online accounting add-ons

There are hundreds of add-on apps for online accounting software, some of which are industry or service-specific. Some are free and some you pay for but it’s worth investigating add-ons relating to banking, expenses, payroll, invoice approval and e-commerce which could potentially streamline more of your processes.


Tax planning

With the availability of financial information in a readily usable format, through the reporting functions available in the cloud packages, you will be able to see exactly how your business is doing, and how profitable it is.  You may then be able to explore ways of reducing your profits, ahead of your financial period end, and ultimately, your tax bill.  Only by having such information available to you will you be able to discuss the options with your accountant.


Informed decision making

As above, with the financial information that will now be at your fingertips, you will be able to make more informed decisions regarding the performance of your business – is an area underperforming and needing some attention or is an area performing well and requiring more focus?  You will no longer have to wait until your year end accounts have been prepared before you are in a position to look at these issues.


Cons of moving to online accounting software

Now let’s take a look at some of the cons of online accounting software.


Internet access

You are dependent on the internet in order to access your accounting data, but this is not dissimilar to many office applications. In most cases, if you do lose access to the internet it can often be restored quickly and easily.


Training

You will have to invest in some training for you and your staff on how to use the new system. Some accountancy firms offer training as part of your package and most online accounting providers produce ‘how-to’ guides, webinars and podcasts free of charge.


Research

You will have to do some research to find the right package for you, but it will be time well spent. You should also discuss options with your accountant as they should be able to provide some insight into the packages they have used.


Monthly packages

In most cases, you will save money by switching to online accounting software. However, it’s worth noting that there is a tipping point between monthly cloud options. For example, there are basic packages for sole traders and small businesses, but if you grow quickly and take on more employees you may end up having to move up to the next package to suit your growing needs, which could mean you are on the next pricing level but you are at the lower end of the criteria for this package, until you grow again.


Additional costs

If you need to download large amounts of information from your cloud-based system on a regular basis, you may incur more costs, so check this beforehand.


Cyber-attacks and data breaches

There have been some recent high profile cyber-attacks and data breaches of large global businesses, which means that online accounting providers are not immune to such attacks. However, their systems and processes for dealing with such an attack would in most cases be more advanced than a system you would use within your own organisation.


It’s only as good as the information you put in

We talk about the availability of good financial information is available within the online software to help with decision making and so on, but it should be noted that this is very much based on the quality of the information that you put into the system.  While many of the data input and collection functions can be automated, if this data is out of date or incorrectly posted, you may not be any better off than you are currently.


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How to write a great business plan | 8 steps

A good business plan will help you to test the feasibility of your idea, identify gaps in your plan and help you to potentially secure finance. It will also help you to define your ‘why’ – why you are in business and what you are trying to achieve.

A video worth checking out is this edited TED Talk from Simon Sinek –  “Start with the Why”

We work closely with clients on their business plans, be it for new start-ups or for clients looking to grow, change, diversify or export. In this blog, we look at 8 steps to help you write a great business plan.


1. Executive summary

The executive summary is the most important part of your business plan. Positioned at the front of the document, it is the first part to be read, and in some cases, maybe the only part that will be read.  Faced with a large pile of funding requests, venture capitalists and banks have been known to separate business plans into ‘worth considering’ and ‘discard’ piles based on this section alone.

Although it is the first to be read, it should be the last page to be written.  It is a summary and therefore should bring out all the relevant headline information from the rest of the plan.  It is difficult to do this until the rest of the plan is written. It should be interesting, concise and should grab the reader’s attention. Financial information should be included but without the detail.

The executive summary is NOT:

  • A description of the business and its products. It’s a synopsis of the entire plan.
  • An extended table of contents. This makes for very dull reading. You should ensure it shows the highlights of the plan, rather than restating the details the plan contains.
  • Hype. While the executive summary should excite the reader enough to read the entire plan, an experienced investor or business person will recognise hype and this will undermine the plan’s credibility.

2. Product and suppliers

Be clear in your plan about what the business will supply, be it goods or services, or it could be both.

For goods, include as much information as you can about how you will price your product. Also, detail where the goods will be sourced from, the production lead times, the availability of the goods and the availability of credit to purchase the goods.

For services, again pricing is key, along with the availability of who will deliver the service, be it yourself or a member of your team. It’s also important to include any element of the service which might be outsourced.


3. Plan your marketing approach

Your marketing approach should be directly linked to your ‘why’ – which is your Unique Selling Proposition. Your USP is what will differentiate you from the marketplace and is a key area of interest for an investor. Use the information gathered from researching your target audience and competitors to clearly set out your marketing strategy.

This section does not need to be as in-depth as a standalone marketing plan but should set out who your target market is, how you will reach them and why they would buy from you. You should include your target market size, historical data about its development and key current issues. You should set out how you will communicate with your target audience, what method you will use to do this and how you will measure the return on investment from your marketing costs.

A key element to your marketing will be your brand, which is directly linked to your ‘why’. Branding is not just about the name or the logo, it’s about the story behind the brand. What are your core business values? What do you stand for? Think about your target audience, will this brand resonate with them? Not just in the look, feel, taste but the whole customer experience from start to finish and repeat business.


4. Identify your customers and target audience

Who is going to buy your product or service? Consumers or businesses? As part of your plan, you should identify your ideal customer and target audience. Try and be as specific as possible, for example; how old are they, are they married/single, where do they live, where do they shop, what type of job do they have and how much do they earn. If you are targeting a buyer within an organisation, you may want to consider what they do on a day-to-day basis, who they report to, what challenges they have and how will your product or service improve or enhance their role.

A good idea is to create a buyer persona or empathy map. This can be a great exercise to think about the specific type of customer you want to target. It can help you to identify their interests, work/home responsibilities and preferred communication channels so you can target them appropriately.


5. Determine your competitors

It’s important to identify your direct and indirect competitors within the plan. Highlight businesses that offer the same service or product as you and businesses that offer a service which fulfils the same need with a different product/service.  Identify who they are, how they work and what share of the market they hold. It’s important to state what differentiates you from your competitors.


6. You and your team

It’s a good idea to include background information about you and your team in your plan, especially when looking for funding or support. Include a CV or paragraph on each individual, outlining their background, relevant experience and qualifications. Ensure that everyone you include in your plan has clearly defined roles. If you have a larger operation, give details of your workforce including:

  • staff numbers by department
  • sales or profit per employee
  • salaries
  • productivity

Also, include any future recruitment or training plans, including timescales and costs.


7. Financial projections

You will need to include a set of financial projections which translate what you have said about your business into numbers. This should include a profit and loss forecast together with an associated balance sheet – which will provide a statement of the trading position of the business. Show the level of profit you expect to make and the costs of providing goods and/or services. Ideally, you should include forecasting for three to five years. Include all your overheads such as the cost of premises, equipment, materials, wages, marketing, website and advertising.

Include cash flow projections and monthly cashflow patterns – the aim of which is to show that your business will have enough working capital to survive. Make sure you have considered the key factors such as the timing of sales and salaries. Also, consider the timing of payments such as VAT and PAYE. This should highlight any funding requirements, and of course, if funding is required you will have to demonstrate that any planned repayments can be met. It’s also worth including key assumptions, for example, what you have assumed to happen which will allow sales to grow.

Some sensitivity analysis can also be useful, for example, what would happen if sales come in 20% below forecast, what if your customers take 60 rather than 30 days to pay you or what if the cost of buying from your suppliers increases more than you expect. Be clear about what your Break-Even Point is, which is the level of sales at which your business is producing enough sales revenue to cover both your variable and fixed costs. Once you reached this point any additional revenue after variable costs, is profit.


8. Scenario planning

Detailing your long-term objectives in your business plan is a good way to demonstrate your potential to investors. The plan to achieve these objectives may change as your business develops so it’s worth including some scenario planning within your plan. For example, if you failed to grow your product range, what might the alternative growth plan be for the original range?

You may have ambitious plans for growth or you may have a target income but high growth is not a priority for you. Either way planning for growth beyond your original plans could help identify gaps in your plan or opportunities you may not have considered.

Remember: Don’t confuse the message and make it clear that there is a Plan A. It’s a good idea to put your scenario planning as workings in the appendix to avoid any confusion.


Summary

Most importantly, above all else, a business plan is for YOU – the owner of the business. It’s your vision and defines where your business is now and where you want it to go to – it’s the route map of how you get there. Use your plan as a working document to keep you on track and keep you accountable for what you set out to achieve.

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Sole trader versus limited company: the pros and cons

When you start out in your own business, it’s common to be a one-person operation. You’re in charge of your accounts, your marketing and everything that relates to the service you’re providing. You’re the one answering the phone, replying to all the emails and even making the cups of tea.

So, does that mean that going into business is the same as being a sole trader?

Well, no, not necessarily. It’s also possible to start a new business venture by setting up as a limited company.

In this article, we’ll take a look at what it means to be a sole trader or a limited company. And we’ll show you some of the positives and negatives of each approach so that you can make the best decision for you.

We’re not here to say that one approach is better than another. We know that what’s right for some isn’t right for others. It all comes down to your circumstances and how you want to run your business.

If you need help understanding the options, get in touch to catch up over a cup of coffee with us. That way, we can cut through the theory and answer the questions that are relevant to your situation.

Let’s start by looking at the terms ‘sole trader’ and ‘limited company’ so that we’re clear about what we mean.


What does ‘sole trader’ mean?

A sole trader is someone who is formally recognised by HMRC as being in business for themselves.

It’s common for such people to refer to themselves as self-employed or as freelancers, but the official term is ‘sole trader’.

When you register with HMRC as a sole trader, you must agree to keep appropriate financial records and pay all taxes due. This means tracking eligible expenses, issuing invoices for all work done and submitting self-assessment returns that confirm your taxable income.

Unlike being a traditional employee of another organisation, where tax is usually deducted at source through the Pay As You Earn (PAYE) scheme, sole traders use self-assessment to calculate their tax burden and pay this to HMRC twice a year.

In addition to these tax payments, sole traders usually need to pay Class 2 and Class 4 National Insurance Contributions (NICs). The amounts are calculated automatically when you submit your self-assessment form online. You can find out more about this on the government’s Self-employed National Insurance rates page.


What does ‘limited company’ mean?

A limited company has its own legal identity and is structured as a business that has shareholders and directors.

A limited company can be run by just one person, but the setup is more involved than being a sole trader.

For limited companies run by an individual, the person in question becomes the director of the company as well as its only shareholder. That person then takes their remuneration in the form of either a salary or dividends or a mix of both from the earnings of the business. How to remunerate yourself can be complex, but we can remove the complication.

To set up a limited company, you need to register with Companies House. That means your full name, address and date of birth, well at least month and year will be published for all to see. The same is true for all directors in the UK, even for those who serve as directors in not-for-profit organisations.

When registering as a limited company, you must agree to file an annual confirmation statement and annual company accounts, both these documents are on the public record.


Sole Trader versus Limited Company: What are the differences?

We can understand the differences by looking at some of the positives and negatives associated with being a sole trader versus setting up as a limited company.


Sole Trader

✅ It’s easier to set up as a sole trader

Perhaps that’s why there are approximately twice as many sole traders as there are limited companies in the UK.

There’s less paperwork associated with being a sole trader (though you still have to complete an annual tax return), and you don’t need to register with Companies House.


✅ Sole traders have a greater level of privacy than limited companies

If you set up a limited company, some of your personal details will be published in the records of Companies House.

However, that doesn’t mean that sole traders are anonymous. Remember that you’ll need to put some information out into the public domain if you’re to market your business effectively.


❌ Sole traders have full liability if their business gets into debt

In extreme cases, business debts for sole traders can lead to the loss of personal assets.

It’s possible to protect yourself from such things through the likes of professional indemnity insurance and payment protection insurance, but keep in mind that liability for your sole-trader business ultimately lies with you.


❌ Sole traders may be at a disadvantage when bidding for big contracts

Perceptions matter and your business status can have an influence on whether clients want to hire you.

Even if you’re providing exactly the service a client is looking for, their internal policies may rule you out because you’re a sole trader and they’ve decided to work only with limited companies.

This means that it’s useful to understand who your ideal clients are and what matters to them. If the majority of your prospective clients are likely to do business with you only if you run a limited company, then setting up as a sole trader might not be a wise choice.

But if this consideration isn’t likely to affect your clients’ decisions about working with you, perhaps being a sole trader could give you some advantages over your competitors and therefore make you a more appealing choice for your clients.


❌ Sole Traders may not be eligible to claim tax reliefs

You have to be within the charge to corporation tax to be eligible to claim Research & Development tax reliefs and the creative industries tax reliefs. Therefore in order to claim these reliefs, you have to be a limited company.


Limited Company

✅ Limited companies may feel more trustworthy to some clients

A limited company can give the impression of a greater sense of permanence and financial success, and that can influence clients to favour working with a limited company over a sole trader.


✅ Limited companies have limited liability

Financial liabilities are placed on the company rather than on the individual(s) running the company. Generally. that means your personal assets aren’t at risk if you run a limited company.


✅ Limited companies can be more profitable for some businesses

As your earnings increase, it can be financially advantageous to operate as a limited company rather than as a sole trader.

Limited companies pay corporation tax rather than personal income tax, and you have far more flexibility in terms of how you remunerate yourself, affording you more tax planning opportunities. have the potential to save more than sole traders by taking advantage of a greater range of tax-deductible items.

Those who plan for gradual growth sometimes start a business as a sole trader and then switch to becoming a limited company. We mention this to make clear that your choice isn’t fixed – you can change your mind and business owners often do.


✅ Limited companies have greater protection over their names

Setting up a limited company with Companies House means that your business will be the only one allowed to register and use the name you’ve chosen.

Note that you may still need to apply for a registered trademark if that’s relevant to your business.

Sole traders aren’t offered this sort of naming protection, because you can’t legally prevent someone else with the same name from using that name in their business.


❌ Limited companies mean more paperwork and financial expertise

It takes more effort to set up a limited company, and the ongoing reporting requirements are more onerous. An annual confirmation statement and annual company accounts must be filed for all limited companies.

While a sole trader can often handle their own accounts without external help, it’s often advisable for limited companies to engage an accountant to keep their finances in order.

There’s no way for us to know what’s the right choice for your situation, though we’re happy to talk with you about your questions and concerns so that you can put your mind at ease. Get in touch to book a Discovery Call and we’ll sort out the rest.


A quick note about VAT

Whether you register as a sole trader or a limited company, you also need to consider the separate question of whether to register for VAT.

VAT registration is compulsory if your business’ annual turnover exceeds the VAT threshold. Find out more in our article about VAT.


Next steps

We hope we’ve helped you understand the essence of what it means to be a sole trader or a limited company. But what if you still need some more guidance to help you make the right choice for your business?

That’s where we’re on hand to listen to your questions and give you the answers you need to make an informed decision.

Get in touch, using the form below, to talk about how to make the right move for your business.

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What are the Best Xero Add-ons?

Inventory & Point of Sale Management – Vend

It can be a real headache trying to capture what’s coming in and out of your business whilst keeping track of your cash flow. Vend allows you to automate your inventory process – you can capture information from initial customer contact, through to transaction and shipping and integrate this information seamlessly with your retail management and online accounting software.

You can track sales, revenue and profit by product or staff member and you don’t have to wait until the end of the day or week to access these figures. You can log in and retrieve this information in ‘real-time’ so you can make changes and improve your processes quickly and easily. Vend can also be used as a Point of Sale system.


Expenses & Bills – AutoEntry

There is a lot of administration around expenses and bills which can often be quite repetitive and time-consuming. AutoEntry is a great app which automates data entry by accurately capturing, analysing and posting all your bills, receipts, sales invoices and credit notes into your accounting software.

It will even convert data from scanned images of receipts, invoices, bank and credit card statements into a spreadsheet which can be imported directly into your accounting software. All you need to do is set these documents to enter automatically, either by emailing or by uploading them from your phone or desktop. It will then extract the data and post into the correct place within your accounting software. AutoEntry keeps all your expenses and bills in one place, creating a great online document storage place.

Another great feature is that suppliers can email invoices direct to your Auto Entry account. The app will remember what sections should be categorised and will do this automatically.


Budgeting & Reporting – Futrli

We often find that businesses spend a lot of time preparing detailed spreadsheets for budgeting and cash flow forecasting which can involve a lot of data entry, leaving little time for analysis. Futrli, formerly CrunchBoards, syncs with your online accounting package pulling through the requested data, giving you more time for analysis.

You can track your performance by day, week, month or year or you can custom your own period. It also allows you to do scenario planning and has a great business planning function too.


Bank feeds

Bank feeds are a staple part of your online accounting software. We see them as a ‘must-have’ as opposed to a ‘nice to have’. The bank feeds idea came from Xero’s design-led approach – their research found that one of the first tasks that a lot of small businesses do each day, is check to find out what customers have paid, so they created the bank feed to allow for daily reconciliation.

The banking apps are easy to set up and once you have a bank feed set up, you don’t need to import bank statements to get your transactions into your software. Bank feeds are secure and you can apply for a feed from your bank. Most banks now offer bank feeds but you can check with your bank or via Xero.


Debt collection – Satago

Anyone who runs their own business knows how frustrating it can be chasing late payments. Satago is one of our favourite debt collection add-ons as it automates some of the administration around credit control. Satago integrates directly with Xero and automates the process of chasing debtors by setting up pre-set email reminders and payment letters.

You can decide when reminders are issued and who they should be sent to and you can customise email reminders and escalate in tone as invoices become late. Satago lets you keep all your credit control communication in one place, which you can organise by customer. You can then correspond directly through Satago or via your own inbox.


Mileage claims – Tripcatcher

It’s often difficult to know the exact distance you travelled on your business journey. Tripcatcher seamlessly integrates with Xero to help you track your mileage (using Google Maps) and calculate the VAT you can claim on fuel. Tripcatcher also has a GPS tracker, to help you track mileage quickly and accurately.

It’s available for both iOS and Android phones and allows you to track mileage for multiple Tripcatcher accounts, which is important if you have more than one company.


Get in touch

Got a question about Xero add-ons or cloud accounting? Drop us a line!

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Should you hire an accountant? Pros & cons for startups

You’d expect an accountancy firm to be biased on the question of whether or not startups and other businesses should hire an accountant. But is getting an accountant always the right move? Perhaps not.

In this post, we take a fair look at the advantages and disadvantages of using an accountant to support your startup business.



Pro: Peace of mind

Finance is not every businessperson’s strong point. When you have many other tasks vying for your attention, this isn’t an area where you want to make a mistake.

Knowing that a professional organisation will keep your finances in good order is a great basis for turning your startup into a stable business.


Pro: Lower costs than expected

Many of the businesses we deal with find that the money they spend hiring us is paid for by the savings we’re able to help them make.

Our fees depend on the level of work involved. One good way for you to cut your expenditure on accountancy is to do some of the necessary tasks yourself. For example, many of our clients use cloud packages such as Xero, QuickBooks and Sage, which means there’s less admin for us and hence a lower charge.

If hiring an accountancy firm represents little or no cost to your business, the smart thing to do is to leave the numbers to the experts and get on with running your core operation.

Don’t forget that costs can be measured in time as well as in pounds and pence. We regularly save our clients hours of effort each month. Imagine what you could do with that spare time to help push your startup forward.


Pro: Claiming for the right things

Working with a professional accountant will help you avoid problems we’ve seen with lots of new clients. That includes issues such as not having registered for VAT soon enough or buying a car in an individual’s name and then trying to claim it as a company vehicle.

In addition, there are many things your business might be able to claim for but that you’re not aware of. Simply put, you don’t always know what you don’t know.

The good news is that it’s an accountant’s job to know this sort of thing. That’s why hiring professional help can often save your business money instead of being a cost.

You can learn more about the types of expenses you can (and can’t!) claim for by reading our article here.


Pro: Improved business processes

Working with an accountant shouldn’t mean having to record any more or less data about your business. Good record-keeping is essential and you should be doing this anyway.

However, we’ve found that many of our clients have changed and improved their processes based on our feedback. For example, we’ve shown them a better way of handling their year-end processes, and that sort of adjustment will benefit them for years to come, whether they keep working with us or not.

Your accountant may be able to assist you with book-keeping and cash flow projections. They can assess the likelihood of getting bank loans approved, and they can even make introductions to other businesses, such as solicitors, thanks to their network of connections.

Activities such as this are part of our standard approach to helping our clients. Instead of just being the number crunchers, we try to provide something of greater value so that startup businesses have the best chance of sticking around.


Pro: Privacy protection

All our processes are GDPR compliant, as are the cloud-based packages our clients use, including Xero, QuickBooks and Sage.

Data protection is an essential cornerstone of working with a professional accountancy firm. In contrast, handling financial tasks internally might not give you such protections.

Think about how well set up you are to explain how your financial processes work if ever your business were to be inspected by HMRC.



Con: Another burden on your funds

We know that money is top of mind in most businesses, especially in startups, where you have to stretch every penny while you work hard to build momentum.

If anyone in your business has financial skills and experience, they might be able to fulfil the role played by an external accountancy firm. Even if this isn’t a permanent role, leaning on in-house expertise in the short term could be a good way of saving much-needed funds until you’re ready to outsource this work to dedicated professionals.

In our experience, clients tend to hire accountancy firms like ours only at the point where it’s a necessity. That’s understandable: just make sure to keep good records so that it’s easy for you to work with an accountant when that time comes.


Con: Underuse of in-house skills

You might already employ someone with all the skills necessary to do the accountancy work in-house. If that person is already occupying another role, it might be possible to get them to handle their regular tasks and accountancy tasks as part of their normal working week. This has the potential to save the business a lot of money, so long as the person in question keeps their knowledge up to date.

Using an in-house person also means you avoid needing to carry out due diligence on hiring an accountancy firm. Assessing the relevant costs, services, locations and qualifications all take time. Bear in mind, too, that anyone can call themselves an accountant or tax adviser even though they might not be accredited via ICAS/ACCA/ICAW (we have these accreditations!).


Con: Hire your own member of staff

For some businesses, it’s important that every aspect of the work is done internally, and that means that even accountancy wouldn’t be outsourced.

If your corporate culture and ethos is built along these lines, you’ll need to hire people capable of handling your accounts. This comes with its costs, especially if those people have a dedicated accountancy-only role in your organisation.

This approach does not exclude you from potential inspection and auditing from the relevant tax authorities.


Con: Alternative routes may be better early on

Paying for an accountant isn’t the only way to get your accounts in order. You might be better served, at least early on, by learning the financial skills necessary through Business Gateway or through mentoring arrangements with experienced business-people.


Let’s sum up

We think that smart startups are best off working with an accountant as soon as they can. But as our list shows, there are reasons for and against doing so.

Think about what’s right for your new business, and if you need a hand with your accounts or simply want to chat, please get in touch by completing the form below and we’ll get back in touch with you soon.

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Why is bookkeeping important for a small business?

Chances are, you’re getting into business to create a useful product or service, to do some good and to make some money. It’s less likely that you’re doing it for the fun of keeping business records and filing tax returns.

The boring side of business means you need to do some bookkeeping. It sounds like an old-fashioned term but it’s an essential activity. (We don’t think it’s boring, but we’re accountants and it’s our job to do this sort of thing all day.)

So, what do we mean by “bookkeeping”?

Bookkeeping means maintaining a record of business income and matching costs incurred in making that income.

Let’s look at some common questions about bookkeeping that we hear from our small business and startup clients.


What records should I keep?

Do you issue receipts or invoices every time you sell a product or provide a service? You ought to! Assuming that you do, you should find it straightforward to keep records for your business income. But what records do you need to keep?

Firstly, all income should be accounted for whenever a business transaction takes place between you and your customers.

It’s often more challenging to remember to log your business expenses – the costs that are incurred in making your business income. Keep all receipts for expenses you intend to claim for and log the mileage rates for your business travel.

Expenses purely related to the business are usually straightforward to claim for, but there are grey areas in cases where expenses have a combined business and personal component (such as electronic devices used at work and at home).

We go into more detail about this in our article Startup expenses: what you can and can’t claim.


Do I need paper records?

No, you can scan copies of any printed materials and keep everything safe in digital form.

From the compliance point of view, paper records are not more important or more valid than their digital equivalents. That’s a win for convenience – and it means you can help to save the trees.


What are the risks of not bookkeeping?

Reliable records mean you won’t have headaches if your accounts are ever inspected or audited. Incomplete or missing records could mean you miss out on being able to claim expenses.

And if your books are inaccurate, that could lead to bigger problems with HMRC, including the possibility of fines. No business wants those hassles, so it’s important to get your books in order.

Good bookkeeping information also provides a useful way of seeing how your business is performing. Accurate records help you understand:

  • how much money is coming into your business.
  • how much money is going out of your business.
  • which areas you’re making money in.
  • which areas you’re losing money in.

Is bookkeeping something anyone can do?

While you don’t need to be a maths whizz to manage your books, that doesn’t mean the process is easy or suited to everyone.

It’s common for small business owners to underestimate the work involved, especially when they’re VAT registered. Bigger businesses may be able to justify paying £25K+ per year to hire someone in-house to handle this work, but many small businesses and startups will save a lot of money by passing the task to an accountant.

If your business income falls below the VAT threshold, we suggest you avoid the admin burden of voluntary registration and wait until your business grows to the point where registration becomes mandatory – a good sign that you’re moving in the right direction!

Whether you’re VAT registered or not, we recommend putting good systems in place to avoid the risk of paying the wrong amount of tax.

Automated products can make life easier, and many of our clients have saved time and hassle by switching to cloud accounting software such as QuickBooks or Xero.


Top tips for bookkeeping

Let’s round off with a few more quick bookkeeping tips:

  • keep your records up to date – set aside time to do the work each week or month and you’ll avoid backlogs and headaches at the end of each financial year.
  • record only valid business incomings, outgoings and expenses – this is the basis of your accounts to submit to Companies House and for corporation tax or personal tax, so you need to get it right (leave the personal expenses out!).
  • monitor where you’re not making a profit – good bookkeeping lets you tackle these problem areas to help you maximise your income.

Let’s sum up

Bookkeeping might not be the most exciting subject (although it is to us – we love it!) but it’s important to get this right if your small business is to succeed.

Follow our tips and if you need an expert hand getting your books and accounts right, drop us a line. This is what we do all day for our small business and startup clients, and we’d be happy to help you, too.

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How to manage cash flow in a small business

Whatever your business is and however big or small it is, you need control over your cash flow to make sure you stay afloat and keep moving in the right direction.

Let’s get our terms right: your cash flow relates to the predictions you can make about what your business can spend in the coming months.

We help startups and small businesses to understand and manage their cash flow right. In this post, we share our best tips on how you can do the same.


Make every penny count

It’s the old adage “look after the pennies and the pounds will look after themselves.”

Spending wisely means keeping a close eye on your outgoings and being able to justify every single business expense you make.

All expenses must bring new value to your business or they must represent an essential expense that you can’t avoid.

Remember: treat every penny as a prisoner. If you need help with what counts as a valid business expense, see our article Startup expenses: what you can and can’t claim to find out more.


Check who owes you money

It’s all too easy to generate and send invoices, then to forget about them and move on. But it’s wrong to assume that every invoice will be paid correctly or to the timescale you expect.

Do your checks: see that your invoices are paid properly and at the right times. If you’ve agreed 30 or 60-day terms of payment, your customers should stick to them. So long as both parties agree upfront, keep in mind that you’re allowed to set your own boundaries for payment.

The important thing is to follow up and ensure that what you’ve agreed is what’s actually happening.

This doesn’t have to be a manual chore. Cloud accounting software such as QuickBooks and Xero will show you at a glance who owes you money. Keeping a close eye on things should mean that more of your invoices are paid on time.


Keep your VAT money in a second account

If you’re VAT registered, it can be easy to forget that 20% of the takings that go into your main bank account will need to be paid back during quarterly VAT returns.

To avoid the risk of accidentally spending that money, we recommend creating a second bank account into which you place 20% of all income from your invoices.

That way, when it’s time to submit your VAT return, there’s no stress because you’ll always have funds available to pay the bill.


Set up alerts to check bank balances

Many bank accounts offer free SMS or app alerts to let you know when your balance is above or below a threshold. Take advantage of these so you can be informed of an unexpected drain or surplus on your account.

Checking your bank balance regularly is sensible practice – especially to help you avoid potential fraud – but the true view of your accounting situation should come from your accounting records, which we recommend storing through a cloud accounting package such as QuickBooks or Xero.


Let’s sum up

We hope these tips help you to take control of the cash flow in your small business.

If you need more advice or direct help managing your accounts, get in touch and let’s see how we can put your accounts in order.

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How to manage your accounts in a small business

How should you manage your accounts in your startup or small business? It’s a common question that we help clients with all the time.

The good news is that even if you’re not a financial whizz, you can still do plenty to help yourself and your small business. Here are our best tips for managing your accounts.


Use a cloud accounting package

Our most common tip is to get yourself on a cloud accounting package from day one of your business. Accountants like us can help you save money in paying for software such as QuickBooks or Xero. We also help you save time in the setup process – but you can also learn about and set up the software yourself.

But why bother? Check out this short video which explains the pro and cons:

A quick summary of the video:

Pros

  • access your data from anywhere in the world, including on your smartphone.
  • track invoices to make sure you’re paid on time.
  • comply with Making Tax Digital requirements.

Cons

  • input good data – you can’t skip this!
  • cost – around £10–£25 per month.
  • training time and learning curve.

Money’s tight when starting a business, so a common objection to cloud software is  often the cost.

After all, you probably have Excel or other spreadsheet software installed already, and that can seem to be an adequate free option.

But we’d recommend that you treat the modest monthly fee of a cloud accounting package as a wise business investment. It could save you a lot of time and prevent hassles down the line, and remember of course that it’s a valid business expense for you to claim on your tax return.

Cloud accounting software helps you keep your records in a good way, so long as you follow some basic rules.

To get our clients up to speed, our cloud software recommendations come with a free 2-hour training session. Following the guidelines in our training means that those clients keep their end-of-year accounting fees down.


Keep your information fresh and accurate

Recording accurate, up-to-date information in your accounting software might involve connecting your account with a bank feed or supplying a CSV file.

Getting into the habit of good data logging via a cloud accounting package means that your accountant can log in and check that your records are correct at any time.

This can put a stop to potential issues growing out of hand at the end of the year. We’ve found that the sooner such things are nipped in the bud, the easier it is for clients’ accounts to sail through each year.

There’s no set period you should stick to when updating your accounting information, but most of our clients use either a weekly or monthly schedule. The beauty of 24/7 online access to cloud accounting means you can dip in whenever suits you.


Common mistakes when managing your accounts

We see a couple of common mistakes that crop up with our clients, so do your best to get these right:

  • separate your business and personal income – it might be natural to think of income as being “all your money”, but that’s not right when you have a limited company from which you claim a personal salary. Getting this wrong can sometimes mean taking out more than you can afford and inadvertently creating a business loan.
  • log expenses in the right account – it can be easy to attribute expenses to the wrong category. Cloud accounting makes this simple to fix. Because such mistakes are repeated when the software accidentally learns the wrong association, they can be spotted and corrected in one go.

Get the long-term benefits of managing your money well

As well as knowing you’ve got the right data so that there are no end-of-year nightmares, accurate record-keeping in your cloud accounting software means that your accountants can help you with other tasks.

For example, we help our clients with:

  • estimating corporate tax implications.
  • predicting pensions contributions.
  • assessing capital allowance needs.
  • planning dividend payments.

Top tips for managing your accounts

Here’s some of our best advice for startups and small businesses looking to get their accounts right:

  • don’t manage your accounts by looking at your bank balance – use your cloud-accounting software to get a true view of your accounts.
  • get paid on time – instead of assuming that customers will pay on time, check your outstanding invoices and chase up payment.
  • charge correctly for your products and services – understand how your pricing affects your income and balance this with your expenses, so you can make adjustments to stay profitable.

Let’s sum up

These tips should help you take control of your accounts, but if you need more advice then there’s no need to struggle on alone. We answer our clients’ accounting questions all the time, and we can help you, too.

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How to register a new business

One of the first things to do when getting started with a new business is to register it. But how? It isn’t something taught in school, and if you’ve only ever worked for someone else, it won’t be something you’ve had to worry about before.

Good news: registering your business is relatively simple and quick, and it can all be done online. You can also register by phone or post if you prefer.

Registering your business means completing the relevant forms via HMRC’s Set up a business page. The questions are straightforward and among the usual details, you’ll be asked to confirm your National Insurance number.

The HMRC registration process is the same throughout the UK, so don’t worry if you’re not in Scotland as we are.

HMRC registration is essential whether you’re setting up as a sole trader or as a limited company. In the case of setting up a limited company, you also need to register with Companies House.

If you’re not sure whether you ought to set up as a sole trader or as a limited company, check out our article Sole trader versus limited company: the pros and cons for your small business.

You may also decide to register for VAT, especially if you’re likely to be incurring significant business expenses during the early months of being in operation.

VAT registration does pose an extra admin burden, though, so you may prefer to wait until you reach the VAT threshold before registering. You’ll also need a registered trading address in order to be VAT registered.


When should you register your business?

While the process of registering your business itself isn’t too difficult, people are often unsure as to when to do it. Should you do it after your first piece of business? Or after you settle your first invoice?

We recommend registering with HMRC as soon as you’re ready to start trading.

In HMRC’s eyes, “trading” means selling goods and services for a profit on a regular basis. This means there can be grey areas when it comes to working out whether you can truly be deemed to be trading.

For example, semi-recreational activities that you do at home and that lead to you selling products at an occasional car boot sale are unlikely to be seen as a business. Therefore, you wouldn’t need to be registered with HMRC.

But given that most businesses are very much about selling goods and services for a profit on a regular basis, skipping registration is rarely an option.

Assuming you’re ready to take the plunge, we suggest starting out by registering as a sole trader. That way, you won’t need to worry about dealing with Companies House at the outset of your business.

Even if you plan to work with others, there’s nothing to stop you each registering as sole traders and later coming together to form an official business partnership as a limited company.

This won’t apply in all cases and there are some circumstances where it’s right to be registered as a limited company from the outset. You can get advice on this from HMRC or by talking with accountants such as us.

Remember that we’ve also published a pros and cons list to help you understand the relative merits of being a sole trader or a limited company.


What else should you do when registering a business?

We’ve already mentioned VAT registration, which is mandatory if your income exceeds that VAT threshold (currently £85,000). You can register voluntarily even if your income is below the threshold, which may be wise if you have a lot of early expenditures to make that include a reclaimable VAT component. If you’re not sure whether to register for VAT, speak with your accountant for advice.

You might also register with the Information Commissioner’s Office (ICO). With the General Data Protection Regulations (GDPR) in mind, your need to register with the ICO depends on your role as a data controller and data processor in dealing with personal data of staff and customers.

In most cases, it’s a good idea to register with the ICO, and the annual fees for doing so are often relatively low, with most small businesses paying only £40–£60 per year.

Use the ICO’s online checker to see how much you’d need to pay and then use the Data protection register form if you wish to go ahead.

No other formal steps need to precede the registration of your business.


Let’s sum up

The process for registering your business is easier than it’s ever been, and it’s possible to get through the online forms in as little as 30 minutes. Be sure of how you want to set up (either sole trader or limited company), and don’t be afraid to ask your account if you need advice on what’s best for your personal circumstances.

Get in touch with us to find out more about how we can help your startup business with advice on getting registered so you can start trading.

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