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By Cheaper Accountant, Nov 24 2017 07:19AM

We often receive questions from clients new and old about the difference between operating as a sole trader and operating via a limited company. In particular, we are often asked to provide guidance on what taxes apply to a sole trader and how much each client can expect to pay in tax. This blog article will help to define what a sole trader actually is and who would be considered a sole trader. The article will then provide guidance on what specific taxes apply to a sole trader as there are differences when compared to a director of a limited company, for example. It’s not the intent of this article to focus on limited company and company director taxes.

What is a Sole Trader?

A sole trader is probably the simplest company structure that you can operate within the UK and there are less filing and accounting administration requirements associated with operating as a sole trader when compared to other company structures, such as a limited company.

A sole trader effectively operates their business in their own identity and remains personally responsible for all business liabilities and is taxed personally on all business profits. An example of a sole trader could be a market stall trader. This is very different to a limited company, where the company itself is considered a separate legal identity and in turn the limited company itself is liable and responsible for all business liabilities.

As a sole trader all business profits are considered by yours whereas with a limited company the company profits belong to the company. A sole trader is free to access business profits at any time whereas a limited company may pay a salary and dividends to company directors and shareholders.

Sole Trader Taxes

A sole trader is taxed on all business profits (sales less allowable expenses) and this is transacted via the sole traders’ personal self-assessment tax return. A sole trader will complete the Self Employed sections of their self assessment tax return and this is correct definition of self employed. The business profits are taxed as income and income tax and national insurance applies to sole traders.

It is worth pointing out that a sole trader can withdraw cash from the business and this does not lead to any tax being due. This is because the cash already belongs to the sale trader with taxes paid on the overall business profit or loss.

Class 2 and class 4 National Insurance contributions apply to a sole trader. Class 2 NI is generally charged at £2.85 a week whereas class 4 NI’s are calculated as 9% of profits between £8,164 and £45,000 with a rate of 2% applying to profits from £45,000 upwards (this operates in a similar fashion to an income tax bracket).

By Cheaper Accountant, Oct 30 2017 06:03AM

We have been preparing a number of company accounts and company tax returns for the limited companies of our clients with company tax years ending post April 2017. These clients are now starting to feel the benefit of the reduced corporation tax rate. Yes that’s right, you may have missed it but the corporation tax rate for limited companies was reduced by Government with effect from 1 April 2017 and further reductions to this tax rate or planned in the coming years.

What are the changes to the Corporation Tax Rate?

The UK Government reduced the corporation tax rate which applies to limited companies down from 20% to 19%. This change took effect on 1 April 2017.

All limited companies with an accounting year ending after April 2017 will start to feel the benefit of this reduction in tax. We have already completed company tax returns for a number of clients who were pleasantly surprised to see that the corporation tax due was less than what they had expected, with many clients still expecting and planning for a corporation tax take of 20%.

What future changes are expected?

The UK Government announced during the Summer Budget of 2015 that they would reduce the corporation tax rate down further to 18% starting from 1 April 2020. This is further good news for the owners of limited companies.

However, the most recent plans here are even better as the UK Government subsequently announced during the 2016 Budget that they will reduce the corporation tax rate even further to 17% from 1 April 2020.

This is great news for all clients who operate a limited company and adds further weight to support the decision of choosing the limited company structure.

We’ll certainly keep you on top of any changes here regarding future plans for the corporation tax rate so watch this space for future updates and we will also add a blog post each year when the new change is implemented as a gentle reminder.

By Cheaper Accountant, Oct 1 2017 07:43AM

This blog post is the first of a series of artilces that we will publish on HMRC's "Making Tax Digital" or MTD. There has been a number of developments in this area during recent months and this series of articles that will be published on our site over the coming days and weeks will focus on introducing MTD, what MTD means for you the reader and will provide details and guidance on the most up-to-date developments relating to MTD.

Introduction to Making Tax Digital

The Government has committed itself to a digital revolution and to fundamentaly reform the way in which the tax system operates. This is a somewhat ambitious agenda which initially targeted the year of 2020 for full implementation. The aim of MTD is to simplify the tax system for tax payers and effectively improve the user experience for millions of taxpayers. A fully digital tax system in 2020 is expected to address the following three aims:

1. Removal of form filling and a closer connection to real-time information;

2. Removal of time delays as the tax system operates on a closer to "real-time" basis;

3. Increased access to digital accounts underpinned by the seamless upload of information.

This may mark the end of the tax return for both individuals and businesses and only time will tell. Businesses and individuals can expect to file and update electronic records held with HMRC at any time and in real time. The aim is to collect tax quicker and more efficiently. Rather than making annual tax payments, companies and individuals are likely to need to pay tax on a more regular basis just like you would if you fell wihtin the PAYE tax system. The regular updating of information filed with HMRC is likely to come at a cost. This is where you may wish to engagement a more affrodable accountant for your accountancy work and we can certainly help you here.

It was initially stated that a number of businesses, including the self-employed and property landlords, may be required to update HMRC at least quarterly from April 2018. This appears to be quarterly business accounts which will underpin quarterly electronic tax calculations (possibly replacing the annual tax return) with quarterly payments of tax being likely. These quartely updates are expected to be completed electronically and online. This seems to be similar to the Payroll Real Time Information and the changes that were made to the filing of employer payroll information.

Small business owners will need to ensure that all bookkeeping is performed on a regular basis so that quarterly filing requirements are not overlooked. You are likely to need an accountant to help you with these new quarterly duties and an accountant could be needed to submit the lodgement to ensure that everything is accurate and correct from a tax perspective. This may result in four significant payments of accountant fees and small business owners will need to be vigilant when engaging an accountant as these fees could certainly mount up across a twelve month period.

Like I said earlier, this is the first of a series of blog posts on the topic of making tax digital and we hope that you find this information useful and it provides food for thought as you move forward wih your company accounting.

By Cheaper Accountant, Aug 30 2017 07:00AM

This blog post will take a look at the Limited Liability Partnership company structure and touch upon the pros and cons of operating this type of company. You may notice that a number of legal firms and even some accountants use the acronym LLP after their names and this company structure is often popular amongst certain types of business. An LLP does have its benefits but at the same time an LLP may not be the best option for everyone.

The LLP company structure is designed for businesses that usually operate as a traditional partnership. Examples of such businesses are accountancy firms, solicitors, dentists, vets, architects, surveyors, GP’s and other such professional services firms.

Limited Liability

One of the main benefits of the LLP structure is the “limited liability” protection offered to the members or partners of the LLP. This means that the individual partners are not personally liable or responsible for business debts and their personal assets (such as the family home) remain protected during the normal course of business.


An LLP is very similar to a traditional partnership when it comes to paying taxes on company or business profits. It is not the company or the LLP that is taxed on the profits generated but instead each partner is taxed on their share of company profits via a self assessment tax return.

Benefits can arise from this when the partners within an LLP live and operate the LLP from outside of the UK and as such are not deemed to be UK tax payers.

The appeal of the company not being taxed on its profits, which is the opposite situation to limited company, depends on the personal circumstances of the partners involved with the company. This can be a relatively complex area and professional tax advice should always be sought.

What is needed to set-up an LLP?

1. At least two members are needed to form an LLP and these will be known as the “designated members”.

2. An LLP member can be an individual or a corporate body (e.g. a limited company).

3. An individual must be at least 16 years old but they are not required to live within the UK.

4. A UK address must be provided as the official LLP registered address.

If you need any advice or you are thinking of setting up an LLP then feel free to contact one of our accountants via email to We complete LLP accounts and LLP tax returns as well as member self assessment tax returns for very competitive fees. Request a free quote and see how much you can save on your current accountant fees.

By Cheaper Accountant, Jul 31 2017 07:00AM

It’s not usual to be approached by a prospective client who has realised that their limited company’s Confirmation Statement is overdue. This happens from time-to-time and given that there is only a somewhat short window of opportunity to submit the confirmation statement on time we can understand how some people may miss the filing deadline. This blog post will clarify a couple of misconceptions that seem to float around as well as highlighting the more specific consequences of submitting the confirmation statement to Companies House late.

What is the Confirmation Statement?

The confirmation statement in summary is simply an update (or confirmation) of the company details, such as shares issued and the holders of shares in the company. One of our previous blogs introduced more details on the confirmation statement and we even provided a demonstration video on how to complete the confirmation statement. So we won’t go over the same ground again here.

We would like to make it very clear here that the Confirmation Statement is not the Annual Company Accounts. This is the first misunderstanding we sometimes see. The confirmation statement is a very separate and completely different return to the company accounts. Now that the annual return has been rebranded and in turn renamed the confirmation statement, we are hopeful that this will be clearer moving forward.

What happens if my Confirmation Statement is submitted late?

Companies House give a limited company only 14 days to file the confirmation statement and this is an annual task. Given the short timeframe the situation of submitting a late or overdue confirmation statement can arise.

The great news for anyone concerned about this is that there are no late filing penalties for an overdue confirmation statement.

The confirmation statement must always be filed however, even if this is overdue, as failure to file the confirmation statement is a criminal offence. If you file it too late Companies House may strike off the company (close the company) for non-receipt of the confirmation statement.

So, if you currently have an overdue confirmation statement then there is no need to panic and you don’t need to worry about incurring a fine but we do urge you to act on this. Why not request a free quote via our homepage as we charge only £30 to complete and submit the confirmation statement for you.

By Cheaper Accountant, Jun 6 2017 06:00AM

We previously gave a short introduction to the Director’s Loan Account and what this is used for. It is fairly common for owner Director’s to invest their own cash into a limited company, especially during the early years and this might be to buy stock for example to get the business started. A question that is often asked is how do I repay myself this loan and do repayments attract any tax? This blog post will address these specific issues directly and provide answers to what is a commonly asked question. The comments below will consider a director’s loan made by the director to the company and is currently owed to the company.

Repaying yourself from the limited company

It is a fairly simple process to extract cash from your limited company to repay you for the cash that you have previously loaned to the company. We recommend that you take the following steps:

1. Understand how much you are owed by the company – taking more than the sum owed to you can have tax implications

2. Check that the company has sufficient cash to repay you

3. Then simply complete the bank transfer to action your repayment

What about taxes?

The good news is that there are no tax implications of receiving a repayment of a loan you have made to a limited company. You can repay yourself the outstanding balance in full and this then doesn’t need to be declared by you as income for income tax purposes.

Repaying any loan is often the first step you should take before taking any dividends from the company as dividends are taxable income under the dividend tax rules.

Does the company need to make a profit?

The company doesn’t actually need to make a profit before you can be repaid a director loan. As long as the company has sufficient cash to repay you then a repayment can be made.

By Cheaper Accountant, May 15 2017 07:00AM

We often complete work for clients who run a business via eBay or simply make a large number of online sales with customers making payment via PayPal. The question that is asked time and time again is how do I account for PayPal transactions? This blog article has been written to assist the readers of our blog in resolving this conundrum. The answer is relatively simple and you’ll be relieved to hear that it doesn’t involve hours of extra work and extensive additional bookkeeping duties.

Do I need to record every single PayPal transaction within my accounting software?

This is the good news that you’ve been waiting for and the quick answer is: no you don’t need to record each and every PayPal sale alongside the associated PayPal fee.

You can access detailed records of all sales by simply logging into PayPal and then running a transaction report for the desired date range. There is no requirement for all of this detail to then be manually entered line-by-line into your accounting software. You already have the necessary accounting records and there’s no onus on you to record all of these details twice.

So how do I record the income and fees within my accounting software?

We suggest that you run and extract a transaction report from PayPal at least monthly and then follow the steps below:

1. Extract the transaction listing into a spreadsheet and then save this

2. Sum all sales income for the month in question

3. Sum all PayPal fees for the month in question

4. Enter the monthly sales income total into your accounting software

5. Enter the monthly PayPal fees total into your accounting software

The above steps ensure that the income is recorded for the month and when your accountant comes to prepare your accounts at the end of the 12 month period he or she will be able to see the correct sales figures.

The above task involves a little effort if you are VAT registered as you will also need to record the VAT.

By Cheaper Accountant, May 9 2017 08:00AM

The question posed in this blog update is one that we are asked by clients from time-to-time. When a company, which may be a sole trader or a limited company, is registered for VAT the expense for company purchases alongside the VAT are separately recorded and itemised and then the VAT portion of the invoice the company has paid is claimed on the VAT return for the quarter. This is the practice that a large number of clients are familiar with and is the basis of accounting for VAT to support and facilitate the VAT return. However, what do you do if you’re not registered for VAT?

Recording expenditure details when not registered for VAT

Well, you’ll be pleased to hear that the process here is very simple. All you need to do is simply record the gross value of all purchases (or company expenditure). The gross value is the total paid including VAT. There is no requirement to separately identify and record the VAT.

If you were to record the VAT this is likely to result in the understatement of expenditure as the VAT amount when recorded as a separate line item within all of the major accounting software solutions would result in a debtor (an amount owed to the company) on the balance sheet and indicate that the sum needs to be reclaimed from HMRC within a VAT return. Obviously this would be incorrect for anyone who is not VAT registered.

What if I subsequently register for VAT?

We don’t see any major issues under such circumstances as there are a fairly limited number of expenses that can be reclaimed retrospectively. Nevertheless, we do advise all clients to maintain adequate records of all invoice paperwork to ensure that the VAT on previous expenditure can be claimed under the limited circumstances that are endorsed by HMRC.

If you are interested in reading more about retrospective VAT claims then take a look at our earlier blog post and click on the link provided.

By Cheaper Accountant, May 3 2017 05:55AM

This article has been written as a follow on from the last time we updated the blog and provided advice to the readers of our blog on the motor expenses – full cost method. Today we are addressing our sole trader clients and this blog post has been written with them in mind. If you operate a limited company then this article doesn’t directly relate to you and a different set of rules will need to be followed and applied to what is outlined below. The personal use of a limited company asset such as a company car is a very different topic all together and crosses into the territory of a taxable benefit.

What are Capital Allowances?

Capital allowances are used to allow a business owner to deduct the cost of using an asset for business purposes, such as a motor vehicle, across a number of years. Rather than using the full purchase cost of the asset as an expense against taxable profits, capital allowances are permitted to be used to reflect the decline in value of the asset over a number of years.

Business Use vs Private Use

You will need to accurately understand and calculate your business use and private use of any asset. Continuing with the example of a motor car used during the course of business: let’s assume that it is used 50% of the time for business mileage and 50% of the time for private or personal mileage. This would result in a 50% reduction to the capital allowance claimed.

How are Capital Allowances Calculated?

You purchase a motor vehicle for £10,000 with CO2 emissions of less than 130g/km and as such qualifies for a writing down allowance of 18%. The vehicle is used 50% of the time for business and 50% of the time for personal trips.

Step One – Calculate the Full Capital Allowance

£10,000 x 18% = £1,800

Step Two – Reduce by private use factor

£1,800 x 50% = £900

Step Three – Record as an expense against company profits

The figure of £900 can be recorded as an expense reducing the sole traders’ taxable profit.

This blog has presented a simple example and explanation of the capital allowances that apply to reflect the cost of a sole trader using a motor vehicle during the course of business. This isn’t always a simple process in practice and if you need help with your capital allowances or other accounting matters then don’t hesitate to contact us.

By Cheaper Accountant, Apr 18 2017 06:00AM

Sole traders who operate a vehicle for work purposes will have a choice to make between applying the current mileage rates or applying the full cost method. This blog post will explain how the full cost method works and how to apply this in practice. We previously blogged about the mileage rates that can be used to calculate the cost of all business mileage and these details won’t be repeated here, although we have provided a link to the previous blog post above. There have been no changes to the mileage rates stated and these are the current rates.

Methods for calculating the cost of motor travel

Essentially, if you drive your own car for business you can record the cost of this and doing so will reduce the amount of tax you pay on your sole trader profits.

There are two methods available for capturing the cost of business related travel within your own car. These are:

i) the mileage method – which includes multiplying the number of miles travelled for business by the approved mileage rate

ii) the full cost method – this aims to calculate the full real cost of the business travel within your own car

Full Cost Method

The full cost method is simply as it sounds and involves calculating your full car cost or expense for the year. The following steps identify how the business cost is calculated:

1. Add together all of your car expenditure during the year, which could be petrol expenses, the costs of services and repairs or even an MOT

2. Multiply this total cost by an appropriate business percentage to give the business proportion of the total cost


Let’s say that the total cost of all car expenditure for the year was £2,000 and you drove the car 50% of the time for business.

Your business expense would be: £2,000 x 50% = £1,000

Mileage Log

We strongly advise all clients who are applying the full cost method to keep a detailed mileage log to identify all business and private trips made in the car. This prevents clients falling foul of HMRC should they face an inspection at any point.

Is this the best method for me?

This is a good question and the mileage rates may be better for many sole traders due to the simplicity of the method.

However, the HMRC approved mileage rates are not adjusted for larger vehicles, such an SUV, which tend to use a lot more petrol and are often repaired with more expensive parts. If you drive a larger and more expensive vehicle you may well benefit more from using the full cost method.

Capital allowances and tax relief

The full cost method allows you to claim capital allowances for the purchase price of the car you use and this will be explained in detail in our next blog update.