Q: Do I need a separate bank account for my business?

A: As an individual or sole trader there is no obligation to have a separate bank account for your business, unlike for limited companies where it's a mandatory requirement. I would however suggest opening a separate account for your business if possible as you will have all your business transactions already separated out and won't have to dig through a year's worth of personal bank statements come tax return time to work out what was business and what was personal (which could be hundreds of transactions...).

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Q: Can I claim any utility bills or expenses whilst working from home?

A: In effect, yes, but it's treated slightly differently if you are a sole trader/partnership or an employee (including the director) of a limited company.

For a sole trader or partnership, there is a set rate claimable (known as "simplified expenses") which depends on the number of hours worked from home each month. A proportion of bills can be calculated instead but this is more complicated and so often simplified expenses is the choice.

The flat rates from April 2020 are as follows:

  25 to 50 hours = £10 per month

  51 to 100 hours = £18 per month

  101+ hours = £26 per month

For a limited company, employees and directors who work from home can claim a flat rate of £26 per month from April 2020 without the need for any records to be kept.

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Q: Do I have to be a limited company to register for VAT and vice versa?

A: Many sole trader and partnership businesses are registered for VAT. There is no rule that states you need to be a limited company, as the trigger point is the value of VATable sales your business makes in a rolling 12-month period. Once this reaches £85,000 then it is mandatory to register for VAT (if the sales are not exempt supplies.)

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Q: Can I reclaim input VAT without a receipt?

A: If you are a VAT-registered business, in order to reclaim the VAT on your purchases from other VAT-registered businesses (note: not all businesses are registered for VAT, and not all supplies attract VAT,  so you can't just assume everything includes VAT!) you will need a receipt or invoice from them stating their VAT registration details, and with a breakdown of the VAT element of the transaction if the total is over £250.

However, you can reclaim VAT on purchases of up to £25 (including VAT) without a receipt, for example when you spend in coin-operated machines that don't offer receipt, but with the caveat only if you can prove that the supplier is VAT-registered.

If you are unable to obtain a valid VAT invoice/receipt or have lost the original, make sure you have enough alternative evidence to satisfy HMRC that there was a valid purchase.

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Q: How long do I need to keep my accounting records for?

A: The length of time you are required to keep your accounting records (whether paper or digital) depends on what type of business you run.

If you are a limited company, you need to keep 6 year's worth of paperwork from the end of the last financial year in case HMRC decide to hold any type of investigation on the business' tax affairs.

If you are self-employed (i.e. a sole trader or in a partnership) you need to keep records for 5 years after the 31st January submission deadline.

e.g. tax return 2019/20 - submitted 31/01/2021 - keep until 31/01/2026

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Q: Should my car, used personally as well as for business, be in my company accounts?

A:

Limited Companies:

There are pros and cons to including a car in your business accounts, however it generally follows that it will be more expensive for you to have your car as a business asset in your accounts due to the ‘Benefit in Kind’ taxes arising from it being used for personal journeys as well as business.

Sole Traders & Partnerships:

As there is legally there's no difference between you and your business when you are a sole trader or in a partnership, there's no such thing as a "company car". Instead, you can claim a proportion of the expenses directly linked such as fuel costs and insurances, and also costs of any expenses directly related to business travel such as car parking, toll charges and valeting (depending on whether using the vehicle is a material factor in doing business, such as for a driving instructor or private taxi).

The alternative that is used the most and simplest way for recording business travel in a personal vehicle is the simplified expenses rules for mileage, whereby you can use 45p per mile for a car for the first 10,000 miles a year and 25p per mile thereafter as a tax allowable deduction against your profits.

Once you have chosen a method to account for your car usage, you have to stick to it for the duration of ownership of that vehicle. You can't change from the mileage method to the proportionate-cost method, or back again, unless you change vehicles. 

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Q: MTD ITSA - what's that all about?

A: MTD ITSA is more formally known as Making Tax Digital Income Tax Self Assessment, but as you can see that was rather a long name so HMRC shortened it! From April 2026, all individuals with more than £50,000 sales a year on business or property income will be required to join MTD whilst keeping digital accounting records and sending their tax returns using Making Tax Digital (MTD)-compatible software. This will include the softwares we recommend and use, Xero and FreeAgent, which is another reason accountants are so keen to get all their clients onto software - so they can be more prepared and will know the ins-and-outs of the system well in advance of the deadline.

Here's more on MTD ITSA straight from HMRC:

"Businesses and landlords who join MTD for Income Tax will need to send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. In response they will receive an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they can add any non-business information and finalise their tax affairs using MTD-compatible software. This replaces the need for a Self Assessment tax return.

Businesses and landlords will be able to use their software to send all of the information that they need to under Self Assessment, not just their business or rental income. This includes employment income, bank and building society interest, dividends, pension contributions, student loan repayment etc. Software developers will need to continue to build this additional functionality into their products, resulting in a richer experience for customers as MTD continues to develop."

There are many advantages in keeping digital accounting records. It helps with the effective running of the business, saving the business owner time when searching for documents at the year or quarter end. It reduces accounting errors in business records that may occur with manual calculations, and it helps a business see in real-time where they are heading.

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Q: How can I check if my National Insurance record is complete?

A: You can check your record with HMRC here to see if there are any gaps in contributions (a gap could potentially mean that some tax years won't count as qualifying years towards your State Pensions). If there are any gaps in the last 6 years these can usually be caught up with a one-off payment. You'll need to contact HMRC directly to arrange this.

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