A 'self-assessment tax return' is a type of personal tax return. Many entrepreneurs, business owners, limited company directors and self-employed sole traders file self-assessment tax returns with HMRC each year to report how much they’ve earned and how much tax - if any - they owe on that income. When completing a self-assessment tax return, you should include all your taxable income and any capital gains.
It is your - or your ‘limited company’s’ - responsibility to work out how much tax you need to pay. Self-assessment tax returns need to be completed by the end of January (31st) following the end of the tax year that you’re completing the self-assessment for.
Self-assessment tax returns which are not filed online must be with HMRC three months earlier - by October 31st following the end of the relevant fiscal year.
Whether or not you complete a self-assessment tax return is dependent on your status and employment circumstances. For instance, limited company directors who take all or part of their salary through investment (dividend) income need to file annual self-assessment tax returns.
Likewise, because the income received by a self-employed sole trader is not usually taxed at source, they too need to complete annual self-assessment tax returns to ascertain what tax, if any, they owe to HMRC.
It is your responsibility to inform HMRC if you need to complete a self-assessment tax return. It can be somewhat complicated, so why not save yourself the hassle and consult the expertise of a specialist accountant to take care of your tax affairs.
A dividend is a slice of a limited company’s profit that’s given to shareholders. If you operate your own limited company, this includes you.
Any dividend income you receive as a shareholder is NOT subject to National Insurance contributions. The first £2,000 worth of dividends you receive per annum is TAX-FREE. Dividends above this threshold, which fall within the basic rate tax bracket, will get taxed at 7.5%. If you fall into the higher rate tax bracket, you’ll get taxed at 32.5%. This information is correct as per the 2020/21 tax year.
When operating through your own limited company, you’ll incur certain expenses. In simple terms, expenses tend to fall into two categories:
• Those incurred in performing your contract. E.g. travel.
• Those incurred to administer your company. E.g. accountancy fees.
Expenses incurred through performing your contract tend to come from your own pocket. Therefore, you'll need reimbursing through company funds. As such, you’ll need to complete an expense claim detailing each expense, to support this payment to yourself.
At Danbro Business, we’ll provide you with a detailed expenses guide, highlighting the most common expenses incurred by your business and ensuring your expenses are claimed correctly - avoiding potential personal tax charges.
Incorporation is the process of a new business or existing sole trader registering as a limited company with Companies House. Incorporated businesses are separate legal entities. Their identity is distinct from the individuals who run or own them.
When you incorporate your business you become a shareholder - and director - of a limited company. Where there are other shareholders involved, you’ll need them to agree to create the company and its written rules before incorporation. These rules are often referred to as ‘memorandum and articles of association’. Once that’s taken care of you can register your company online with Companies House.
As a limited company director, there are certain obligations you need to fulfil. For instance, you’ll need to inform Companies House about any changes to the business. This includes the appointment or resignation of another director. Limited company directors are also obliged to prepare and submit annual accounts to Companies House. A company tax return, along with your financial accounts, must also be filed online with HMRC. Furthermore, details about your limited company will float in the public domain. That means third parties can access documents filed at Companies House.
As a sole trader, there are no legal requirements to publish such information.
Incorporation is not compulsory and for many, sole proprietorship works just fine. But, to bring in co-ownership, for instance, a business needs to be incorporated. It also tends to be a little easier to get funding for a limited company than it is for self-employed sole traders. Transferring the ownership of your business is more straightforward as a limited company shareholder too. So, when you come to retire, decide to sell, or in the unfortunate event of your passing, succession is easier than it is for non-registered businesses.
Before you decide whether to incorporate your company, it’s always a good idea to speak to an accountant or business specialist. They’ll help you determine the best option for you and your business moving forward. To spare you the rigmarole, Danbro Business can take care of all this for you. After all, it’s what we do best. For more information on setting up a business, and the differences between sole traders and limited companies, click here.
Business plans are the foundation of any small business. You’ll need one if you want to secure a bank loan or investment for your start-up/new business idea. Your plan should set out in writing the strategy and structure of your new business, outlining your objectives and plans for growth. Your business plan should also cover things like sales estimates and financial forecasts.
Creating a business plan will help you clarify your business model and set short and long-term goals. You can also use it to measure progress and to flag up any potential complications. Moreover, good business plans help convince potential clients and investors to engage with you.
There’s plenty of guidance out there to help you create a business plan. You can download templates like this one from the Government recommended, ‘Start-Up Loans’ website.
Once you’ve registered your new business, you need to set up a business bank account. The bank you choose to use is entirely your decision. To ensure you’re getting the best deal, there are a few things to consider:
- Select a business bank account that has low charges.
- We’d strongly recommend setting the bank account up in your Limited Company’s name.
- Use a smaller, community bank - depending on the size of your business, and the relationship you want to have with your bank.
- Try to find a bank that offers a period of free banking.
- List the fees that apply to your account and minimise the charges you pay.
- To maximise your interest, ‘sweep’ cash into a business savings account.
- Finally, consider setting up a Limited Company account with the same bank that you hold your personal account with. It’s often more straightforward to set up. And, online banking can usually be linked to your personal account, making it more streamlined and efficient.
As a business owner, you’ll need to consider whether you're required to take out any business insurance policies. Some of the more common policies include:
- Professional indemnity
- Public liability
- Employers’ liability
- Property insurance
You should review your new contract as it may stipulate a minimum level of insurance cover required to fulfil the contract. Section 8 of our ‘tips for small businesses’ blog, should help answer any questions you have about business insurance.
When you set up a limited company, you must provide a registered office address to which communications will get sent. This must be a physical UK address and it must be in the same country that your company is registered in. I.e. an English address for a company registered in England, and so on. This address will be publicly available. You cannot remove it from the online register.
As a limited company director, you’re obliged to display the registered address of your business on all company documents. This includes invoices, as well as your website, if appropriate.
Many small business owners use their home address as their registered office, particularly if they don’t have a rented office space. However, if you don’t want your private address made public and you want to ensure that important correspondence isn’t overlooked, as your accountants, you can use our office address as your registered office.
Sole traders, meanwhile, do not need to have a registered business address. Whilst HMRC will want an address from you, it will not be available to the public.