FAQs

The answer to this depends on various factors, including your business needs, goals, and risk tolerance. As a sole trader, you are personally responsible for all the business’s debts, and your personal assets are at risk. However, it is a simpler and sometimes more cost-effective structure, and you’ll report your business income on your personal tax return.

On the other hand, a limited company is a separate legal entity from its owners (the shareholders). It provides limited liability protection, meaning your personal assets are generally protected from business debts. It can also offer potential tax advantages, such as the ability to control the timing and method of taking money out of the company to optimise tax efficiency. However, running a limited company involves more administrative duties and higher costs.

Before making a decision, talk to us for tailored advice on the best structure for your business.

Whether to get a company car depends on your business needs and individual tax circumstances. Owning a company car has tax implications, and the tax treatment has changed over the years. Company cars are considered a benefit-in-kind, and the value of the benefit is subject to income tax and National Insurance contributions.

Consider factors such as the cost of the car, its CO2 emissions, and how much it will be used for personal purposes versus business purposes. In some cases, it might be more tax-efficient to use your personal car for business and claim mileage expenses instead.

Again, talk to us to evaluate the tax implications and determine the best approach for you.

Taking on staff involves additional costs beyond their gross salary. These costs include:

• Employer’s National Insurance contributions (NICs): Employers are required to pay NICs on their employees’ earnings above a certain threshold. This is a cost that you, as the employer, have to bear.
• Pension contributions: If your employees are eligible for a workplace pension scheme, you will need to make contributions on their behalf.
• Benefits and perks: Additional costs may arise if you provide benefits or perks such as private health insurance, gym memberships, or company cars.
• Training and development: Investing in your employees’ skills and professional development may be necessary to maintain their productivity and growth within the company.
• Workplace expenses: Costs associated with providing a safe and suitable working environment for your employees.
• Recruitment costs: Expenses related to hiring and onboarding new employees.

Remember to budget for these additional costs when considering taking on staff, as they can significantly impact your business finances.

HMRC requires businesses to keep records for at least six years from the end of the accounting period they relate to.

Records that must be kept include financial statements, invoices, receipts, expenses, payroll records, VAT records, and other business-related documents.

Retaining records for the required period is crucial for tax compliance, audits, and potential inquiries from HMRC. Always verify the current record-keeping requirements or talk to us for the most up-to-date information.

Registering with HMRC depends on the type of business structure you choose:

• Sole trader: You can register as a sole trader online on the HMRC website or by post.
• Limited company: If you set up a limited company, you can often register for corporation tax with HMRC at the same time as registering with Companies House.
• Partnership: Partnerships need to register with HMRC to ensure each partner is individually taxed. You can register a partnership online or with form SA400. 

To register, you’ll need to provide information about your business, such as your business name, address, nature of business activities, and personal details. After registration, HMRC will issue you with a unique taxpayer reference (UTR) and other relevant information for tax compliance.

A limited company is a business structure registered with the Government, providing it with a separate legal identity from its owners (shareholders). The company has its own rights and responsibilities and can conduct business, own assets, and enter into contracts in its own name. Shareholders’ liability is limited to the amount unpaid on their shares, which means their personal assets are generally protected from business debts.

There are two main types of limited companies: private limited companies and public limited companies. Private limited companies are more common for small and medium-sized businesses, while public limited companies are typically larger and can offer shares to the public.

​In the UK, for the tax year 2023/24, the basic rate of income tax applies to earnings up to £50,270, and higher-rate tax applies to earnings above that threshold up to £125,140. Earnings above £125,140 are subject to the additional rate tax.

Keep in mind that tax rates and thresholds can change, so it’s essential to check the current rates on the HMRC website or talk to us for the most up-to-date information.

At Cottons, we’re dedicated to guiding our clients through complexity to achieve their goals. When you succeed, we succeed.

From the very beginning, you’ll have a dedicated contact at Cottons, ensuring consistency and building strong, lasting relationships. We understand your time is valuable, so we promise to communicate clearly and efficiently, avoiding jargon and unnecessary complexity. Our focus is on cutting to the chase and providing the information you need.

Feel free to explore our full range of services. Don’t know what accountancy service you need? Call one of our local offices – we don’t charge for queries and one of our accountants will be on hand to help.

Starting a limited company involves several steps. Here’s a general overview:

• Choose a company name: Ensure the name is unique, not already in use, and complies with naming regulations.
• Registered office address: You’ll need a registered office address for official correspondence.
• Appoint directors and shareholders: You’ll need at least one director and at least one shareholder (these can be the same person).
• Memorandum and articles of association: These are legal documents outlining the company’s constitution and how it will operate.
• Register with Companies House: File the necessary documents with Companies House to officially register the company.
• Set up a business bank account: Keep your personal and business finances separate by opening a bank account for your business.
• Register for taxes: Depending on your business activities, you may need to register for VAT, corporation tax, and pay-as-you-earn (PAYE) if you have employees.
• Obtain licences and permits: Depending on your industry, you may need specific licences or permits to operate legally.

Cottons can handle these steps on your behalf, ensuring you comply with all legal requirements.

Yes, if you have rental income from a property that’s over the property allowance of £1,000 in a tax year, you must register with HMRC and report the income on your tax return.

Allowable costs for rental properties are expenses that can be deducted from your rental income before calculating the taxable profit. Some common allowable costs include:

1. Mortgage interest: The interest on a mortgage used to buy or improve the rental property. However, tax relief on mortgage interest has been restricted since 2017 – check the current rules and talk to us for advice.
2. Property repairs and maintenance: Costs incurred to keep the property in good condition.
3. Insurance: Insurance premiums for the rental property, such as building insurance.
4. Letting agent fees: Fees paid to letting agents for managing the property.
5. Council tax: If you pay the council tax on the property, it can be deducted.
6. Utilities: Costs for utilities like gas, electricity, and water, if you pay them on behalf of the tenant.
7. Ground rent and service charges: For leasehold properties.

Keep in mind that not all expenses are allowable, and the rules may change over time, so it’s important to keep up to date with the latest regulations.

At Cottons, we can provide personalised advice that’s specific to your circumstances and advise on your allowable deductions, as well as providing up-to-date tax information and making sure you’re compliant with current rules.