A Tale of Courage, Challenges, and Success
Starting your own business is an exciting journey. Like any great story, it has its beginning, middle, and end. Here, we detail the first steps through to the final chapter … the timescale is up to you!
The Beginning: Setting Up Your Business
Your self employment journey starts when you decide to strike out on your own. As an employee, taxes were straightforward – deducted from your salary before it reached your bank account. But now, as a self-employed entrepreneur, you need to account for income tax and National Insurance Contributions (NIC) yourself.
Your first formality is to register for self assessment. You can do this by creating an account with HMRC online services, or your accountant can help you. You’ll receive your Unique Tax Reference (UTR) … this number is unique to you and stays with you for your entire business and tax journey.
You manage your legal requirements, along with your tax and Class 2 and Class 4 NIC payments, by completing and submitting your annual Self Assessment tax return.
The Middle: Managing Growth and Compliance
As your journey progresses, your business is likely to grow, bringing additional responsibilities.
Keeping accounts and filing tax returns are regular tasks. If your turnover stays below £85,000, the accounting process is simpler; exceed this, and you’ll need detailed expense breakdowns. From April 2026, Making Tax Digital (MTD) applies to sole traders and landlords with a qualifying turnover over £50,000. This involves submitting quarterly returns through MTD-compatible software. Starting in 2027, those whose turnover exceeds £30,000 will be required to do the same.
- Navigating VAT
As your business thrives, reaching over £90,000 turnover in any 12 months requires VAT registration. Submitting quarterly VAT returns becomes mandatory. Below this threshold, VAT registration is optional, offering strategic advantages in certain markets.
- Involving Others
If your journey involves other people, a change in business format may be beneficial. (Sole traders can employ others without changing business format. ) Operating as a partnership brings shared responsibilities, with each partner filing their share on personal tax returns.
Incorporation transforms your business into a limited company, separating personal liability and offering potential tax efficiencies through dividends. While a director’s salary or pension is deductible for corporation tax, dividends are paid from post-tax profits. This means these extracted profits are taxed twice, however dividends are free from NIC. Are you caught in the dividend trap?
The End: Your Business Exit
Every story has its conclusion. After years of successful operation, or if your goals change, you may consider selling your business. For sole traders, it involves selling goodwill and assets, while partners face capital gains tax on their share.
If the business has been incorporated, the company owns the business assets and individuals own shares in that company. Capital gains tax is chargeable on those shares. Business asset disposal relief (BADR) may be available for up to £1m of gains within your lifetime on trading assets.
Business Support
Your business lifecycle involves numbers, regulations, and more. It’s a journey of exciting opportunities, challenges, and strategic decisions. Enjoy the ride and learn along the way (nobody has all the answers at the start).
Twists and turns build your experience and shape your future. Remember – you’re not alone. From choosing the right business structure to optimising profits and minimising your tax bill … the re:accounts team is on your side. We’ll help with forecasting and accounting advice as well as compiling and submitting accounts and tax returns.
Are you starting or growing a business? Talk to the friendly experts at re:accounts. We’re with you every step of the way.
