Money Matters

How to boss your tax

Getting your tax right can be tricky at times, so in this episode we cover everything from Making Tax Digital to finding an accountant.

Bex Burn-Callander

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Getting your tax right can seem like an intimidating process, but we are here to make it easy, with five small business owners giving their advice on how you can boss your tax.

In this special tax episode, learn from the likes of serial entrepreneur Carl Reader and superstar accountant Mike Psaras, who break down the fundamentals and guide you through the dos and don’ts of tax.

They’ve made the mistakes, so you don’t have to. Read on to get their hard-earned insights.

Here’s what we cover:

Part 1: Carl Reader

Part 2: Samantha Senior

Part 3: Mike Psaras

Roobba, a Sage Accounting customer: Startup advice for you

Part 4: Jess Ratty

Part 5: Natalie Bannister

Bex Burn-Callander:

Welcome to the special tax edition of the Sound Advice podcast. This episode focuses on a topic we all love to hate, but all entrepreneurs must think about—tax.

Today, we’ll peek into the Sound Advice archives and pick out honest advice around tax, from some of our brilliant guests, whether it’s dealing with Making Tax Digital, Self Assessment, or understanding the best way to work with your accountant.

A quick disclaimer before we jump in: this is just general guidance, so if you need specific tax advice, remember to talk to an accountant for professional support.

First off, let’s talk about Making Tax Digital, or MTD for short. There’s a big push from HMRC to get us all to file taxes online through Making Tax Digital in the UK.

So what exactly is Making Tax Digital? Let’s hear from serial entrepreneur Carl Reader…

Part 1: Carl Reader

What does Making Tax Digital mean and how will it affect businesses?

Bex Burn-Callander:

We’ve been talking a bit about the rising role of technology in managing your figures, your taxes as a small business.

And there’s a big push from HMRC to get us all to file taxes online, through Making Tax Digital.

Can you tell us a bit about this push?

How are most small businesses going to be affected?

Carl Reader:

I guess the too long, didn’t read answer is every business is going to be affected by this, so we need to understand what’s going on here.

Making Tax Digital is actually something where the UK government is behind the tide, globally.

It’s an initiative that’s been in place, I believe down in Australia and New Zealand, I believe in Eastern Europe they’re quite far ahead with it as well.

What it simply means is that the taxation affairs of a business are to be digitalised.

Now, the reality for most business owners is that they’re probably sat there thinking, “You know what? I file my tax returns online anyway, so what is Making Tax Digital? Why is there such a noise about it? What are the changes?”

The current tax system is based around two different things that we need to think about.

The first one is manual form production, so the current level of digitalisation within the tax offices is just the translation of what were forms but, filled in on pen and paper that have just been moved to online forms.

It is still a manual process and a self-declared process, where the business owner, once a year, once a quarter, will log on and put down the details.

They’re moving towards an almost always-on process where the data is uploaded, at the moment quarterly they’re looking at, but where there’s a live link between the business’s records and the government’s records.

The second thing that we need to bear in mind is that historically, some of the listeners might remember the days of the Inland Revenue and HM Customs and Excise, the tax office as we call it, HMRC is very disjointed.

It is still a number of different organisations under one umbrella and some of the complications around Making Tax Digital come from the fact that VAT is very different from income tax, is very different from corporation tax.

So what does Making Tax Digital mean in reality?

It means that business owners at the moment, all VAT registered business owners [from April 2022], but ultimately pretty much every business owner will be required to have digital records of their transactions.

These will then be uploaded quarterly, so the tax office will have an insight to what’s going on in the business on a quarterly basis.

Then at the end of the year, there’ll be a sweep up where any mistakes are corrected by the accountant, and we get to a final figure.

The reality for most businesses is that nowadays, if they’re VAT registered, they’re doing this anyway. If they’re not VAT registered, then they’re probably waiting until the end of the year to, as we say, ‘do their books’.

To sit back and go through the paper bag of receipts and put them all onto their system.

That won’t be an option going forwards. Business owners will be required to keep a computerised system up to date, so that can be uploaded every quarter.

Now that will be a bit of a cost for some businesses, but I think we need to remember that actually as a company director, you have a responsibility, a legal obligation to keep what is known as proper books and records.

So, actually it is just an alignment of what the company’s act tells you to do as a director.

So, in short, Making Tax Digital is bringing the manual once-a-year process and making it a live link from the business’s software to the government’s software.

MTD is going to happen—but when?

Bex Burn-Callander:

I know that it’s quite tricky to know how soon businesses are going to have to start thinking about this, but would you advise that anyone that is still keeping spreadsheets or written notes, transitions to some sort of online system relatively quickly?

Carl Reader:

I think there’s a lot of fear about Making Tax Digital.

I think we’re at the point in the cycle of MTD where most business owners, certainly the ones that I know of and in my community, they know about MTD, they’ve heard of it.

The challenge is that there’s been a lot of resistance to MTD.

It’s going to happen. It’s a can that we can only kick down the road so far.

And I do get quite, I guess, embarrassed actually about my fellow professionals, when they celebrate another delay.

It’s something we just need to grasp and get on with, and whilst there is some negativity and let’s be honest, the tax office doesn’t have the best record and the best reputation for getting things right first time round.

Let’s just get on with it. Let’s just embrace it, let’s just do it.

Because for me, if I was starting a brand-new business tomorrow, I don’t want to be getting bank statements through the post, opening them up, and re-keying in all of those transactions onto a spreadsheet.

Then sending that spreadsheet onto an accountant to then re-key it into their system.

The systems that are available nowadays, the technology that’s out there can link into your bank accounts and can automate all of that stuff.

Now, let’s say I set up a lawn mowing business. Let’s say that I’m charging my time out at, I don’t know, £25 per hour, and I’m going out mowing lawns.

For me, it is far more valuable to have an extra hour or two mowing lawns, than an hour or two resisting technology for the sake of keying it in myself.

So actually MTD’s going to happen.

It might happen, at the moment they’re saying for smaller businesses, 2024 [for Making Tax Digital for Income Tax]; it might get pushed back yet again, could be 2030, doesn’t matter.

Put that to one side.

As a business owner, you need to focus brutally on your own efficiency, and if you can mow one more lawn per night, that’s a whole lot more valuable to you than the time spent keying in invoices.

Part 2: Samantha Senior

How to educate clients about Making Tax Digital, as an accountant

Bex Burn-Callander:

What have you done, Sam, when you’ve had clients that are resistant to software and making that change?

Because there must be people who are just like, “I like my system, I like doing my spreadsheets.” Or whatever.

What conversation do you have to try and change their mind and how tricky is it?

Samantha Senior:

For my other business, we do have a few tricky businesses. And it’s not that they’re tricky or being awkward.

For example, if you’ve done a plumber’s accounts for years, and they’re used to having that relationship where they just give you a bin bag of receipts, and you scan it all in there, and you do it for them, they’re just used to that service.

Especially people who are coming up to the retirement ages, they’ve got to learn all these new skills, and it is hard.

But again, it’s having that relationship.

You’ve got to go back, and you’ve got to talk.

You’ve got to explain that this isn’t something that you are making them do. This is something that we have to do.

And the sooner we do this, the better.

And getting them the training with AutoEntry and showing them how easy it is, is brilliant because although a lot of people might not be computer-literate, but they do have mobile phones.

And especially during coronavirus, people who might not have been so keen to use software are now using software to FaceTime their children and grandchildren.

So they’re a bit more approachable about the idea of saying, look, if you come in with your smartphone, we can help you with this.

We can do this over Zoom, and we can set it all up.

And I think that’s another benefit of Covid, it’s making those conversations easier. We can say, you’ve already got this phone, now this is what we need to add to it, and we can show you how to sit there with your receipts, and you can manually do it.

I think it’s breaking down those barriers, making something that sounds quite scary, into something quite simple.

And it is simple.

It’s a lot easier to sit there and do digital receipt recording than it is to input everything, like we had to in the olden days.

You’d have to input all the bank statements and input all the receipts. It is a lot easier to use something like AutoEntry, and then put that into your accounting software.

If you use spreadsheets you are not Making Tax Digital ready

Bex Burn-Callander:

Are there any particular details about this shift to our new world, with Making Tax Digital, that people should be aware of?

I read somewhere for example, that if you are on spreadsheets, you can’t just copy and paste whole spreadsheets into your software.

You have to do it all direct into the software rather than trying to do your own thing, hack it and then put it in.

What else should people be aware of?

Samantha Senior:

It’s just getting it clear to people, because I think rather than having to explain to people who are computer illiterate, it’s harder to get those businesses that are reliant on spreadsheets.

When someone loves their spreadsheets, they love their spreadsheets, and you can’t get them off them.

And that’s coming from someone who loves spreadsheets, and it took me a lot to move to AutoEntry.

So you cannot use spreadsheets.

You can if you invest in bridging software, but it’s just not worth it.

I would move away from spreadsheets now.

I’ve got one particular client who loves spreadsheets, and we end up spending a lot more time extracting the information because you can’t copy and paste it.

That’s why people love spreadsheets because you can copy and paste information across.

But for Making Tax Digital, it means that you’re not compliant, and then you’re not doing things correctly and that’s where the problems start.

So if you are using spreadsheets for your own data, that’s fine.

But you do need to get into software, and that’s what I can’t stress enough, you do need to move away from spreadsheets.

Don’t wait until you’re profitable to buy accounting software

Bex Burn-Callander:

Can you tell me any things that stand out for you in terms of best practice things that every startup founder should look at around their tax, around their numbers, that really stick out for you?

Samantha Senior:

We want everybody to get software to online banking and get on accounting software, and a lot of people do put this off.

And like you say, between years one and three, it’s a crucial time and people think, I’ll wait.

They don’t consciously want to wait until year three, they just have it in their head, and think I’ll wait until I’m profitable.

I’ll wait until I’ve got huge amount of money in the bank, and then I’ll get an accountant.

Or, then I’ll open a business bank account.

It’s all just juggling, which is fine, it’s part of business to be juggling, but if you have that structure and that financial structure behind you, such as getting the accountancy software, getting a business bank account, having everything into one bank account, having your bookkeeping, even if you’re doing your own bookkeeping.

Having those systems and structure, that’s the foundation, because then when you do come to see an accountant, you’ve got that from day one.

The great stuff about software now, is you can have everything in real time.

So rather than sitting down with an accountant at year two or three and saying, “Right, that’s my mess and this is where I’m at, and I’ve got this, and I’ve got that, and I’ve got this.”

We could actually give better advice at that point if you’ve kept these records, and you’re utilising that time with your accountant because they can give you the answers that you need straight away.

What we offer is a service with The Aesthetics Accountant, more so than the other, because with the aesthetics industry, like you say, with normal businesses between year one and year three, there is a struggle.

Aesthetics are different.

Within a year, they can quickly be turning over £150,000, and it can just go like that.

It’s so quick how it happens.

They can start by being part time at the NHS and then within months they’re booked up and earning phenomenal amounts of money.

If they’re not on software, and we’ve got to start looking at what to do now, you are almost going backwards before you can even start going forwards.

And that’s why we have an academy where we bring both beginners and new businesses into the industry, and we get them on business banking straight away.

We get them on accounting software. We set that up for them.

We let them do their own bookkeeping. We have it all ready.

Then, when they do come back to us, rather than us not being able to do anything, it’s all there ready. Then we can help them through that practice.

Also, when they are quiet, they can build the systems that they need and the foundation correctly.

And then when they are busy, that system is in place, and it works.

That’s what we’re finding. People don’t come on board as clients, at the moment they’re coming on board, taking our software, taking our advice, and then they’re setting up, and off they go.

And then they come back to us when they’re really busy, and they just want some bookkeeping doing, and we take over.

At that point, they’re like, “Oh my days, I’m reaching the VAT threshold.”

Or, “I’ve got money in my bank. What do I do?” and we can advise on tax, and then we go from there.

So that’s my biggest piece of advice for anybody, whether you’re starting up in any industry, just get the software, get the business bank account set up.

Even if you don’t go on the software, get a business bank account and keep everything separate.

Then that’s the foundation, it all just lies around the foundation.

Part 3: Mike Psaras

Get separate personal and business bank accounts

Bex Burn-Callander:

Mike, I’d love to talk a bit about the general basics would-be founders or recent founders should get in order when they’re setting up a business.

Let’s say, for example, I bake biscuits at home, I’ve got a real following in my neighbourhood, and started selling them.

How soon do I need to register for Self Assessment, or what stages do I need to go through?

Just take me through the process for anyone that’s listening that is that at the cusp.

Break it down for them.

Mike Psaras:

Let’s go sole trader. Firstly, you set up a separate bank account because then you can segregate what’s going on in your business from your salary and Netflix subscriptions, for example, from your regular employment.

If it’s a side hustle, you’ve got your personal life separated from your up-and-coming business. You can see what you’ve transferred in from your personal life into your business and then go and invest into it, which might be machinery for baking or raw materials, whatever it may be.

You’ve got a primary way of keeping track of what’s coming in and what’s going out.

You can see whether it’s working or not—if you keep pumping money into this side hustle, and you’re not even able to take anything out, you got to think about what’s going on.

Set up a business bank account, and many people might want to stick with their normal bank because that’s easier.

Challenger banks are prominent in the game these days.

They’re speedy to set up, so they’re a good go-to, especially for modern businesses who want to use some of the additional functionalities they have, like tracking expenses and income.

Don’t wait too long to do your tax return

Bex Burn-Callander:

What’s the leeway you get between when you start making money and when you have to declare everything?

Is it the end of the first year, or should you be registering way before that?

Mike Psaras:

As soon as you start, if you want to.

Legally you have a window, which is the end of the tax year that you started your business in, so after that.

So the tax year ends on the 5th of April 2022, so you would have until the 5th of October 2022, which I think is six months after the year-end. So in that window, you can register for Self Assessment and self-employment.

They’re two slightly different things. In theory, you’re supposed to do two forms.

One is to sign up for income taxes, and the other one is for Class 4 NIC [National Insurance contributions] and Class 2 NIC, which sometimes goes over people’s heads.

Anecdotally, I haven’t really seen that being an issue, but I’m not confident in saying that—even though I don’t see it doesn’t mean that it can’t happen.

Let’s say you’ve done your registration for self-employment and self-assessment, and you’ve got your UTR [Unique Taxpayer Reference].

Your following milestone will be that first tax return, which is due by the 31st of January after the year-end. April 2022 is the end of the [current] tax year, so you’ve got to submit your return by the 31st of January 2023. That seems like ages away, but it comes around annoyingly quickly.

I always say to people in their first year of being a limited company or in their first year of being self-employed, get it done as soon as possible because the day you have to pay the tax doesn’t change—you have foresight.

If you’re doing your 2021 returns and started self-employment without doing things that you were supposed to do, like save for tax during that year, you’ve now got a window of six or seven months where you know you have to pay in January at the latest and can get your act together.

Please don’t wait until the 31st of January, scrambling around looking for an accountant to do it for you who’ll charge you money to do it last minute and then tell you, you’ve got this whopping great tax return.

Understand payments on account and student loan contributions

Mike Psaras:

Another thing that comes to mind with Self Assessment, which takes people by surprise, is payments on account.

Payments on account are where you have your tax year, and then you pay on account half of your projected liability for the following year.

Bex Burn-Callander:

Oh yeah. It’s split.

You get two bills, and many people wonder they have to pay one in January and one in July.

Mike Psaras:

Yeah, exactly.

In your first year, it trips people up because if it’s been your first year of trade, you have to pay all of last year’s plus 50% of your projected liability, so you’re effectively paying 150% in year one.

Understandably most people don’t budget for that, and it takes them by surprise.

So, that’s one thing to bear in mind.

The first year is a little bit tricky. Save a little bit more because this comes up.

After your first, second, and third year, it becomes normal because you’ve already made your payment on account for the year before if you’ve been self-employed for two years.

Then you’re making a balancing payment for the tax year that you’re dealing with and forward paying it the following year.

It becomes a bit more regular as time goes on. It’s just that the first year can blind side businesses and business owners.

Another thing is student loans.

Tell your accountant about your student loan because if you don’t tell them, you’re going to submit a tax return, and then HMRC will talk to the Student Loans Company and say hold on, you owe some money, and then they send you back a computation.

Your accountant’s going to say, “What’s this? You didn’t tell me about this.”

And it can be quite a bit of money.

So even though it’s not a tax, it’s still money that you have to pay back, based on your overall income.

I think it’s after about £17,000 you start repaying it, and that’s at 9%.

So that can stack up.

If you’ve earned a profit of £50,000, it’s a couple of grand that you’re not expecting.

It’s slightly different with the limited company because you might have most of your profits taxed within your limited company, and not so much taxed personally if you’re not extracting loads of profit.

So you might be repaying your student loan a little bit slower.

Bex Burn-Callander:

That was all such great advice. And I want to second that point about doing your tax return as soon as the year finishes.

I just did mine, and just the relief of knowing that it’s done and that know exactly how much I’m going to owe and what I’m going to pay for various things. It just means you can just travel into the next year a lot lighter and with absolute transparency.

Understand potential tax breaks

Bex Burn-Callander:

I recently saw that Rishi Sunak is doing a 130% tax break on new machinery, which meant replacing my doddering old laptop bought in 2010. I know that it’s a tax-efficient investment for me as a journalist and writer.

So are there any other kinds of sexy tax breaks or exciting things going on at the moment that startup founders should be aware of?

Mike Psaras:

Yeah, in terms of new stuff, the super deduction on capital allowances.

So it takes your investments from 19p off the pound to 25p off the pound in tax deductions.

So that’s quite good. It’s not a complete game-changer, but it’s an incentive,

I think that more kinds of sexy things revolve around EIS [Enterprise Investment Scheme] and SEIS [Seed Enterprise Investment Scheme] approval.

Just getting on board with those things if you’ve got a qualifying trading business—if you’re seeking investment, the people who are investing in you are getting a good tax break out of it and protecting themselves a little bit if it goes wrong.

If the business fails, ultimately, EIS and SEIS offer some protection there. That’s good if you are in the R&D space.

Bex Burn-Callander:

And a lot can count as research and development, right?

So when people think about their business, they may not realise they are doing R&D. Maybe they are researching a new market, or they’re buying expensive research from Mintel, but this all counts.

You maybe need a good accountant to tell you what qualifies.

Understand whether being a sole trader or limited company is better for you

Bex Burn-Callander:

Speaking of good accountants, what are the big tax questions people ask when they’re starting up a business?

Mike Psaras:

One of the main things we advise on is the right timing regarding self-employment to a limited company. That’s one of the big questions we get asked.

That’s one of the things that we look at and analyse quite closely, especially when people are on the cusp of the tipping point, if you will, when it’s more beneficial to be a limited company or stay self-employed from a tax point of view.

That can save money in tax.

But, also, it’s crucial to look at the whole picture. There are specific reasons you might not want to be self-employed anymore for legal reasons, just to protect yourself or protect your assets outside your business.

So, I think those business decisions are important, and we can help with them.

Also, the extraction of profits from a limited company, that’s another thing where you need to be set up correctly or in a way that makes sense to you.

I’ve come across businesses where two directors are taking high salaries. A combination of taking a lower salary and a bigger dividend combination, and we’re able to save some tax.

Roobba, a Sage Accounting customer: Startup advice for you

Bex Burn-Callander:

And now we’re going to take a short pause to hear from a Sage Accounting customer and hear the startup business advice they have to share.

Ella Jade:

My name’s Ella Jade.

Dominic Peter:

And I’m Dominic Peter. We’re the founders of Roobba, a tech-enabled brand providing luxury, affordable furniture.

Ella Jade:

Our advice for getting year one right in business is nothing is impossible.

So when it comes to starting a business, and naturally the cash flow isn’t there yet, our one tip is to remember that any idea, no matter how crazy it is, can always be achieved—even if the funds aren’t there to do so.

Dominic Peter:

Be creative.

Think outside the box and take that risk, because you will always land on your feet.

What you achieve will catapult your business to the next level.

Understand whether being a sole trader or limited company is better for you: Continuation

Bex Burn-Callander:

What is the tipping point?

I mean, I know that this is a generalisation, but how much revenue should you be making as a sole trader when you think this is no longer tax-efficient, and you should perhaps be a limited company?

Mike Psaras:

Profit is more important than revenue because what you get taxed on as a sole trader is your profit.

With revenue, it’s fewer expenses.

It’s the same with a limited company—it gets taxed on its profits.

Although the calculation for profits could differ slightly, I’d say the tipping point is if you’re earning a profit of around £45k, £50k, £55k.

If you’re in that £45k to £55k region, I think you should probably be thinking about becoming a limited company.

But it depends on what’s the plan for the future?

If you’re going to scale back for whatever reason, opening a limited company can be a hassle and difficult to unwind.

But a limited company is a good idea if you’re trying to push forward going beyond £55k, £60k, £70k, and maybe be VAT registered,

Some businesses know they’re going to be hitting those numbers early on, so they incorporate it straight away.

Another reason is the image it creates.

I’ve got a couple of clients that became limited companies straight away because they wanted to go out there and work with bigger businesses.

The idea is that they might take a limited company more seriously because it’s got more regulation and compliance around it.

Accounting for limited companies is more complicated than for sole traders

Bex Burn-Callander:

And on that point between a limited company and a sole trader, you said it could be quite a hassle to set up a limited company.

I love that you’ve said that.

Accountants are often keen to get the limited company going because their fees are usually much more significant once you’re a limited company.

So, thank you for your honesty.

Why is it a hassle?

Mike Psaras:

First of all, limited company accounts are a lot more complicated.

You have proper financial reporting standards depending on the size of the business, which can vary.

It can be more involved, and you also have the interaction between two different taxes, which you don’t have as a self-employed person.

When you’re self-employed, you’ve got your income tax and National Insurance issues to deal with.

That’s pretty much it.

All the money you make is yours, and it’s taxed upfront regardless of what you do with it.

Whereas, with the limited company, you’ve got a dual-layer. When your company, a separate entity, makes its money, it gets taxed on that profit.

As the business owner, you’ll want to extract that profit. So, when you extract that post-tax profit, it gets taxed on the individual’s income, which goes into another calculation of the personal tax calculation.

Business owners must understand that limited companies are sometimes a lot more challenging to manage.

The accounts need to be super organised and are much more involved, so the accountancy fees tend to be higher.

We spoke about the director’s loan accounts.

Something that changes from when you’re self-employed to owning a limited company is that the interactions you have with your business can mean that you may extract too much money from the business than it might not necessarily have to give you.

Particularly in the last year, we’ve seen instances of people taking out Bounce Back Loans.

When you have a Bounce Back Loan, if you extract all of the loan and take it for yourself, you could potentially be in a situation where you owe money to the business.

That situation can lead to a bit of a bad tax point because you have what’s called Section 455 Tax, which is where if that extra money you owe back to the business is not repaid more than nine months after the year-end, then that money you owe to the company is treated as a dividend.

Bex Burn-Callander:

So, you have to pay income tax on it?

Mike Psaras:


So, you have to pay income tax on it, which you would anyway.

But the point is that it gets taxed at a higher rate, which is not 7.5% basic rate, but 32.5%.

So, it’s pretty steep.

Bex Burn-Callander:

Do you have to pay interest on the loan from the business as well?

It wouldn’t be a loan if there weren’t interest.

Mike Psaras:

Technically, the company is supposed to charge interest on the loan.

But that’s probably not the main point.

The main point is that you may have taken out a dividend that you weren’t supposed to. The reason why I mention Bounce Back Loans is that you can only take dividends out of profits.

If a company made a £20,000 profit after tax in one year, then that’s what they’re allowed to take as a dividend.

But, if they took £30,000 out, that’s £10,000 more. £20,000 is OK, and you can treat it as a dividend.

But the extra £10,000 is an illegal dividend.

Because it can’t be a dividend, it’s a loan. And so, that’s where you get into Section 455, and it gets taxed at a higher rate.

Then you have to deal with the paying of Section 455 and repaying the money.

So, many things can go a bit wrong with director’s loans—here, you’re rinsing the company bank account, which is not what you want to be doing.

That’s where we come in.

Often, we feel like we’re telling people off because we say don’t take all of your money out of your business. It would help if you kept some in there to pay your tax, build that working capital, and have a war chest if things go wrong.

If you’re going to use an accountant, use them at the planning stage

Bex Burn-Callander:

Well, the classic line is “you don’t know what you don’t know, so it’s always helpful to have advice”.

The classic question is, when do you bring in the accountant?

It sounds like you’re saying that you need the accountant even at the planning stage.

Is that what you’re suggesting?

Mike Psaras:

I think so.

You need a budget to do things. You should have a budget as early as possible because they can help you figure out whether you have a viable business, whether it has legs, and if it doesn’t, at least you’ve not invested too much into something that’s never going to work.

It’s different for everyone, but there are some crunch points.

For some people, beginning to be self-employed, or a sole trader is a fitting moment because they’re not confident in reporting numbers on a tax return that goes to the government.

Then maybe another crunch point can be on moving from sole trader to limited company. At that point, things get a little bit more complicated.

You’ve got a separate legal entity. You’ve got more reporting to do—to Companies House and HMRC on the corporation tax side.

On the personal tech side, you might have to deal with VAT.

VAT is another crunch point. Some businesses go along with an accountant who’s compliance-based until they’re VAT registered.

At that point, that might be a time to switch to somebody who’s got more experience in your particular industry—somebody who can help you with the ins and outs, who might know the VAT implications of certain things or particular ways that your business works.

There are all sorts of times accountants can get involved in different ways, and I would say, don’t leave it too late.

Part 4: Jess Ratty

Find an accountant who works with startups – it could save you £25k

Bex Burn-Callander:

You haven’t always got it right with some of the people that you’ve asked for help from.

What happened when you were shopping around for an accountant? You had some pretty expensive decisions along the way.

Jess Ratty:

Yeah. I feel like accountants are allergic to me.

I will happily take the blame for my lack of knowledge in accountancy. And I think that if it’s not me, then there’s a problem. I’m hoping it’s not just me. There’s a problem in the system.

Some accountants talk to you as if you know what they’re talking about.

But actually in startup land, you don’t know what they’re talking about.

So I had a really… I would never say nasty things about anyone. I had a really great team of accountants. They’re quite prolific in the South West.

They advised me to stay as a sole trader in my first year.

And I said, “Oh, shouldn’t I go limited, because doesn’t that help with my tax and saving? And I don’t want to be paying tax on my turnover as a sole trader.”

Because I knew that much.

And I said, “Look, I’m forecasting just under £100k in my first year.”

And they were like, “I’m sure you’ll be fine. Let’s just keep you as a sole trader for now.”

And I had no idea that I should’ve pushed back then, and should’ve said, “No, look guys, I’m serious. If I earn just under £100k, do I personally have to pay tax on that if I’m a sole trader?

“Because it’s my money that I’m earning.”

And I know that now.

And I really felt the cost of that in January last year when I paid £25k in tax, personal tax, which I should never have paid if I was limited because the company earns the money when it’s limited, not me personally.

And I just get my wage out of it.

So that was a massive mistake.

I’m a really extrovert person. So if I’ve got a problem, I phone them up and go, “Oh, I’m stuck on zero. I’m doing this.”

And what I didn’t realise and what they weren’t clear about, and it’s my fault Bex, was that they were charging me every time I phoned them up for a bit of advice.

The clock goes on.

So when I thought was paying £500 a month in accountancy fees, they were adding on, on top.

So when I said, “Hey guys, you kind of messed up a bit here. I’m having to pay all this tax.” They then said, “Okay, cool. Here’s your bill.”

And it was three or four grand. And I was like, oh my God.

Bex Burn-Callander:

That is insane.

Jess Ratty:

How was I supposed to know all that?

Bex Burn-Callander:

No, you weren’t supposed to know. That’s why you hire an accountant, because we don’t know.

And they’re supposed to know better. That’s just outrageous.

Jess Ratty:

So that happened.

And then I went to another accountant, and because I trade as Halo PR and communications, that’s a business name I was advised on.

I consulted lots of people and talked about it. I still don’t like it that much, but it is what we are at the moment.

But my company name is Team Jess Limited because I wanted to set up a company that I could build other businesses under, like an umbrella thing.

So the new accountant I got said, “Oh, well you should be trading as the same as your company name. So let’s set up a new company in your trading name.”

I did all that, tried to shut down the original company of Team Jess Limited. And I was like, oh, cool, accountant’s telling me what to do.

And basically I needed Team Jess Limited in order to get my mortgage.

My company had to have been running for two years. So I had eight days left before I lifted the close down on Companies House, on that company.

And then I shut down the other one.

And then I went and got another accountant. And my current accountant is amazing.

There’s been things I’ve learned about how she works. She’s got my back, but she’s very busy. And actually I think she works with very big companies with a million pound turnover.

So I think we’re still together through mutual love, but it might be that I’m too needy for her.

So my history with accountants Bex, is that I feel very needy, very weak, very much still like I don’t have a bloody clue what I’m doing.

And it’s a journey.

It’s painful, but I’m hoping one day, third time lucky maybe with my current one?

Part 5: Natalie Bannister

You don’t need to be good at numbers – but you do need an accountant

Nat Bannister:

Oh, so don’t ask me about finances, I’m terrible about finances.

But I’m going to be honest, having a great accountant, trusting your accountant and knowing enough about your finances, but also knowing that you won’t know absolutely everything.

And that was one of my hardest things, I guess with anything, when you start delegating work out and stuff, it’s losing the control, which I found really hard.

Turns out I’m a control freak.

But yeah, just really having a strong understanding of what your numbers are, but also asking for help because I’m not great with numbers.

I learned how to use spreadsheets for the business and I still hate them but also love them.

There’s a love, hate relationship with them, but just asking for a recommendation for a great accountant from friends and family and other business owners, and not being afraid to move accountants I guess is probably one of my top tips on that.

Knowing when actually your accountant maybe hasn’t got as good a grip of your numbers as maybe you thought they did and going with somebody else.

Bex Burn-Callander:

Did that happen to you where you were kind of like, “Hey, why are you not getting this relief?” Or “Why are you not putting these expenses on?”

And you had to be like, that’s it, we need to have someone new?

Nat Bannister:

Yeah. So I think I was really unlucky with one of my accountants who we were using software to monitor our invoices, and they duplicated the invoices, so I had double the amount of sales.

And when I was looking at the turnover, I was like, that’s definitely not my turnover.

And then I think the attitude of just like, “Oh yeah, we have doubled it.”

It took them a long time to accept that they had doubled the invoices.

So yeah, knowing that you need to know your numbers enough to be able to double-check workings of other people, to that point, and then yeah, it was just a position, it sometimes is painful to move on because you have to do more work and admin involved in that.

But it was like, well, this is obviously a clear sign that I shouldn’t stay with this company anymore.

So yeah, cut your losses and move on to the next one.

Bex Burn-Callander:

What a nightmare.

Had they already communicated those numbers to Companies House and stuff or did you catch it in time?

Nat Bannister:

I caught it in time, yeah.

And that was it, I think that’s an important thing is just to know your numbers enough to be able to be like, wait a second, that definitely isn’t right.

Yeah, it was great turnover, just a shame it’s totally fake, and it’s definitely not mine, it’s definitely double of whatever.

Bex Burn-Callander:

Is this my business?

Nat Bannister:

Yeah. Where’s my profit, where’s my money?

But yeah, no, so just know when you’re having a grip of your own numbers, but then also not being afraid to also ring your accountant, and finding an accountant who doesn’t make you feel stupid and will happily sit there and talk through it for you.

And for me, I really want to understand as much as I can about it so that I know.

It helps shape decisions for the future, and so just having a really good relationship with your accountant is great.

And if they’re willing to sit down with you and really talk through it, then those are the ones to stick with.

But the moment you see massive errors, make sure that you pick them up soon.

Bex Burn-Callander:

So, there you have it—some honest and priceless tax advice from some of the wonderful business owners we’ve spoken to on the Sage Sound Advice podcast.

If you’re looking for more tax tips, then check out the Sage Advice blog. It’s packed with resources and guides on all the topics we’ve been talking about today.

We’ve also touched on how online accounting software can help with things like Making Tax Digital and Self Assessment. If you’d like to find out more, check out Sage Accounting for your small business.

We’ll be back with more interviews with amazing entrepreneurs soon. Until then, don’t forget to follow us on Twitter @SageUK and join the conversation using the hashtag #SoundAdvicePodcast.

Now what are you waiting for, go boss your tax!

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