In our quest to help business owners understand their numbers, here’s number 8 in our little series of tax and accounts explainers.

👉 Self Assessment Payments on Account: what, when, and how much?

If you run a business, you’ll likely be on Self Assessment — either because you’re self-employed or you take dividends from your company. Payments on Account (POAs) are HMRC’s way of helping you spread out your personal tax bills, so you don’t get hit with one giant demand all at once.

💡 The general rule
You make POAs if your last tax bill was over £1,000 and less than 80% of your tax was collected at source (like through PAYE).
They only cover Income Tax and Class 4 National Insurance — not Capital Gains Tax

🗓️ When do you pay them?
31 January IN the tax year 👉 First payment for 2024/25 due 31.1.2025
31 July AFTER the tax year 👉 Second payment for 2024/25 due 31.7.2025

🧮 How are they worked out?
Each POA is 50% of last year’s tax bill .
If your income goes up in the current year, you might have to pay an extra balancing payment to settle the difference, due the following 31 January.

📌 Quick example
2024/25 tax bill = £6,000, 23/24 tax was £4,000
POAs based on 2023/24 = £2,000 in Jan 2025 + £2,000 in July 2025
There’s a shortfall so you pay a balancing payment of £2,000 by 31 January 2026
New POAs for 2025/26 (based on £6,000) = £3,000 in Jan 2026 + £3,000 in July 2026
👉 So in January 2026, you’d pay £2,000 (balancing) + £3,000 (first POA) = £5,000 total.
That January payment can really sting if your income is increasing — so it’s wise to plan for it.

⚠️ What if you pay late?
Interest is charged on late POAs (currently at 8.25%)
No penalty for paying them late (yes, really!)

🔻 Can you reduce POAs?
If you think your tax will be lower this year, you can “apply” to reduce them – Practically it’s automatically accepted, but be careful: if you reduce them too far and don’t pay enough, HMRC CAN hit you with penalties and WILL charge interest.

⏰ Submit your tax return early
Filing your tax return early is one of the best ways to manage POAs. You’ll know in advance:
✅ if that big January payment is coming
✅ whether you can reduce your July payment if your income has dropped

🏦 What is a Director’s Loan Account (DLA)?

Imagine your company has a piggy bank. You can put money in (e.g. your own funds) or take money out (e.g. for personal use). HMRC wants to keep track of that. That’s your Director’s Loan Account. Why does it matter?

📊 HMRC needs to know when directors borrow or lend money to the company. It’s not salary. It’s not dividends. They want to make sure it is taxed , it has different tax rules. That’s why your company must track it.

📈 When the DLA is in credit:

➡️ You’ve put more into the company than you’ve taken out

➡️ You can charge interest on that loan (optional, but taxable)

➡️ It’s not a tax problem

💡 HMRC sees this as you helping the company. No extra tax unless you charge interest (which is income for you). As long as the loan is needed by the company, charging interest can be a tax efficient way of extracting money from the company.

📉 When the DLA is overdrawn:

➡️ You’ve taken more than you’ve put in

➡️ You owe the company money

➡️ This can trigger tax issues

Here’s what happens:

* Benefit in kind (BIK) if the loan is over £10,000 and no interest is paid: The company must report this on a P11D. You pay extra tax on the interest that should have been charged. The company pays Class 1A NIC.

* Additional Tax if the loan isn’t repaid within 9 months after year-end: The company pays 33.75% tax on the outstanding balance. (This is refundable, but only after the loan is repaid.)

* Corporation tax impact: You can’t deduct the loan or S455 tax when calculating profits.

✅ Quick tip:

Track your DLA carefully. It can be used as a tool for planning your tax position, but if you take money from the company, make sure it’s either: a salary (goes through PAYE), or a dividend (after profits, with paperwork), or properly documented as a loan.

The state pension is based on the number of qualifying years in your National Insurance (NI) record. You need to have paid sufficient NI or qualified for NI credits for that year for it to be a qualifying year.

10 qualifying years are required to be eligible for the new state pension and 35 qualifying years are needed for the full amount.  People with between 10 and 35 qualifying years will receive an apportioned amount based on their contribution history. 

If you have gaps in your contributions and will reach the state pension age without 35 qualifying years, you may be able to make voluntary contributions.

Normally, the deadline for doing so is six years from the end of the year. So you have until 5^th April 2025 to make voluntary contributions for the tax year 2018-19

5 April 2025 deadline

In addition, there are temporary arrangements to make voluntary NI contributions by 5 April 2025 for the tax years from 6 April 2006 to 5 April 2018, under the extension announced by the previous government.  

From 6 April 2025, it will no longer be possible to make voluntary contributions in respect of the tax years from 6 April 2006 to 5 April 2019.

If you’re not sure you have enough contributions you need to:

• check your NI record using HMRC’s app or online service. It is also possible to request a paper statement; 
• calculate whether making a payment could increase your state pension ( It won’t if you will have 35 years of contributions by the time you reach state pension age); and
• use the ‘pay by bank account’ option in the online service if a payment is required. HMRC states that payments made in this way will typically be reflected in the person’s NI record within 5 working days. 

HMRC has published separate guidance on making voluntary NI contributions for those living or working abroad. 

Giving business gifts can be a nice gesture, but it’s important to understand the tax implications, both for the business and for the recipients, and there are different rules for corporation tax and for VAT.

• Gift to employees are tax deductible for corporation tax for the company, but are usually taxable for the employee so beware! Trivial benefits, such as gifts under £50, can be exempted, but there are limits for directors. Gifts over £50 should be declared as benefit in Kind on forms P11Ds
• Corporate gifts to customers/ suppliers are typically not eligible for corporation tax relief. However, there are exceptions for promotional items given away for advertising purposes and displaying  the business name, as long as their value is less than £50.
• The VAT rules are different and do not depend on whether the recipient is an employee or a customer – a business is entitled to recover the VAT on a business gift at the time of purchase. The current monetary limit for recovering VAT on ’free gifts’ is £50 exclusive of VAT. To take advantage of these rules the gifts must not be part of a series of gifts to the same person where the total costs of the goods in any 12 month period is more than £50.
• Always keep detailed records of all gifts given and consult with an accountant to ensure compliance with HMRC rules.

A staff party or an annual function qualifies as a tax-free benefit for your employees providing that you meet the following conditions:

• The total cost must not exceed £150 per head, per year.
• £150 includes VAT together with any extra costs such as transport and accommodation.
• The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable.
• The event must be primarily for entertaining staff.
• The event must be open to all staff (in that location, if you have several branches or departments).
• The event is not just to be for directors, unless all your staff are directors.
• The cost of the whole event is an allowable expense for your business.
• You can claim back input VAT but this may be restricted where you are also entertaining customers.

An employer may spend up to £150 per head (inclusive of VAT) per year, in providing annual functions and events to entertain its staff.

Provided the £150 limit is not exceeded, there can be any number of parties, for instance 3 parties at a cost of £50 each – at various times of the year.

Qualifying conditions

1. The party has to be for all the staff, or if you have divisions or sections you may hold a party for that division or section, separate from the other ones.
2. There is no tax relief if an event is solely for directors and their families (unless you are the owner-manager, or a family company and you happen to be the only employee(s)).
3. Other guests may be invited too (partners/ spouses for example), but the primary purpose of the event must be that of entertainment for all the staff. The cost per head is not per employee, so if you invite employee and their partners, the limit is per person present.

Should you get car advice from your accountant?  I think not, but I get why people are asking. 

So my first bit of advice for business owners is to decide what car you need or want before asking your accountant about the tax implications – It’s no good that commercial vans are more tax efficient if you want a 2 seater that fits in your small garage.

The second question is usually should I lease or buy, and again this rather depends on the vehicle you want, how much you use it, what you think its value will be when you’ve finished with it…  I think you get the idea, I’ll always advise that you need to do the sums properly.

The only thing that’s a given is that if you want a high emission fuel or diesel car, it won’t be tax efficient to purchase it through your company.

So having said that you need to do the sums properly – I have an electric car and I LOVE it, so I’m happy to share the sums with you so you can get a flavour. It’s nothing flash, a VW ID3, and my first surprise was that they are quite nippy – 0-60 in 7s was a nice change from my previous car which had reached the end of its useable life for me.

I’ve had the ID.3  3 years and leased it as a company car– It made sense from a cash flow point of view, and  because I was not sure about the durability and  second hand value. It also has some tax advantages which I will come to. I also opted to pay for service costs so it was all inclusive – I was advised the cars are heavy and need more frequent tyres changes

So here are the sums for my car:

Electric Car

Monthly Lease Costs = £336.10 + VAT, of which I can claim back 50% = 369.71
Monthly Service Costs = £27.26 + VAT which can all be claimed = 27.26
Road tax = NIL
Insurance = £738.80
All of the above deductible for corporation tax

Electricity Costs

8,000 miles pa charged home at 4m per Kwh at 9p (Octopus night time tariff) = £180 pa
2,000 miles pa at superfast chargers at 80p/KwH away from home = £400 pa

Benefit In Kind £682 (23-24 value)

I also get free parking in my local town.

Costs over 3 Years: £6700, including personal tax on the benefit and the electricity costs

 Petrol Car

By rough comparison, the petrol costs of 10,000 miles pa if your car gets 50mpg is about £1200 per annum – £3,600 over 3 years year, which is probably quite an underestimate. You will also have road tax to pay, and service so let’s round that up to £4,000. Assuming you buy the vehicle new for £40k, what value will it have after 3 years?  Even on best assumptions, you’d be lucky to get £35,000 for it. So all of these are very likely to be underestimated.

Minimum Cost over 3 years: £9,000 – You’d need to earn £11,250 gross to cover this if you pay tax at 20%, £15,000 if you pay tax at 40%,

So I feel pretty smug that I’m not burning fossil fuel AND I save a lot of money. oh AND time!  It is very suited to my car use, which is mostly local – So I’ve also not had to stop at a petrol station to fill up my car for entire months over the 3 years, apart from when I go on longer journeys  – And on longer journeys the intervals you need to charge seem to tie in with when you might need a coffee break anyway, so they’ve never felt like an ordeal.

Before you go and get one, do your research though. It won’t be for you if you

• Can’t charge your car at home
• Do a lot of travel where your mileage is over 125m per day (depending on the car range – halve the stated range to gauge the “comfortable” range)

These are just my numbers – If you want to be sure, you need to do yours as your circumstances, and your car choice, might be very different to mine. If you need help with those calculations – please get in touch. 😊

Under all the current rules (but who knows what 30/10/24 will bring!), you can reduce your tax bill on exit significantly by sharing the shareholding between you and your spouse.

If you both hold at least 5% of the shares for two years or more before the sale, and you’re both either an officer of the company or employed by it, you could both qualify for the 10% CGT rate on any gains when the company is sold.  This reduced CGT rate applies to the first £1 million of gains made on the disposal of qualifying business assets over each person’s lifetime. The standard rate of CGT is 20%.

Like everything, it’s best to start considering your options early rather than look at your tax bill after the event. Exit planning involves a lot more than tax though – If you need help ensuring you have a sellable business that you can present in the best light to potential purchasers, we can help with that too. 😊

Payments on account are advance payments of estimated tax liability for the current tax year. These payments are made in two instalments, usually on 31st January and 31st July, and are used to reduce the amount of tax owed at the end of the tax year. The payments are based on the previous year’s tax liability and are only applicable for individuals with taxable income over a certain threshold.

Let’s say Sara’s total taxable income for the tax year 2022-23 was £50,000, and her tax liability for that year was £10,000. Based on this, HMRC will estimate Sara’s tax liability for the tax year 2023-24 and request payment on account of £5,000 in two instalments, one on 31st January 2024 and the other on 31st July 2024.

At the end of the tax year 2023-2024, Sara’s actual tax liability for the year is calculated and compared to the payments on account. This must happen by 31 January 2025. If her tax liability is calculated at £9,000, Sara will be due a refund of £1000 once her tax return is submitted. If her tax liability is £11,000, Sara will need to make up the difference and pay a balancing payment of £1,000 on 31 January 2025.

By January 2025 she will also need to pay the first instalment on account for 2024-25, calculated at 50% of her 2023-24 actual tax liability.

There is a quirky VAT rule which applies to electronically supplied services (those automatically delivered over the internet). The details are a little bit technical, but you will be affected if you have a LinkedIn or Microsoft 365 subscription for example, so here is how it affects you:

• If you are a UK VAT registered business and you purchase electronically supplied services from a company based outside of the UK, you are responsible for accounting for the UK VAT (B2B rules). You must provide your VAT number to the provider when you subscribe, they will NOT charge you VAT and you will account for it on your VAT return as a “reverse charge” transaction
• However, if you are a UK individual or non-VAT registered business (B2C rules), the provider has to be registered for VAT in the UK and WILL be charging you UK VAT

And this is where the confusion begins: If you are VAT registered and the provider IS charging you VAT, it is being charged incorrectly under the B2C VAT and accordingly you CANNOT claim it in your VAT return – So you’ve increased your costs by 20% (or you are filing incorrect VAT returns).

A large number of international SaaS providers are invoicing from Ireland or elsewhere, so the rules may affect a lot more than one of your subscriptions. Microsoft, LinkedIn, Google, Apple, Adobe, 1Password, Dropbox, Slack, Meta are all on our list and there are many many more.

So what do you need to do? When you subscribe, don’t just put your own name and email address, make sure you populate the business name, address and VAT number and your supplier should adjust their invoicing accordingly. 

You don’t have to pay tax on a benefit for your employee if all of the following apply: it cost you £50 or less to provide, it isn’t cash or a cash voucher, it isn’t a reward for their work or performance and it isn’t in the terms of their contract. This applies to directors as well as employees, but for directors there is an annual cap of £300.

A cash voucher is one which can be exchanged or surrendered in return for money e.g. a premium bond or postal order.

For more information visit https://www.gov.uk/expenses-and-benefits-trivial-benefits

The end of the tax year is approaching! It may be beneficial for you to review your dividend, pension and ISA payments/contributions before 5^th April.

Tax rates reminder for the year ending 5^th April 2024

• The personal allowance is £12,570 (No Tax)
• The basic rate band is £37,700 (Salaries are taxed at 20%, Dividends at 8.75%)
• Higher Rate up to £100,000 and between £125,140 and £150,000 (Salaries are taxed at 40%, dividends at 33.75%)
• The Personal Allowance goes down by £1 for every £2 of income over £100,000. This creates a marginal rate of tax of 60% for earnings between £100,000 and £125,140
• Additional Rate above £150,000 (Salaries are taxed at 40%, dividends at 33.75%).

You may want to review your income to maximise some of the thresholds, and if you have flexibility…

Dividends:

*You may wish to consider deferring future dividend payments to the following tax year, if you are reaching the next tax threshold. 

*Conversely, if you have not exceeded the basic rate threshold you may wish to maximise your dividend takings in order to utilise this. 

*If your Director’s loan account is overdrawn, you may need to draw dividends to repay this. 

*If you have taken dividends without sufficient reserves, you may need to repay these back to the company.    

Pensions:

*If you are a director making employer contributions via your company and are able to make further contributions, the additional payments will reduce your corporation tax liability.

* If you are an individual who has exceeded one of the tax threshold, an additional personal pension contribution is treated as reducing your earnings for tax.

* The lifetime allowance for most people is £1,073,100 in the tax year 2023/24.  In previous years, you would have paid a lifetime allowance charge on any pensions savings over this amount. But from 6 April 2023 that charge has been removed.  Visit www.moneyhelper.org.uk for further information.

ISAs:

*Cash ISAs are just savings accounts you NEVER pay tax on. Everyone in the UK aged 16 or over gets an ISA allowance at the start of each tax year – for 2023/24 it’s £20,000.

*The Lifetime ISA (LISA) launched on 6 April 2017 and offers a 25% state bonus on your savings, if you use them towards buying a first home or for retirement. You can only open one if you’re aged between 18 and 39.  You can save a maximum of £4,000 a year into a LISA and use the bonus to buy property worth up to £450,000. However, access your money for anything other than purchasing a first home or for retirement aged 60+, and you’ll pay a 25% withdrawal penalty. You can open a LISA and a cash ISA in the same tax year.

Please speak to us should you require our assistance.

If you regularly sell goods or services through an online marketplace, this activity could be treated as a ‘trade’ for UK tax purposes and you may have to pay tax on your profits. 

You will only have to pay tax if you are considered to be trading, or to have made a capital gain.

If you are just selling some unwanted items that have been laying around your home, such as the contents of a loft or garage, it is unlikely that you will have to pay tax.

If you buy goods for resale, or make goods with the intention of selling them for a profit, then you are likely to be trading and will have to pay tax on your profits.

However, if your total income from trading or providing services online was less than £1,000 (before deducting expenses) in any tax year, you would not be required to inform HMRC nor pay any tax on the profits (this is due to the trading allowance).

HMRC have published the following example:

Gina works full time, and in her spare time she makes greetings cards for her family and friends.

Gina then begins to sell her cards online, and is soon making a profit. With business going well, she also expands the range of items that she sells.

Gina is selling with the intention of making a profit, and she is also organising her activities in a way which commercially-minded traders would do. Therefore, this is likely to be trading, and the profits would be taxable.

It isn’t a new rule – what has changed, and the reason this has made the news, is that from 1 January 2024, digital platforms are required to collect and report seller information and income to HMRC. These digital platforms must report sellers’ income by January 2025. So if you are selling goods through these platforms, HMRC will be aware 😊.

If you sell goods or services on these platforms you will get a copy of this information. You can use this information to check the amount of income and expenses incurred through these platforms, which may be helpful in determining whether tax is due on any profits.

Corporation tax rates changed on 1 April 2023. Instead of the single 19% tax rate, there are now rates of between 19% and 25% depending on your company’s profits with thresholds set at £50K and £250K.

To prevent people setting up lots of companies to keep their tax rate at 19%, the thresholds must be shared between companies that are “associated.”

A company is an associated company of another when:

1. One of the two has control of the other, or
2. Both are under the control of the same person or persons.

This only needs to be true for 1 day in your accounting period for the companies to be associated for the whole period.

Control can be through share ownership, voting rights, rights to distributed income or entitlement to assets on winding up. But the people you are associated with are also taken into account to determine who has control of your company, and to determine whether any company is associated with yours by virtue of your relationship.

Your associates include:

• Spouses and civil partners
• Blood relatives i.e. parent, grandparent, children, grandchildren, siblings
• Business partner (in a partnership)
• Trustees where you or a relative of yours was the settlor of a trust.

When it comes to considering the business affairs of your associates, this is called an indirect interest. Where there is an indirect interest, the company will only be considered associated if there is substantial commercial interdependence between the companies.

Could I be charging my company rent for use of my home?

Use of home:

If you perform a substantial amount of your duties as a director working from home or based at your home, you may consider:

• Claiming a fixed expense allowance (currently £6 per week or £26 per month)
• Recharging the company for a proportion of your bills or running costs
• Formalising a license agreement with your company to allow it to occupy part of your property. It will pay you rent and you can claim your expenses under Self-Assessment

Proportion of your bills or running costs:

The bills or running costs you can take into account are:

• Heating & Lighting
• Metered water
• Internet Access
• Business phone calls
• Home content insurance

The above costs need to be additional household expenses, and will need to be apportioned between business and personal use in a reasonable manner. If, for example, an employee or director is already paying for a broadband connection at home, there is no additional expense and therefore none can be claimed.

Costs that would be the same such as mortgage interest, rent, council tax or water rates cannot be included.

Charging Rent:

If you charge rent, you are effectively running a letting business and you may claim a proportion of your relevant overheads and variable costs. You will need to declare the rental income in the property section of your tax return.

A formal agreement needs to be in place, and a board minute should record the agreement.

The conventional arrangement is that a non-exclusive license is created for the company to occupy part of the property during working hours. You may want to check with any mortgage provider that this is acceptable to them.

Rent should not exceed normal commercial rent – Checking local serviced offices may offer a good comparison.

If the house is jointly owned, the license agreement must be in joint names.

Expenses you may claim against rental income on your personal tax return:

• Light & Heat
• Telephone & Internet (apportioned for private use)
• Insurance
• Repairs
• Cleaning
• Council Tax
• Water rates
• Repairs or re-decoration of a home office.

Any bills in the home should remain in personal names should NOT be paid by the company directly, or it creates issues with potential National Insurance and/or benefits in Kind.

Should I buy an electric vehicle through the business?

• The costs of purchasing a new electric vehicle are fully deductible from corporation tax in the year of purchase (only 18% or 8% per year for petrol or diesel cars)
• The Benefit in Kind for Private use is only 2% of the list price for an electric car (up to 37% of list price for petrol or diesel cars)
• Note that VAT cannot be recovered on the purchase of cars unless they are not provided for private use – this applies to electric, diesel and petrol cars
• 50% of the VAT can be recovered on all leased cars
• 100% of the VAT can be recovered on commercial vehicles if there is no private use.
• A charging point, provided at the business premises, or at home, does not give rise to a benefit in Kind if it is for a company car.

Simplified calculations work as follows:

For a £40,000 new electric car purchased in 2023-24 through a company, corporation tax saving at 25% = £10,000 one off. Additional Personal tax on Benefit in Kind at 40% of 2% of list price = £320 each year. NET TAX SAVING = £8,720 over 4 years

For a £40,000 petrol car with emissions >160g/km purchased in 2023 -24 through a company, corporation tax saving at 25% of 6% = £600 in the first year, reducing thereafter. Additional Personal Tax on benefit in Kind at 40% of 37% of list price £5,920 each year. NET ADDITIONAL TAX COST £21,487 over 4 years.

PS: It’s important to note, you should never buy something you don’t need, regardless of the tax saving. Just making sure there’s no misunderstanding! 😉