Growing your business

Plan for growth

Once your business is established and you’re making a profit on the products and services you sell to customers, you may want to start thinking about how to grow.

Many businesses think of growth in terms of increased sales, but it’s also important to focus on how to maintain or improve your profitability.

Things you can do to help grow your business include:

looking into ways of increasing your sales, both to existing customers and new customers

improving your products and services by researching and testing changes with your customers

developing new products and services, and selling them to new or existing markets

taking on staff or training your current staff, including working with apprentices and mentors

looking for additional sources of funding, such as bringing in new investors

thinking about selling your products or services online

work with a business mentor, who can help you think about how to do all of these things

As your business grows

You must register for VAT if your VAT taxable turnover reaches more than £85,000.

You may also find that a different legal structure is more suitable as your business grows.

Contact the business support helpline in your area for help and advice on starting or growing your business.

Get extra funding

Growing your business, whether through increased sales or improved profitability, often means you need to invest more. You can do this (Get) by:

investing previous profits back into your business

taking out a loan

selling shares to outside investors

looking for other sources of finance, including government-backed schemes

Find out which types of finance might work for your business.

Find public finance using the finance finder tool, or search for private finance.

Professional advisers such as accountants can help you to work out whether it makes financial sense to take on loans or investment. You should take legal advice before taking on new investment in your business.

Find a chartered accountant on the Institute of Chartered Accountants (ICAEW) website, or a solicitor on the Law Society website.

Taking out a loan

You should make sure that your business will be able to pay back the debt before you take out a loan. Repayments are often made in instalments over a number of years, and you’ll need to pay off any interest on outstanding debts.

If you’re a sole trader looking for a loan, a lender might ask you to provide a personal guarantee or promise to hand over assets like your house or car if you can’t repay the loan.

Selling shares

If you’re thinking of bringing in new investors, they’ll want to know how much your business could increase in value if they buy shares. To work this out, they’ll need to know how much their investment will increase your sales and profitability.

You’ll need to provide potential lenders and investors with a financial model showing:

how your business will spend the extra money to increase sales and profitability

how initial costs and increased ongoing costs will affect your cash flow

Increases in sales usually only happen after taking on additional costs like employing more staff, moving to larger premises or putting in bigger orders for raw materials. You’ll need to take all of these into account in your financial planning.

Increase sales to existing customers

How you go about increasing sales depends on your circumstances and how your business is performing. You might choose to focus on customers who’ve already bought from you, or you could try to win new customers in your local area, nationally or overseas.

The simplest way to increase your sales is to sell more of the products or services you’re selling at the moment to the customers who are already buying them. For most businesses this involves:

persuading one-off customers to become repeat customers

finding customers who’ve stopped buying from you and trying to win them back

selling more of the same products or services to your regular customers

By keeping a record of who your customers are and what you sold to them, you can work out who’s stopped buying from you, and who might consider buying more. Targeting these customers is often a cheaper and more effective way to increase sales than trying to find new ones.

Review your prices

Regularly reviewing your prices and checking them (your prices) against your competitors can be an effective way of increasing your sales, profits or both.

You should try to estimate the likely effect of different price changes on the sales, cash flow and profitability of your business before making any changes. To do this successfully, you need to understand:

the ‘cost structure’ of your business (including regular ‘fixed’ costs, and ‘variable’ costs that change according to your business’ activity)

the value your customers place on your products and services

It’s worth bearing in mind that offering a discount can sometimes reduce your overall profitability, even if your sales go up. Equally, you might be able to make more profit overall by increasing prices, even if you’re selling fewer items.

Small changes to pricing like providing loyalty schemes or bulk discounts can increase sales to both existing and former customers.

You should also regularly check the price you’re selling products and services at against competitors. This will help you find out if you’re:

losing customers who get the same product or service elsewhere for less money

sacrificing profitability, because customers are willing to pay more than you’re charging them

Find resources on pricing strategy and increasing sales on the Marketing Donut website.

Attract new customers

One way of finding new customers for your products and services is by increasing awareness in your local area. You can do this by:

asking your customers to recommend you to their friends and colleagues

advertising in local media

using other forms of marketing, including online

You could also talk to potential customers who don’t use your business at the moment and find out what it would take for them to switch from your competition.

Expanding outside your local area

If you want to sell your product or service through new sales channels or markets elsewhere in the UK, there are different organisations you’ll need to work with, including:

wholesalers

retailers, including online retailers

distributors

You could try using direct marketing to find new customers.

Search the contracts finder for business opportunities from government departments and agencies.

Expanding outside the UK

You might decide to find new customers outside the UK by exporting your products. The Department for International Trade offers help and resources on successfully selling your products and services to customers in other countries.

Make sure that you’re aware of your legal responsibilities around the sale of goods and services, and data protection.

Improve your products and services

If you’re looking to grow your business by improving your products and services, start by focusing on your existing customers and their needs.

Talk to them (your existing customers), and find out their (your existing customers) views on:

what they (your existing customers)’re buying from you, and what they (your existing customers) value most about it

what you could do to make it more useful and valuable to them (your existing customers)

what would encourage them (your existing customers) to buy more

Make changes based on feedback

Getting customer feedback should help you to identify ways to improve what you’re offering to your current customers. It may also allow you to:

increase the price you charge to your existing customers

attract new customers whose needs you weren’t meeting before

Try to ensure that any changes you make will increase your sales and profitability enough to make the time and money you’ll need to invest worthwhile.

If possible, you should test out prototypes of improved products or services with a few existing customers. By doing this, you can get their feedback and avoid making unpopular changes that could harm your business.

Doing this (test) is equally important for all businesses, whether you’re starting up or established, improving an existing product or service, or bringing something new to market.

Think about selling online

Selling your products or services on the internet can:

help improve efficiency and productivity

reduce costs

help you communicate better with customers and suppliers

You can use analytics software to help you understand how customers use your site and show you ways to improve it.

Consider the costs of going online

You’ll need to make sure you understand all the costs involved (eg hardware, software, hosting, training, services, maintenance and support, upgrades etc). You must also provide your customers with certain information.

Online security

If you’re going to sell online, protect your customers and business with measures to keep systems and data safe from theft or hackers.

Develop new products and services

If you’re planning to develop new products and services, you should test them with your customers with just as much care and attention as a new business going to market for the first time.

By making sure there’s real demand for what you’re planning to sell, you can find out about any problems and fix them before you’ve wasted too much time, effort and money.

Talk to existing and potential customers and find out about their needs.

If you can, develop a prototype as quickly and cheaply as possible. Work out the minimum investment that lets you find out if you’re meeting a real need.

Test it (a prototype) with customers and get feedback. Find out what they’d be willing to pay for it (a prototype). Try out different prices with different customers in a consistent, realistic way to see what people will really pay. Can you make enough money for a return on the investment you’d need to develop your new product or service?

If there are are other businesses competing for your market, think about what will make you different. Can you provide something better than what’s already available? And is it significantly different or better to what you’re already offering?

Benefits of development

By developing new products and services, you can:

sell more to existing customers (making the most of existing relationships is cheaper than finding new customers)

spread fixed costs like premises or machinery across a range of products

diversify the products you offer so you’re less reliant on certain customers or markets

Another way of expanding your product range is by importing goods from overseas to sell in the UK. Make sure you know the rules on things like tax and commodity codes if you’re planning to import.

Business ideas and intellectual property

If you’ve invented something or come up with an original idea that you want to turn into a product or service, you should register it to make sure nobody copies it without your permission. Find out about trademarks, copyright and intellectual property.

You can find local support in England for coming up with business ideas and developing them on the National Enterprise Network website.

Other sources of advice and support include:

the Design Council’s business resources

the British Library business and intellectual property centre

You may be able to benefit from developing your idea in partnership with experts in academic institutions through Knowledge Transfer Partnerships.

Hire and train staff

As your business expands, you’ll need more capacity to produce or provide your product or service, and a wider range of skills. The easiest ways of achieving this are usually by taking on new staff, or training your existing workforce.

Employing people

By taking on new people you can spread your workload, expand production and take advantage of new and different skills and expertise.

This applies whether you already have employees, or you started your business on your own as a sole trader and are thinking about taking on staff for the first time. Find out about your responsibilities when employing someone.

Apprenticeships

Taking on an apprentice allows you to grow your capacity by investing in people who want to learn. Your business benefits from the skills they develop as they train both on and off the job.

Find out about the practical steps involved in taking on an apprentice.

Training your staff

You can improve the range and level of skills in your business by training up existing staff. Giving staff training opportunities can increase their loyalty to your company and their productivity - as well as your profits.

Schemes and organisations that can help you to grow your business through training include:

finding training courses specific to your business area through the National Careers Service

using a business improvement framework, like Investors in People

Work with a mentor

Business mentors can help you develop your ideas for growth by sharing their skills, expertise, experience and contacts.

Find free and paid-for mentors in your area with knowledge and experience relevant to your business on the ‘mentorsme’ website, or Business mentoring if you’re in Wales. Mentorsme also has advice on how to pick the right mentor for your business.


Businesses and charging VAT

How VAT works

You can only charge VAT if your business is registered for VAT.

VAT is charged on things like:

business sales - for example when you sell goods and services

hiring or loaning goods to someone

selling business assets

commission

items sold to staff - for example canteen meals

business goods used for personal reasons

‘non-sales’ like bartering, part-exchange and gifts

These (business goods used for personal reasons) are known as ‘taxable supplies’. There are different rules for charities.

Responsibilities

VAT-registered businesses:

must charge VAT on their (VAT-registered businesses) goods or services

may reclaim any VAT they (VAT-registered businesses)’ve paid on business-related goods or services

must account for import VAT on their (VAT-registered businesses) VAT return if they (VAT-registered businesses) use import VAT this way (known as ‘postponed VAT accounting’)

If you’re a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your VAT Return which is usually due every 3 months.

You may want to appoint an agent to deal with HMRC (HM Revenue and Customs (HMRC)) on your behalf.

You must account for VAT on the full value of what you sell, even if you:

receive goods or services instead of money (for example if you take something in part-exchange)

haven’t charged any VAT to the customer - whatever price you charge is treated as including VAT

If you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC (HM Revenue and Customs (HMRC)). If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC (HM Revenue and Customs (HMRC)).

VAT rates

There are 3 different rates of VAT and you must make sure you charge the right amount.

Get a list of reduced or zero-rated goods and services.

Standard rate

Most goods and services are standard rate. You should charge this rate unless the goods or services are classed as reduced or zero-rated.

This (standard rate) includes any goods below the distance selling threshold you supply from Northern Ireland to non-VAT registered EU customers. If you go over the threshold, you’ll have to register for VAT in that country.

Reduced rate

When you charge this rate (Reduced rate) can depend on what the item is as well as the circumstances of the sale, for example:

children’s car seats and domestic fuel or power are always charged at 5%

mobility aids for older people are only charged at 5% if they’re for someone over 60 and the goods (the goods or services) are installed in their home

Zero rate

Zero-rated means that the goods (the goods or services) are still VAT-taxable but the rate of VAT you must charge your customers is 0%. You still have to record them (the goods or services) in your VAT accounts and report them (the goods or services) on your VAT Return. Examples include:

books and newspapers

children’s clothes and shoes

motorcycle helmets

most goods you export from England, Wales and Scotland (Great Britain) to a country outside the UK

most goods you export from Northern Ireland to a country outside the EU (EU) and the UK

goods you supply from Northern Ireland to a VAT registered EU business - you can check if the VAT number is valid

If you sent goods to the EU (EU) from Northern Ireland, you’ll need their VAT number (the VAT number) and paperwork proving that the goods have been sent within certain time limits (usually 3 months).

Rates can change and you must apply any changes to the rates from the date they change.

What you must do when charging VAT

You need to know the right VAT rate so you can charge it correctly and reclaim it on your purchases.

If a transaction is a standard, reduced or zero-rated taxable supply, you must:

charge the right rate of VAT

work out the VAT if a single price is shown that includes or excludes VAT

show the VAT information on your invoice

show the transaction in your VAT account - a summary of your VAT

show the amount on your VAT Return

You may be able to reclaim the VAT on purchases that relate to these sales.

You cannot claim back all of the amount you’ve paid if you pay the wrong amount of VAT on a purchase.

VAT-inclusive and exclusive prices

You’ll need to make a calculation when charging VAT on goods or services, or when working out the amount of VAT you can claim back on items which were sold inclusive of VAT.

VAT-inclusive prices

To work out a price including the standard rate of VAT (20%), multiply the price excluding VAT by 1.2.

To work out a price including the reduced rate of VAT (5%), multiply the price excluding VAT by 1.05.

VAT-exclusive prices

To work out a price excluding the standard rate of VAT (20%) divide the price including VAT by 1.2.

To work out a price excluding the reduced rate of VAT (5%) divide the price including VAT by 1.05.

When not to charge VAT

You cannot charge VAT on exempt or ‘out of scope’ items.

Exempt goods and services

Exempt goods or services are supplies that you cannot charge VAT on.

If you buy or sell an exempt item you should still record the transaction in your general business accounts. Examples of exempt items include:

insurance

postage stamps or services

health services provided by doctors

Get a list of goods and services that are VAT exempt.

VAT registration

Businesses that sell only VAT-exempt goods and services cannot register for VAT.

If you start selling items that aren’t exempt, you can register for VAT voluntarily. You must register if the total value of non-exempt goods and services goes over the VAT taxable turnover threshold.

Out of scope

Some goods and services are outside the VAT tax system so you cannot charge or reclaim the VAT (VAT) on them. For example, out of scope items include:

goods or services you buy and use outside the UK

statutory fees - like the London congestion charge

goods you sell as part of a hobby - like stamps from a collection

donations to a charity - if given without receiving anything in return

Charging VAT to charities

As a VAT-registered (VAT) business, you can sell certain goods and services to charities at the zero or reduced rate of VAT.

It’s your responsibility to check the charity is eligible, and to apply the correct rate.

Community amateur sports clubs (CASCs) don’t qualify for VAT reliefs for charities.

Check the charity is eligible

To make sure the charity is eligible, ask them (the charity) for:

evidence that they (the charity)’re a charity

a written declaration or ‘certificate’ confirming they (the charity) meet the conditions for the particular VAT relief

Evidence of charitable status

The charity should give you either:

their (the charity) Charity Commission registration number

a letter of recognition from HM Revenue and Customs (HMRC) if they (the charity)’re not registered with the Charity Commission for England and Wales (for example if they (the charity)’re a Scottish or Northern Irish charity)

Written declaration

Charities are legally required to give you an eligibility certificate when you supply eligible building or construction services to them at zero VAT. The certificate must contain specific information.

A declaration is not legally required for other items you sell at the zero or reduced rate (the zero or reduced rate of VAT), but you should ask for one to prove the charity is eligible for the relief.

These sample declarations contain examples of the information a charity should give you when buying:

medical and scientific equipment, motor vehicles and computer software

charity advertising

goods and services for disabled people

The written declaration should be separate from the order form or invoice for the goods or services the charity (a charity) is buying.

You must keep the completed declarations (These sample declarations) for at least 4 years.

Items that qualify for the reduced rate

You may be able to apply the reduced VAT rate (the reduced rate) when you sell fuel and power in certain circumstances to an eligible charity.

Items that qualify for the zero rate

You may be able to apply zero VAT (the zero rate) when you sell the following to an eligible charity:

advertising and items for collecting donations

aids for disabled people

construction services

drugs and chemicals

equipment for making ‘talking’ books and newspapers

lifeboats and associated equipment, including fuel

medicine or ingredients for medicine

resuscitation training models

Equipment for medical and veterinary use

You may also be able to zero-rate some other medical and veterinary equipment when you sell it to:

certain health bodies, for example NHS Trusts

not-for-profit research institutions

charities that provide institutional care, or medical or surgical treatment for chronically sick or disabled people

charities that provide transport services for disabled people

charities that provide rescue or first aid services to humans or animals

someone buying it specifically for donation to one of these bodies

The money used to buy the equipment must be from charitable or donated funds. This should be stated on the eligibility declaration.

The eligible items include:

medical, veterinary and scientific equipment

ambulances

goods for disabled people

motor vehicles for medical use

rescue equipment

resuscitation training dummies

Returned goods

When you return goods to a supplier or a customer returns goods to you, the balance of payment can be settled by issuing either a:

replacement invoice

credit or debit note

If you exchange the goods (goods) for goods of the same value you don’t need to issue a new VAT invoice.

Credit and debit notes

These (Credit and debit notes) must show the same information as the VAT invoice and:

why it (Credit and debit notes) was issued

the total amount credited, excluding VAT

the number and date of the original VAT invoice

Discounts and free gifts

Discounts

VAT may have to be charged on discounts and deals.

Offer | How to charge VAT

Discounts | Charged on the discounted price (not the full price)

Gifts | Charged on the gift’s full value - there are some exceptions listed below

Multi-buys | Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods

Money-off coupons, vouchers etc | No VAT due if given away free at time of a purchase. If not, VAT due on the price charged

‘Face value’ vouchers that can be used for more than one type of good or service | No VAT due, if sold at or below their monetary value

Redeemed face value vouchers | Charged on the full value of the transaction

Redeemed face value vouchers sold at a discount | Charged on the discounted value of the transaction

Link-save offers (buy one get one free or discounted) | VAT is apportioned as mixed-rate goods - there are exceptions

Exceptions for gifts and link-save offers

There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.

VAT is charged on the combined value of link-save items if the incentive product:

has a resale value of less than £1

has a sale value of less than £5

costs you less than 20% of the total of the other items in the offer

isn’t sold at a separate price from the main product

Free goods and services

You don’t have to pay VAT on things like free samples if they meet certain conditions.

Supplies | Condition to meet so no VAT due

Free samples | Used for marketing purposes and provided in a quantity that lets potential customers test the product

Free loans of business assets | The cost of hiring the asset is included in something else you sell to the customer

Free gifts | The total cost of all gifts to the same person is less than £50 in a 12 month period

Free services | You don’t get any payment or goods or services in return


Claim capital allowances

Overview

You can claim capital allowances when you buy assets that you keep to use in your business, for example:

equipment

machinery

business vehicles, for example cars, vans or lorries

These (assets that you keep to use in your business) are known as plant and machinery.

You can deduct some or all of the value of the item from your profits before you pay tax.

This guide is also available in Welsh (Cymraeg).

If you’re a sole trader or partner and have an income of £150,000 or less a year, you may be able to use a simpler system called cash basis instead.

Work out the value of your item

In most cases, the value (the value of your item) is what you paid for the item. Use the market value (the amount you’d expect to sell it (the item) for) instead if:

you owned it (the item) before you started using it (the item) in your business

it (the item) was a gift

Other business costs

You claim for the cost of things that are not business assets in a different way. This (Other business costs) includes:

your business’s (your business) day-to-day running costs

items that it’s your trade to buy and sell

interest payments or finance costs for buying assets

Claim these costs as business expenses if you’re a sole trader or partner, or deduct from your profits as a business cost if you’re a limited company.

Other capital allowances

As well as plant and machinery, you can also claim capital allowances for:

renovating business premises in disadvantaged areas of the UK

extracting minerals

research and development

‘know-how’ (intellectual property about industrial techniques)

patents

dredging

structure and buildings

If you let out residential property

You can only claim for items in residential property if your business qualifies as a furnished holiday lettings business. In each year the property must be:

available for holiday letting for 210 days

let for 105 days or more

What you can claim on

You can claim capital allowances on items that you keep to use in your business - these are known as ‘plant and machinery’.

In most cases you can deduct the full cost of these items (items that you keep to use in your business) from your profits before tax using annual investment allowance (AIA).

What does not count as plant and machinery

You cannot claim capital allowances on:

things you lease - you must own them

buildings, including doors, gates, shutters, mains water and gas systems

land and structures, for example bridges, roads, docks

items used only for business entertainment, for example a yacht or karaoke machine

What counts as plant and machinery

Plant and machinery includes:

items that you keep to use in your business, including cars

costs of demolishing plant and machinery

parts of a building considered integral, known as ‘integral features’

some fixtures, for example fitted kitchens or bathroom suites

alterations to a building to install other plant and machinery - this does not include repairs

Claim repairs as business expenses if you’re a sole trader or partner - deduct from your profits as a business cost if you’re a limited company.

Integral features

Integral features are:

lifts, escalators and moving walkways

space and water heating systems

air-conditioning and air cooling systems

hot and cold water systems (but not toilet and kitchen facilities)

electrical systems, including lighting systems

external solar shading

Fixtures

You can claim for fixtures, for example:

fitted kitchens

bathroom suites

fire alarm and CCTV systems

You can claim if you rent or own the building, but only the person who bought the item can claim.

When you buy a building from a previous business owner you can only claim for integral features and fixtures that they claimed for.

You must agree the value of the fixtures (integral features and fixtures that they claimed for) with the seller. If you do not you cannot claim for them (integral features and fixtures that they claimed for). Agreeing the value also means the person selling the assets can account correctly for them (integral features and fixtures that they claimed for).

If you let residential property

You can only claim for items in residential property if either:

you run a furnished holiday lettings business

the item (the building) is in the common parts of a residential building, for example a table in the hallway of a block of flats

Care workers

There are special rules if you run a care business.

Annual investment allowance

You can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax.

If you sell the item after claiming AIA you may need to pay tax.

What you can claim on

You can claim AIA on most plant and machinery up to the AIA amount.

What you cannot claim on

You cannot claim AIA on:

cars

items you owned for another reason before you started using them in your business

items given to you or your business

Claim writing down allowances instead.

The AIA amount

The AIA amount has temporarily increased to £1 million between 1 January 2019 and 31 December 2020.

Changes to the AIA (annual investment allowance (AIA)

The AIA amount (annual investment allowance (AIA) has changed several times since April 2008.

If the AIA (annual investment allowance (AIA) changed in the period you’re claiming for, you need to adjust the amount you can claim.

AIA | Sole traders/partners | Limited companies

1 million | 1 January 2019 - 31 December 2020 | 1 January 2019 - 31 December 2020

£200,000 | 1 January 2016 - 31 December 2018 | 1 January 2016 - 31 December 2018

£500,000 | 6 April 2014 - 31 December 2015 | 1 April 2014 - 31 December 2015

£250,000 | 1 January 2013 - 5 April 2014 | 1 January 2013 - 31 March 2014

£25,000 | 6 April 2012 - 31 December 2012 | 1 April 2012 - 31 December 2012

£100,000 | 6 April 2010 - 5 April 2012 | 1 April 2010 - 31 March 2012

£50,000 | 6 April 2008 - 5 April 2010 | 1 April 2008 - 31 March 2010

You get a new allowance for each accounting period.

If your accounting period is more or less than 12 months

Adjust your AIA if your accounting period is more or less than 12 months.

The rules are different if your accounting period is longer than 18 months or you have a gap or overlap between accounting periods.

When you can claim

You can only claim AIA in the period you bought the item.

The date you bought it (the item) is:

when you signed the contract, if payment is due within less than 4 months

when payment’s due, if it’s due more than 4 months later

If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.

If your business closes, you cannot claim AIA for items bought in the final accounting period.

If you do not want to claim the full cost

If you do not want to claim the full cost, for example you have low profits, you can claim:

writing down allowances instead

part of the cost as AIA and part as writing down allowances

Items you also use outside your business

You cannot claim the full value of items you also use outside your business if you’re a sole trader or partner. Reduce the capital allowances you claim by the amount you use the asset outside your business.

If you spend more than the AIA amount

Claim writing down allowances on any amount above the AIA. If a single item takes you above the AIA amount you can split the value between the types of allowance.

Mixed partnerships

AIA is not available for partnerships where one of the partners is a company or another partnership.

More than one business or trade

If you’re a sole trader or a partner and you have more than one business or trade, each business usually gets an AIA.

You only get one AIA if the businesses (more than one business or trade) are both:

controlled by the same person

in the same premises or have similar activities

If 2 or more limited companies are controlled by the same person they only get one AIA between them. They can choose how to share the AIA.

How to claim

Claim on your tax return.

First year allowances

If you buy an asset that qualifies for first year allowances you can deduct the full cost from your profits before tax.

You can claim first year allowances in addition to annual investment allowance - they (first year allowances) do not count towards your AIA limit.

What qualifies

You can claim ‘enhanced capital allowances’ (a type of first year allowances) for the following energy and water efficient equipment:

some cars with low CO2 emissions

energy saving equipment that’s on the energy technology product list, for example certain motors

water saving equipment that’s on the water efficient technologies product list, for example meters, efficient toilets and taps

plant and machinery for gas refuelling stations, for example storage tanks, pumps

gas, biogas and hydrogen refuelling equipment

new zero-emission goods vehicles

You cannot normally claim on items your business buys to lease to other people or for use within a home you let out.

How to claim

Claim on your tax return.

If you do not claim all the first year allowances you’re entitled to, you can claim part of the cost in the next accounting period using writing down allowances.

Business cars

You can claim capital allowances on cars you buy and use in your business. This means you can deduct part of the value from your profits before you pay tax.

Use writing down allowances to work out what you can claim - cars do not qualify for annual investment allowance (AIA).

Sole traders and partners

If you’re a sole trader or a partner you can claim simplified mileage expenses on business vehicles instead - as long as you have not already claimed for them in another way.

Employees

If you’re an employee you cannot claim capital allowances for cars, motorbikes and bicycles you use for work, but you may be able to claim for business mileage and fuel costs.

What counts as a car

For capital allowances a car is a type of vehicle that:

is suitable for private use - this includes motorhomes

most people use privately

was not built for transporting goods

What does not count

Because they do not count as cars you can claim AIA on:

motorcycles - apart from those bought before 6 April 2009

lorries, vans and trucks

Rates for cars

The rate you can claim depends on the CO2 emissions of your car and the date you bought it.

The main and special rates apply from 1 April for limited companies, and 6 April for sole traders and partners. The first year allowances rate applies from 1 April for all businesses.

Cars bought from April 2021

Description of car | What you can claim

New and unused, CO2 emissions are 0g/km (or car is electric) | First year allowances

New and unused, CO2 emissions are between 1g/km and 50g/km | Main rate allowances

Second hand, CO2 emissions are between 1g/km and 50g/km (or car is electric) | Main rate allowances

New or second hand, CO2 emissions are above 50g/km | Special rate allowances

Cars bought between April 2018 and April 2021

Description of car | What you can claim

New and unused, CO2 emissions are 50g/km or less (or car is electric) | First year allowances

New and unused, CO2 emissions are between 50g/km and 110g/km | Main rate allowances

Second hand, CO2 emissions are 110g/km or less (or car is electric) | Main rate allowances

New or second hand, CO2 emissions are above 110g/km | Special rate allowances

Cars bought between April 2015 and April 2018

Description of car | What you can claim

New and unused, CO2 emissions are 75g/km or less (or car is electric) | First year allowances

New and unused, CO2 emissions are between 75g/km and 130g/km | Main rate allowances

Second hand, CO2 emissions are 130g/km or less (or car is electric) | Main rate allowances

New or second hand, CO2 emissions are above 130g/km | Special rate allowances

Cars bought between April 2013 and April 2015

Description of car | What you can claim

New and unused, CO2 emissions are 95g/km or less (or car is electric) | First year allowances

New and unused, CO2 emissions are between 95g/km and 130g/km | Main rate allowances

Cars bought between April 2009 and April 2013

Description of car | What you can claim

New and unused, CO2 emissions are 110g/km or less (or car is electric) | First year allowances

New and unused, CO2 emissions are between 110g/km and 160g/km | Main rate allowances

Second hand, CO2 emissions are 160g/km or less (or car is electric) | Main rate allowances

New or second hand, CO2 emissions above 160g/km | Special rate allowances

Move the balance of any cars bought before April 2009 to your main rate allowances pool.

If your car does not have an emissions figure use the special rate - use the main rate if it was registered before 1 March 2001.

Using cars outside your business

If you’re a sole trader or partner and you also use your car outside your business, calculate how much you can claim based on the amount of business use.

If your business provides a car for an employee or director you can claim capital allowances on the full cost. You may need to report it as a benefit if they use it personally.

How to claim

When you’ve worked out your capital allowances, claim on your:

Self Assessment tax return if you’re a sole trader

partnership tax return if you’re a partner

Company Tax Return if you’re a limited company - you must include a separate capital allowances calculation

Employees must claim in a different way.

The amount you can claim is deducted from your profits.

When you can claim

You must claim in the accounting period you bought the item if you want to claim the full value under:

annual investment allowance

first year allowances

If you do not want to claim the full value you can claim part of it (the full value) using writing down allowances. You can do this at any time as long as you still own the item.

When you bought it (the item)

The date you bought it (the item) is:

when you signed the contract, if payment is due within less than 4 months

when payment’s due, if it’s due more than 4 months later

If you buy something (the item) under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.


Expenses if you're self-employed

Overview

If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.

Allowable expenses do not include money taken from your business to pay for private purchases.

If you run your own limited company, you need to follow different rules. You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a company benefit.

Costs you can claim as allowable expenses

These (Costs you can claim as allowable expenses) include:

office costs, for example stationery or phone bills

travel costs, for example fuel, parking, train or bus fares

clothing expenses, for example uniforms

staff costs, for example salaries or subcontractor costs

things you buy to sell on, for example stock or raw materials

financial costs, for example insurance or bank charges

costs of your business premises, for example heating, lighting, business rates

advertising or marketing, for example website costs

training courses related to your business, for example refresher courses

You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’.

Contact the Self Assessment helpline if you’re not sure whether a business cost is an allowable expense.

Costs you can claim as capital allowances

If you use traditional accounting, claim capital allowances when you buy something you keep to use in your business, for example:

equipment

machinery

business vehicles, for example cars, vans, lorries

You cannot claim capital allowances if you use your £1,000 tax-free ‘trading allowance’.

If you use cash basis

If you use cash basis accounting and buy a car for your business, you can claim this as a capital allowance. However, all other items you buy and keep for your business should be claimed as allowable expenses in the normal way.

If you use something for both business and personal reasons

You can only claim allowable expenses for the business costs.

If you work from home

You may be able to claim a proportion of your costs for things like:

heating

electricity

Council Tax

mortgage interest or rent

internet and telephone use

You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.

Simplified expenses

You can avoid using complex calculations to work out your business expenses by using simplified expenses. Simplified expenses are flat rates that can be used for:

vehicles

working from home

living on your business premises

Office, property and equipment

Claim items you’d normally use for less than 2 years as allowable expenses, for example:

stationery

rent, rates, power and insurance costs

For equipment you keep to use in your business, for example computers or printers, claim:

allowable expenses if you use cash basis accounting

capital allowances if you use traditional accounting

You cannot claim for any non-business use of premises, phones or other office resources.

Stationery

You can claim expenses for:

phone, mobile, fax and internet bills

postage

stationery

printing

printer ink and cartridges

computer software your business uses for less than 2 years

computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)

Claim other software for your business as capital allowances, unless you use cash basis.

Rents, rates, power and insurance costs

You can claim expenses for:

rent for business premises

business and water rates

utility bills

property insurance

security

using your home as an office (only the part that’s used for business)

Business premises

You cannot claim expenses or allowances for buying building premises.

Claim expenses for repairs and maintenance of business premises and equipment.

For alterations to install or replace equipment, claim:

You can also claim capital allowances for some integral parts of a building, for example water heating systems.

Car, van and travel expenses

You can claim allowable business expenses for:

vehicle insurance

repairs and servicing

fuel

parking

hire charges

vehicle licence fees

breakdown cover

train, bus, air and taxi fares

hotel rooms

meals on overnight business trips

You cannot claim for:

non-business driving or travel costs

fines

travel between home and work

You may be able to calculate your car, van or motorcycle expenses using a flat rate (known as simplified expenses) for mileage instead of the actual costs of buying and running your vehicle.

Buying vehicles

If you use traditional accounting and buy a vehicle for your business, you can claim this as a capital allowance.

If you use cash basis accounting and buy a car for your business, claim this as a capital allowance as long as you’re not using simplified expenses.

For all other types of vehicle, claim them as allowable expenses.

Clothing expenses

uniforms

protective clothing needed for your work

costumes for actors or entertainers

You cannot claim for everyday clothing (even if you wear it for work).

Staff expenses

employee and staff salaries

bonuses

pensions

benefits

agency fees

subcontractors

employer’s National Insurance

training courses related to your business

You cannot claim for carers or domestic help, for example nannies.

Reselling goods

goods for resale (stock)

raw materials

direct costs from producing goods

You cannot claim for:

any goods or materials bought for private use

depreciation of equipment

Legal and financial costs

Accountancy, legal and other professional fees can count as allowable business expenses.

You can claim costs for:

hiring of accountants, solicitors, surveyors and architects for business reasons

professional indemnity insurance premiums

You cannot claim for:

legal costs of buying property and machinery - if you use traditional accounting, claim for these costs as capital allowances

fines for breaking the law

Bank, credit card and other financial charges

You can claim business costs for:

bank, overdraft and credit card charges

interest on bank and business loans

hire purchase interest

leasing payments

alternative finance payments, for example Islamic finance

If you’re using cash basis accounting you can only claim up to £500 in interest and bank charges.

You cannot claim for repayments of loans, overdrafts or finance arrangements.

Insurance policies

You can claim for any insurance policy for your business, for example public liability insurance.

When your customer does not pay you

If you’re using traditional accounting, you can claim for amounts of money you include in your turnover but will not ever receive (‘bad debts’). However, you can only write off these debts if you’re sure they will not be recovered from your customer in the future.

You cannot claim for:

debts not included in turnover

debts related to the disposal of fixed assets, for example land, buildings, machinery

bad debts that are not properly calculated, for example you can not just estimate that your debts are equal to 5% of your turnover

Bad debts cannot be claimed if you use cash basis accounting because you’ve not received the money from your debtors. With cash basis, you only record income on your return that you’ve actually received.

Marketing, entertainment and subscriptions

advertising in newspapers or directories

bulk mail advertising (mailshots)

free samples

website costs

You cannot claim for:

entertaining clients, suppliers and customers

event hospitality

Subscriptions

You can claim for:

trade or professional journals

trade body or professional organisation membership if related to your business

You cannot claim for:

payments to political parties

gym membership fees

donations to charity - but you may be able to claim for sponsorship payments

Training courses

You can claim allowable business expenses for training that helps you improve the skills and knowledge you use in your business (for example, refresher courses).

The training courses (Training courses) must be related to your business.

You cannot claim for training courses that help you:

start a new business

expand into new areas of business, including anything related to your current business

How to claim

Keep records of all your business expenses as proof of your costs.

Add up all your allowable expenses for the tax year and put the total amount on your Self Assessment tax return.

You do not need to send in proof of expenses when you submit your tax return. But you should keep proof and records so you can show them to HM Revenue and Customs (HMRC) if asked.

You must make sure your records are accurate.


Pay your Corporation Tax bill

Overview

The deadline for your payment will depend on your taxable profits.

Taxable profits of up to £1.5 million

You must pay your Corporation Tax 9 months and 1 day after the end of your accounting period. Your accounting period is usually your financial year, but you may have 2 accounting periods in the year you set up your company.

Taxable profits of more than £1.5 million

You must pay your Corporation Tax in instalments.

Check the rules and deadlines:

if your taxable profits are between £1.5 million and £20 million

if your taxable profits are more than £20 million

Ways to pay

Make sure you pay HM Revenue and Customs (HMRC) by the deadline (The deadline for your payment). They may charge you interest if you do not pay on time. They’ll pay you interest if you pay your tax (your Corporation Tax) early.

Pay now

The time you need to allow depends on how you pay.

You can no longer pay at the Post Office.

Same day or next day

online or telephone banking (Faster Payments)

CHAPS

through your online bank account

3 working days

Bacs

Direct Debit (if you’ve set one up before)

online by debit or corporate credit card

at your bank or building society

5 working days

Direct Debit (if you have not set one up before)

You cannot pay Corporation Tax by post.

If the deadline (The deadline for your payment) falls on a weekend or bank holiday, make sure your payment reaches HMRC (HM Revenue and Customs (HMRC)) on the last working day before it (The deadline for your payment) (unless you’re paying by Faster Payments).

Make an online or telephone bank transfer

You can pay HM Revenue and Customs (HMRC) by Faster Payments, CHAPS or Bacs.

The back of your payslip, sent to you by HMRC (HM Revenue and Customs (HMRC)), tells you which account to use. If you’re not sure, use Cumbernauld.

| Sort code | Account number

HMRC Cumbernauld | 083210 | 12001039

HMRC Shipley | 083210 | 12001020

Reference number

Use your 17-character Corporation Tax payslip reference for the accounting period you’re paying.

You’ll find the payslip reference:

on any payslip that HMRC (HM Revenue and Customs (HMRC)) sent you

through your company’s HMRC (HM Revenue and Customs (HMRC)) online account - choose ‘View account’ then ‘Accounting period’

Your payment may be delayed if you use the wrong reference number.

How long it takes

Payments made by Faster Payments (online or telephone banking) will usually reach HMRC (HM Revenue and Customs (HMRC)) on the same or next day, including weekends and bank holidays.

CHAPS payments usually reach HMRC (HM Revenue and Customs (HMRC)) the same working day if you pay within your bank’s processing times.

Bacs payments usually take 3 working days.

Check your bank’s transaction limits and processing times before making a payment.

Overseas accounts

Use these details to pay from an overseas account.

| Account number (IBAN) | Bank identifier code (BIC)

HMRC Cumbernauld (Cumbernauld) | GB62BARC20114770297690 | BARCGB22

HMRC Shipley (Shipley) | GB03BARC20114783977692 | BARCGB22

Multiple payments by CHAPS

Send an online CHAPS enquiry form if you want to make a single payment to cover more than one company for the same accounting period.

HMRC’s (HM Revenue and Customs (HMRC)) banking address is:

Approve a payment through your online bank account

You can pay your Corporation Tax bill directly using your online or mobile bank account.

When you’re ready to pay, select ‘start a payment’ and then ‘pay by bank account’. You’ll then be directed to sign in to your online or mobile banking account (your online or mobile bank account) to approve your Corporation Tax payment.

The payment is usually instant but sometimes it takes up to 2 hours to show in your account.

You’ll need to have your online banking details ready to pay this way.

By debit or corporate credit card online

You can pay online.

There’s a fee if you pay by corporate credit card or corporate debit card. The fee is not refundable.

There’s no fee if you pay by personal debit card.

You cannot pay with a personal credit card.

You’ll find the payslip reference:

on any payslip that HM Revenue and Customs (HMRC) sent you

If you’re unable to pay your Corporation Tax bill in full by card, you should use another payment method like a bank transfer.

How long it takes

Allow 3 working days for your payment to reach HMRC’s (HM Revenue and Customs (HMRC)) bank account (your online bank account).

At your bank or building society

You can pay at a branch by cash or cheque.

You’ll need to use the payslip that HM Revenue and Customs (HMRC (HM Revenue and Customs (HMRC))) sends you.

Make your cheque payable to ‘HM Revenue and Customs only’.

Write your 17-character Corporation Tax payslip reference number on the back of your cheque
for the accounting period you’re paying. You can find the reference number on the payslip sent to you by HMRC (HM Revenue and Customs (HMRC)).

If you do not have a payslip

You’ll need to pay by another method instead, for example:

debit or credit card online

online or telephone banking

Direct Debit

Direct Debit

Set up and make changes to a Direct Debit through your company’s HM Revenue and Customs (HMRC (HM Revenue and Customs (HMRC))) online account.

You can find the payslip reference:

on the payslip that HMRC (HM Revenue and Customs (HMRC)) sent you

How long it takes

Allow 5 working days to process a Direct Debit the first time you set one up.

It should take 3 working days each time you pay once you’ve already authorised a Direct Debit from HMRC (HM Revenue and Customs (HMRC)).

Payments will appear on your bank statements as ‘HMRC (HM Revenue and Customs (HMRC)) NDDS’.

Payments for a group of companies

If your company is in a group, you can pay Corporation Tax under a Group Payment Arrangement. HM Revenue and Customs (HMRC) will write to tell you the correct payslip reference.

Tell HMRC (HM Revenue and Customs (HMRC)) no payment is due

Tell HM Revenue and Customs (HMRC) if you have nothing to pay. HMRC (HM Revenue and Customs (HMRC)) will send you payment reminders if you do not.

You can tell HMRC (HM Revenue and Customs (HMRC)) by either:

filling in the ‘nil to pay’ form

sending back the payslip on the reminder HMRC (HM Revenue and Customs (HMRC)) sends you, marked ‘NIL due’

You must still file your company tax return.

Check your payment has been received

Check your HM Revenue and Customs (HMRC) online account (your company’s HMRC (HM Revenue and Customs (HMRC)) online account) to see if your payment has been received. It (your company’s HMRC (HM Revenue and Customs (HMRC)) online account) should be updated within a few days of HMRC (HM Revenue and Customs (HMRC)) receiving the payment.


Tax when you buy shares

Overview

When you buy shares, you usually pay a tax or duty of 0.5% on the transaction.

If you buy:

shares electronically, you’ll pay Stamp Duty Reserve Tax (SDRT)

shares using a stock transfer form, you’ll pay Stamp Duty if the transaction is over £1,000

You’ll have to pay tax at 1.5% if you transfer shares into some ‘depositary receipt schemes’ or ‘clearance services’.

You pay tax on the price you pay for the shares (shares), even if their (shares) actual market value is much higher.

Transactions you pay tax on

You pay tax when you buy:

existing shares in a company incorporated in the UK

an option to buy shares

an interest in shares, for example an interest in the money from selling them

shares in a foreign company that has a share register in the UK

rights arising from shares, for example rights you have when new shares are issued

When you do not pay tax

You do not have to pay tax if you:

are given shares for nothing

subscribe to a new issue of shares in a company

buy shares in an ‘open ended investment company’ (OEIC) from the fund manager

buy units in a unit trust from the fund manager

You do not normally have to pay Stamp Duty or SDRT if you buy foreign shares outside the UK. But you may have to pay other taxes.

When you sell the shares

You may need to pay Capital Gains Tax when you sell your shares (the shares).

Help and advice

Contact Stamp Duty share enquiries for general information about Stamp Duty on shares.

Contact Stamp Duty Reserve Tax enquiries if you have questions about Stamp Duty on electronic paperless share transactions.

You can also get professional help (for example, from a tax adviser) with your tax.

Buying shares electronically

You’ll pay Stamp Duty Reserve Tax (SDRT) (SDRT) if you buy shares electronically through the ‘CREST’ system (a computerised register of shares and shareowners).

The tax (SDRT) is taken automatically when you buy the shares (shares), so you do not need to do anything else about your tax.

SDRT is charged at 0.5% when you buy shares electronically.

If you do not pay cash for your shares but give something else of value to buy them, you pay SDRT based on the value of what you gave.

If you’re given shares for nothing, you do not have to pay any tax.

Buying shares ‘off-market’

You must also pay SDRT on ‘off-market’ transactions. This (shares ‘off-market’) is when shares are transferred outside CREST.

How to pay

Tax is not deducted automatically when you buy shares off-market.

You’ll need to send HM Revenue and Customs (HMRC) a written notice with details of the transaction.

If you do not pay on time, you’ll be charged interest from the due date until the date you pay. You may also get a penalty.

Buying shares using a stock transfer form

You must pay Stamp Duty on your shares if:

you buy shares through a stock transfer form

the transaction is over £1,000

You pay 0.5% duty, which will be rounded up to the nearest £5.

For shares under £1,000, you will not need to pay anything.

Get a stock transfer form

You can get a stock transfer form from:

a broker

a lawyer or an accountant who deals in shares

You can also download a stock transfer form from the internet.

Find out what you need to include in a stock transfer form.

Send the transfer form (a stock transfer form) to HMRC (HM Revenue and Customs (HMRC)) and pay Stamp Duty

You must send a copy of your stock transfer form to the Stamp Office within 30 days of it being signed and dated.

Email an electronic version or a scan of your paper form to stampdutymailbox@hmrc.gov.uk.

If you cannot email your stock transfer form, send a photocopy by post. You must keep the original signed document for your records.

There is a different address to send a stock transfer form by courier.

You must also pay the Stamp Duty within 30 days of the stock transfer form (your stock transfer form) being signed and dated.

You may get a penalty if you do not pay on time.

Special share arrangements

You pay Stamp Duty Reserve Tax (SDRT) or Stamp Duty at 1.5% if you transfer shares into some ‘depositary receipt schemes’ or ‘clearance services’.

This is when the shares (shares) are transferred to a service operated by a third party (for example, a bank). The shares (shares) can then be traded free of Stamp Duty or SDRT.

Not all of these schemes work like this. Sometimes the higher rate is not charged and you pay Stamp Duty or SDRT in the normal way. Check the details of your scheme with your stockbroker.


What you must do as a Construction Industry Scheme (CIS) contractor

Overview

You must register as a contractor with the Construction Industry Scheme (CIS) if:

you pay subcontractors to do construction work

You may be a sole trader, in a partnership or own a limited company.

If you’re not sure if you need to register, check who is covered by CIS (the Construction Industry Scheme (CIS)).

Rules you must follow

You must register for CIS (the Construction Industry Scheme (CIS)) before you take on your first subcontractor.

You must check if you should employ the person instead of subcontracting the work. You may get a penalty if they should be an employee instead.

Check  with HM Revenue and Customs (HMRC) that your subcontractors are registered with CIS (the Construction Industry Scheme (CIS)).

When you pay subcontractors, you’ll usually need to make deductions  from their payments and pay the money to HMRC (HM Revenue and Customs (HMRC)). Deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.

You’ll need to file monthly returns and keep full CIS (the Construction Industry Scheme (CIS)) records - you may get a penalty if you do not.

You must let HMRC (HM Revenue and Customs (HMRC)) know about any changes to your business.

Who is covered by CIS (the Construction Industry Scheme (CIS))

The Construction Industry Scheme (CIS) covers most construction work to buildings, including site preparation, decorating and refurbishment.

Mainstream contractors

If your business is construction and you pay subcontractors for construction work, you’re a ‘mainstream’ contractor. This applies if you’re a:

builder

labour agency

gangmaster (or gang leader)

property developer

Deemed contractors

You count as a ‘deemed’ contractor if your business does not do construction work but you have spent more than £3 million on construction in the 12 months since you made your first payment. This could apply to:

housing association or arm’s length management organisations (ALMOs)

local authorities

government departments

You must monitor your construction spend if you are likely to become a deemed contractor.

Exceptions for contractors

CIS (the Construction Industry Scheme (CIS)) does not apply if your work is:

paid for by a charity or trust

paid for by a governing body or head teacher of a maintained school on behalf of the local education authority

on the subcontractor’s own property and worth less than £1,000 excluding materials - you must call the CIS (the Construction Industry Scheme (CIS)) helpline to get an exemption

CIS (the Construction Industry Scheme (CIS)) also does not apply if you’re a deemed contractor paying for:

work on property (that is not for sale or rent) for your own business use

a construction contract worth less than £1,000 excluding materials - you must call the CIS (the Construction Industry Scheme (CIS)) helpline to get an exemption

Construction work not covered by CIS (the Construction Industry Scheme (CIS))

There are also certain jobs that are exempt from the scheme (the Construction Industry Scheme (CIS)), including:

architecture and surveying

scaffolding hire (with no labour)

carpet fitting

delivering materials

work on construction sites that is clearly not construction, for example running a canteen or site facilities

The CIS (the Construction Industry Scheme (CIS)) guide for contractors and subcontractors explains in full what type of work is covered by CIS (the Construction Industry Scheme (CIS)).

How to register

To register as a contractor, you need to follow the process for setting up as a new employer.

When done, you’ll get a letter from HM Revenue and Customs (HMRC) with the information you need to start working as a Construction Industry Scheme (CIS) contractor.

If your business is based outside the UK but you do construction work here, you follow a different registration process.

Help with registering

If you need help, call the new employer helpline (the CIS (the Construction Industry Scheme (CIS)) helpline) or the CIS (the Construction Industry Scheme (CIS)) helpline.

You can also sign up for webinars and emails or watch videos from HMRC (HM Revenue and Customs (HMRC)) about CIS (the Construction Industry Scheme (CIS)).

Verify subcontractors

Before you can pay a new subcontractor, you’ll need to ‘verify’ them (subcontractors) with HM Revenue and Customs (HMRC).

HMRC (HM Revenue and Customs (HMRC)) will tell you:

whether they (subcontractors)’re registered for the Construction Industry Scheme (CIS (the Construction Industry Scheme (CIS)))

what rate of deduction to use or if you can pay them (subcontractors) without making deductions

You must also verify subcontractors you’ve used before if you have not included them on a CIS (the Construction Industry Scheme (CIS)) return in the current or last 2 tax years.

How to verify

You can verify subcontractors using:

the free HMRC (HM Revenue and Customs (HMRC)) CIS (the Construction Industry Scheme (CIS)) online service

commercial CIS software

If you need to verify more than 50 subcontractors you’ll need to use commercial CIS (the Construction Industry Scheme (CIS)) software.

What you’ll need

Make sure you have:

your Unique Taxpayer Reference (UTR)

the reference number for your HMRC (HM Revenue and Customs (HMRC)) accounts office

your HMRC (HM Revenue and Customs (HMRC)) employer reference

You’ll also need your subcontractor’s:

UTR

National Insurance number if they (your subcontractor’s)’re a sole trader - you cannot verify temporary numbers, which start with ‘TN’ or 2 digits

company name, company UTR and registration number if they (your subcontractor’s)’re a limited company

nominated partner details, trading name and partnership UTR if they (your subcontractor’s)’re a partnership

The details you provide to verify the subcontractor (your subcontractor’s) must exactly match the details the subcontractor (your subcontractor’s) used to register with HMRC (HM Revenue and Customs (HMRC)).

Make deductions and pay subcontractors

When you pay a subcontractor, you usually make some deductions from their payments.

HM Revenue and Customs (HMRC) will tell you how much to deduct from a subcontractor’s payments when you verify them.

The Construction Industry Scheme (CIS) deduction rates are:

20% for registered subcontractors

30% for unregistered subcontractors

0% if the subcontractor has ‘gross payment’ status - for example they do not have deductions made

You must pay these deductions to HMRC (HM Revenue and Customs (HMRC)) - they (your subcontractor’s) count as advance payments towards the subcontractor’s (the subcontractor) tax and National Insurance bill.

How to make a CIS deduction

To make a deduction from a subcontractor’s payment, start with the total (gross) amount of the subcontractor’s invoice.

Take away the amount the subcontractor (a subcontractor’s) has paid for:

VAT

materials

equipment which is now unusable (‘consumable stores’)

fuel used, except for travelling

equipment hired for this job (‘plant hire’)

manufacturing or prefabricating materials

Only deduct materials the subcontractor has paid for directly. Ask the subcontractor (a subcontractor’s) for evidence that they (a subcontractor’s) paid for the materials if you’re unsure.

Finally, deduct the CIS percentage rate (as given to you by HMRC (HM Revenue and Customs (HMRC))) from the amount left. You’ll be left with the net amount you need to pay the subcontractor (a subcontractor’s).

Paying subcontractors

You usually pay your subcontractors directly. But you can pay them through a third party (such as a relative or debt company) if they ask you to.

If you make deductions, you must give the subcontractor a payment and deduction statement within 14 days of the end of each tax month.

If you’re not making payments

If you know you’re not going to make any payments to subcontractors for up to 6 months, you can ask for your scheme to be made ‘inactive’. HMRC (HM Revenue and Customs (HMRC)) will not send you any returns for that period.

You must file a return when you start paying subcontractors again.

Pay deductions to HMRC (HM Revenue and Customs (HMRC))

You must pay HM Revenue and Customs (HMRC) any deductions you’ve made.

HMRC (HM Revenue and Customs (HMRC)) will set up a Construction Industry Scheme (CIS) payment scheme for you when you register as a contractor.

If you already have employees, HMRC (HM Revenue and Customs (HMRC)) will change your existing PAYE Scheme to a PAYE/CIS scheme. You should make one payment each month or quarter to cover your PAYE tax, National Insurance and CIS deductions.

When and how to pay

Pay HMRC (HM Revenue and Customs (HMRC)) every month by the 22nd (or the 19th if you’re paying by post). You may be charged interest and penalties if you pay late.

Pay CIS deductions to HMRC (HM Revenue and Customs (HMRC)) in the same way as PAYE and National Insurance payments.

File your monthly returns

You must tell HM Revenue and Customs (HMRC) each month about payments you’ve made to subcontractors through your monthly return (your monthly returns).

You can file returns by using:

the HMRC CIS online service

some commercial CIS software

On your return, you must declare that the subcontractors listed are not employees.

You could get a penalty of up to £3,000 if you give the wrong employment status for a subcontractor on your monthly return (your monthly returns).

If you made no payments

You do not have to file a return for the months when you made no payments to subcontractors, but you must tell HMRC (HM Revenue and Customs (HMRC)) that no return is due.

You can contact HMRC (HM Revenue and Customs (HMRC)) to make an ‘inactivity request if you’ve temporarily stopped using subcontractors. This lasts for 6 months.

You must tell HMRC (HM Revenue and Customs (HMRC)) if you start using subcontractors again.

Phone lines are currently busier than usual because of coronavirus (COVID-19). You can use your online account to tell HMRC (HM Revenue and Customs (HMRC)).

Using commercial CIS software

Your return must not include any negative values if you’re using commercial CIS software.

If any entries come to less than 0, you should put ‘0’ instead.

HMRC (HM Revenue and Customs (HMRC)) might ask you later to give details of any entries you’ve replaced.

Deadlines

Send your monthly returns to HMRC (HM Revenue and Customs (HMRC)) by the 19th of every month following the last tax month.

Penalties for late returns

You’ll get a penalty if you miss the deadline for filing returns.

The penalty (a penalty) will be cancelled if you let HMRC (HM Revenue and Customs (HMRC)) know that you did not pay any subcontractors that month.

How late the return is | Penalty

1 day late | £100

2 months late | £200

6 months late | £300 or 5% of the CIS deductions on the return, whichever is higher

12 months late | £300 or 5% of the CIS deductions on the return, whichever is higher

For returns later than this, you may be given an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher.

Pay your late filing penalty.

If you disagree with a penalty

You can appeal within 30 days of the date on the penalty notice:

through HMRC’s (HM Revenue and Customs (HMRC)) online service

by writing to HMRC (HM Revenue and Customs (HMRC)) - quote your Unique Taxpayer Reference (UTR) and the payment reference shown on the notice (the penalty notice)

Correcting or changing returns

Use the HMRC CIS online service (HMRC’s (HM Revenue and Customs (HMRC)) online service) to change or correct something on your return.

Call the CIS helpline if you need any help with this.

Record keeping

Under the Construction Industry Scheme (CIS), you must keep records of:

the gross amount of each payment invoiced by subcontractors, excluding VAT

any deductions you’ve made from subcontractor payments

If you made deductions, you must also keep records of the costs of materials the subcontractor invoiced you for, excluding VAT.

Keep these details for at least 3 years after the end of the tax year they relate to. HM Revenue and Customs (HMRC) could ask to see your CIS records at any time.

You could be fined up to £3,000 if you cannot show your CIS records when asked by HMRC (HM Revenue and Customs (HMRC)).

Tell HMRC (HM Revenue and Customs (HMRC)) about changes

You must tell HM Revenue and Customs (HMRC) if:

you change address (as an individual or business)

you change your business structure - for example from sole trader to limited company or vice versa

a contractor dies

you’re a multiple contractor and you take on another contractor’s business - you must tell HMRC (HM Revenue and Customs (HMRC)) within 90 days

If you stop trading or using subcontractors

You must:

tell HMRC (HM Revenue and Customs (HMRC))

stop filing monthly CIS reports

Do this even if you’ve stopped using subcontractors temporarily, for example because you’re using your own employees to carry out work.

If you’ve temporarily stopped using subcontractors

You can contact HMRC (HM Revenue and Customs (HMRC)) to make an ‘inactivity request’ if you’ve temporarily stopped using subcontractors. This lasts for 6 months.

You must tell HMRC (HM Revenue and Customs (HMRC)) if you start using subcontractors again.


Find software for filing company documents

Overview

You can use software to file your company accounts, file changes to your details and returns to Companies House electronically.

You can also file your annual accounts and confirmation statement (previously annual return) with Companies House online.

Using software or filing online you’ll:

be less likely to get late filing penalties

get confirmation that your documents have been received

find out if they (your documents)’re accepted or rejected

How to file electronically

You must register for an online filing account - fill in the online filing credit account application form and send it to the address on the form.

You can then either:

get a software package from a Companies House (and HMRC) authorised provider

develop your own software - request a copy of the Companies House technical specifications by emailing xml@companieshouse.gov.uk

Filing annual accounts, returns and tax accounts

Companies House has tested the software listed.

You should consider which features you need and make sure the software you choose has those features, for example if you need software to deal with inactive accounts (sometimes called ‘dormant accounts’).

You must first register as an electronic filer.

The following is a list of software and the kinds of accounts you can use it for.

Supplier | Product | Dormant | Micro Entity | Abridged | Small | Full

Ajaccts | AJACCTS | Yes | Yes | - | - | -

Acorah Software Products Ltd | TaxCalc Accounts Production | Yes | Yes | Yes | Yes | Yes

Anglia Registrars Ltd | Inform Direct | Yes | Yes | - | - | -

BTCSoftware Limited | AP Solution | Yes | Yes | Yes | Yes | Yes

Capium Limited | Capium Accounts Production | Yes | - | Yes | - | -

CaseWare UK | CaseWare Accounts Production | Yes | Yes | Yes | Yes | Yes

CCH Software (Wolters Kluwer) | CCH iXBRL Review & Tag | Yes | Yes | Yes | Yes | Yes

CCH Software (Wolters Kluwer) | CCH Accounts Production | Yes | Yes | Yes | Yes | Yes

CoreFiling Limited | Seahorse | Yes | Yes | Yes | Yes | Yes

Easy Digital Filing | Easy Digital Filing | Yes | Yes | Yes | Yes | -

Eureka Software | Eureka Software | - | Yes | Yes | Yes | -

Forbes Computer Systems Ltd | Forbes Accounts, Forbes Company Register, Forbes EINC | Yes | Yes | - | Yes | Yes

gbooks | gbooks Company Accounts | Yes | Yes | - | Yes | Yes

IRIS Software | IRIS Accounts Production | Yes | Yes | Yes | Yes | Yes

IRIS Software | PTP Accounts Production | Yes | Yes | Yes | Yes | Yes

Keytime | Accounts Production | Yes | Yes | Yes | Yes | Yes

Quality Management Software Ltd | CT600CH | Yes | Yes | Yes | Yes | Yes

Sage (UK) Limited | Sage Accounts Production | Yes | Yes | Yes | Yes | Yes

Sage (UK) Limited | Sage Accountant Cloud - Final Accounts | Yes | Yes | Yes | Yes | Yes

Sage (UK) Limited | Sage Accounts Production Advanced | Yes | Yes | Yes | Yes | Yes

Taxfiler | Taxfiler Accounts Production | Yes | Yes | Yes | Yes | -

Thomson Reuters | Digita | Yes | Yes | Yes | Yes | Yes

Thomson Reuters | ONESOURCE | Yes | Yes | Yes | Yes | Yes

VT Software Limited | VT Filer | Yes | Yes | Yes | Yes | Yes

Xero | Xero Tax | Yes | Yes | Yes | Yes | -

Software for Limited Liability Partnerships (LLPs)

Supplier | Product

BTCSoftware Limited | AP Solution

CaseWare UK | CaseWare Accounts Production

CCH Software (Wolters Kluwer) | CCH iXBRL Review & Tag

CoreFiling Limited | Seahorse

Eureka Software | Eureka Software

gbooks | gbooks Company Accounts

IRIS Software | IRIS Accounts Production

IRIS Software | PTP Accounts Production

Keytime | Accounts Production

Sage (UK) Limited | Sage Accounts Production

Sage (UK) Limited | Sage Accounts Production Advanced

Taxfiler | Taxfiler Accounts Production

Thomson Reuters | Digita

VT Software Limited | VT Filer

Software for charities

Supplier | Product

BTCSoftware Limited | AP Solution

CoreFiling Limited | Seahorse

IRIS Software | PTP Accounts Production

Keytime | Accounts Production

Sage (UK) Limited (Sage) | Sage Accountant Cloud - Final Accounts

Sage (UK) Limited (Sage) | Sage Accounts Production Advanced

Uploading your accounts to Companies House

Tax account software generates electronic accounts in Inline eXtensible Reporting Language (iXBRL).

The following software has a direct filing link to Companies House:

Supplier | Product

eFile Ready Limited | eCompany Services

The following software can validate your iXBRL:

Supplier | Product

Xmetric Limited | Surefile Accounts

Filing other company information

Companies House (Companies House) has tested and authorised software for filing information about:

incorporations (registering a new company)

changes to your company, for example directors joining or leaving, changing a registered address, and filing annual returns

mortgages, for example when they’re paid or part-paid

You should consider which features you need and make sure the software you choose has those features.

Supplier | Product(s) | Incorporations | Secretarial | Mortgages

121 Company Formation Ltd | 121 Company Formation | Yes | Yes | No

Acorah Software Products Ltd | TaxCalc Company Secretarial | Yes | Yes | No

Advanced | Cloud Forms (Laserform Hub) | No | Yes | MR01, MR02, MR04 and MR05

angelPRO Limited | VenturePro | No | Yes | No

Anglia Registrars Ltd | Inform Direct | Yes | Yes | Yes

BGL Corporate Solutions Ptd Ltd | Corporate Affairs System (CAS) | Yes | Yes | No

BHIS Limited | PC Share Register Plus | Yes | Yes | No

BritDAQ | BritDAQ Cosec | No | Yes | No

BTC Software Limited | CS Solution | Yes | Yes | No

Build and Prosper Ltd | File Direct 6 | Yes | Yes | No

CFS International Formations LTD | CFS Formations and Free Secretarial Package | Yes | Yes | No

The Company Formation Wizard | Company Formation Wizard | Yes | Yes | No

Computershare Governance Services | Global Entity Management System (GEMS), Secretariat One (S1) | Yes | Yes | No

Corporatek | EnGlobe, GlobalAct | No | Yes | No

Diligent Entities | Blueprint | Yes | Yes | MR04, MR05 only

Efaze Ltd BVI | Efaze.com company formations | Yes | Yes | No

eFile Ready Limited | eCompany Services | Yes | Yes | No

E Filing Limited | E Filing Limited | Yes | Yes | No

First Corporate | First Order | Yes | Yes | No

Forbes Computer Systems Ltd | Forbes Accounts, Forbes Company Register, Forbes EINC | Yes | Yes | No

Formations Direct | Vectis | Yes | Yes | No

FormEvo | FormEvo | No | Yes | MR01, MR02, MR04 and MR05

gbooks | gbooks Company Forms, gbooks Incorporation | Yes | Yes | No

Info Commerce Limited | Acs1, Sec1, Inc1 | Yes | Yes | No

IRIS Software | IRIS Accountancy Suite | Yes | Yes | No

Jordans Limited | Incorporator, Forming Companies, My Formations, PCSec administration software | Yes | Yes | No

Keytime Objective Ltd | Company Secretarial | No | Yes | No

Kudocs | Kudocs | Yes | Yes | No

LTDONLINE Ltd | LTDONLINE | Yes | Yes | No

Online Filings Ltd | Online Filings | Yes | Yes | No

Oswalds (Jordans [Scotland] Ltd) | Incorporator, Forming Companies, PCSec administration software | Yes | Yes | No

Oyez | The Oyez Gateway | No | No | Yes

Panlegis (Malta) Limited | Panlegis (Malta) Limited | Yes | Yes | No

Principal Consultancy Ltd | Your Limited Company | Yes | Yes | No

Armadillo | Armadillo e-Incorp | Yes | Yes | No

Sage (UK) Limited | Sage Accounts Production Advanced, Sage Company Secretarial | No | Yes | No

Thomson Reuters | Onvio Formations | Yes | No | No

zetVisions AG | zetVisions CIM | No | Yes | No


Prepare annual accounts for a private limited company

Overview

Your company’s annual accounts - called ‘statutory accounts’ - are prepared from the company’s financial records at the end of your company’s financial year.

You must always send copies of the statutory accounts (your company’s financial year) to:

all shareholders

people who can go to the company’s (Your company’s) general meetings

Companies House

You have different deadlines for sending your accounts to Companies House and your tax return to HMRC (HM Revenue and Customs (HMRC)), but you may be able send them at the same time.

If your company is small, a micro entity or dormant, you might be able to send simpler (‘abridged’) accounts.

How to put together statutory accounts

Statutory accounts (your company’s financial year) must include:

a ‘balance sheet’, which shows the value of everything the company (Your company’s) owns, owes and is owed on the last day of the financial year (your company’s financial year)

a ‘profit and loss account’, which shows the company’s (Your company’s) sales, running costs and the profit or loss it (Your company’s) has made over the financial year (your company’s financial year)

notes about the accounts (your company’s financial year)

a director’s report (unless you’re a ‘micro-entity’)

You might have to include an auditor’s report - this depends on the size of your company.

The balance sheet must have the name of a director printed on it and must be signed by a director.

Accounting standards

Your statutory accounts must meet either:

International Financial Reporting Standards

New UK Generally Accepted Accounting Practice

Search online to find out more about the standards, or ask your accountant or tax adviser. You can find an accountant accredited in the UK.

Micro-entities, small and dormant companies

You might be able to send simpler (‘abridged’) accounts to Companies House and not need to be audited. This depends on whether your company is dormant or qualifies as a small company or ‘micro-entity’.

You must still send statutory accounts to your members and to HM Revenue and Customs (HMRC) as part of your Company Tax Return if you’re a small company or micro-entity.

Dormant companies

Your company is called ‘dormant’ by Companies House if it’s had no ‘significant’ transactions in the financial year that you’d normally report (your company’s financial year). Significant transactions do not include:

filing fees paid to Companies House

penalties for late filing of accounts

money paid for shares when the company was incorporated

Dormant companies that qualify as ‘small’ do not need to be audited.

Check if your company is also dormant for Corporation Tax.

Small companies

Your company will be ‘small’ if it (Your company) has any 2 of the following:

a turnover of £10.2 million or less

£5.1 million or less on its (Your company) balance sheet

50 employees or less

If your company is small, you can:

use the exemption so your company’s (Your company) accounts do not need to be audited

choose whether or not to send a copy of the director’s report and profit and loss account to Companies House

send abridged accounts to Companies House

Sending abridged accounts

You can only send abridged accounts if all your company members agree to it.

Abridged accounts must contain a simpler balance sheet, along with any notes. You can also choose to include a simpler profit and loss account and a copy of the director’s report.

The balance sheet (a simpler balance sheet) must have the name of a director printed on it (a simpler balance sheet) and must be signed by a director.

Sending abridged accounts means less information about your company will be publicly available from Companies House.

Micro-entities

Micro-entities are very small companies. Your company will be a micro-entity if it has any 2 of the following:

a turnover of £632,000 or less

£316,000 or less on its (Your company) balance sheet

10 employees or less

If your company is a micro-entity, you can:

prepare simpler accounts that meet statutory minimum requirements

send only your balance sheet with less information to Companies House

benefit from the same exemptions available to small companies

Find out exactly what to include in your accounts depending on your company type, for example micro-entity, small, medium or dormant.

Corrections and amendments

You must send amended accounts to Companies House on paper.

Amended or corrected accounts (amended accounts) must be for the same period as the original accounts.

You must clearly say in your new accounts (amended accounts) that they (amended accounts):

replace the original accounts

are now the statutory accounts

are prepared as they (the statutory accounts) were at the date of the original accounts

Write “amended” on the front so that Companies House know your accounts (amended accounts) are not duplicates.

Your original accounts (the original accounts) will remain on file at Companies House.

If you only want to amend one part of your accounts, you need to send a note saying what’s been changed. The note must be signed by a director and filed with a copy of the original accounts.

Penalties for late filing

You’ll have to pay penalties if you do not file your accounts with Companies House by the deadline.

Time after the deadline | Penalty (for private limited companies)

Up to 1 month | £150

1 to 3 months | £375

3 to 6 months | £750

More than 6 months | £1,500

Penalties for public limited companies are different.

You’ll automatically receive a penalty notice if your accounts are filed after the deadline.

The penalty is doubled if your accounts are late 2 years in a row.

You can be fined and your company struck off the register if you do not send Companies House your accounts or confirmation statement.

Appeal against a late filing penalty

If you want to appeal a penalty you must:

give a specific reason for not filing your accounts on time

include all relevant details, such as dates and times

prove the circumstances were out of your control, for example a fire destroyed your records a few days before your accounts were due

If you need help with your appeal (appeal) because you have a disability or a health condition, you can contact Companies House.

Your appeal (appeal) is likely to be unsuccessful if it (appeal)’s because:

these were your first accounts

your company is dormant

your company is a charity or a flat management company

you cannot afford to pay

another director is responsible for filing the accounts

it was your accountant’s (or anybody else’s) fault

you did not know when or how to file your accounts

your accounts were delayed or lost in the post

the directors live or were travelling overseas

You can send a letter to the address on the front page of the penalty
invoice, or send an email including the penalty reference.

You’ll get a response within 20 working days and
the penalty (a penalty) will not be collected while your appeal (appeal) is being
considered.

Challenging an unsuccessful appeal

If your appeal is rejected and you have additional information to support your case, you can write to the senior casework manager in the Late Filing Penalties Department at the Companies House office that deals with your account.

If your appeal to the senior casework manager is unsuccessful, you can write to the independent adjudicators, and ask them to review your case.

If your appeal to the independent adjudicator (the independent adjudicators) is unsuccessful, you can submit a final application to the Registrar of Companies at the office that deals with your account (the Companies House office that deals with your account).

You must follow this process, otherwise the registrar will not review your appeal (your appeal to the senior casework manager).

Find out more about late penalty appeals in different situations.


Expenses and benefits for employers

Overview

If you’re an employer and provide expenses or benefits to employees or directors, you might need to tell HM Revenue and Customs (HMRC) and pay tax and National Insurance on them.

Examples of expenses and benefits include:

company cars

health insurance

travel and entertainment expenses

childcare

There are different rules for what you have to report and pay depending on the type of expense or benefit that you provide.

Reporting and paying

At the end of the tax year you’ll usually need to submit a P11D form to HM Revenue and Customs (HMRC) for each employee you’ve provided with expenses or benefits.

You’ll also need to submit a P11D(b) form if:

you’ve submitted any P11D forms

you’ve paid employees’ expenses or benefits through your payroll

HMRC (HM Revenue and Customs (HMRC)) have asked you to - either by sending you a form or an email

Your P11D(b) (a P11D(b) form) tells HMRC (HM Revenue and Customs (HMRC)) how much Class 1A National Insurance you need to pay on all the expenses and benefits you’ve provided.

If HMRC (HM Revenue and Customs (HMRC)) have asked you to submit a P11D(b), you can tell them (HM Revenue and Customs (HMRC)) you do not owe Class 1A National Insurance by completing a declaration.

Paying tax on benefits through your payroll

You can deduct and pay tax on most employee expenses through your payroll (sometimes called ‘payrolling’) as long as you’ve registered with HMRC (HM Revenue and Customs (HMRC)) before the start of the tax year (6 April).

You do not need to submit a P11D form for an employee if you’re paying tax on all their benefits through your payroll.

You’ll still need to submit a P11D(b) form so you can pay any Class 1A National Insurance you owe.

What to report

Each expense or benefit is calculated differently. Find the type of expense or benefit you’ve provided to see what you’ll need to report and pay.

For ‘minor’ expenses or benefits, you might be able to make a one-off payment, known as a PAYE Settlement Agreement.

How to report

You can use any of the following methods:

commercial payroll software

HMRC’s (HM Revenue and Customs (HMRC)) PAYE Online service

HMRC’s (HM Revenue and Customs (HMRC)) Online End of Year Expenses and Benefits service

You can also download and fill in forms P11D and P11D(b) and send them to the P11D Support Team.

Correct an error

If you’re correcting a P11D form include all the benefits and expenses for the tax year, not just the ones you want to change.

If you’re correcting a P11D(b) form include the total amount of Class 1A National Insurance you need to pay, not the difference from your previous version.

You must submit a paper form, even if you originally submitted online.

The forms (forms P11D and P11D(b)) will show the most recent tax year. Write a different tax year on the form if you need to report for a different year. You must write:

that you’re using the form to correct an error made in a different year to the one printed on the form

the tax year you’re making the amendment for

Where to send forms

Send new or corrected paper forms to:

Penalties

You may be charged a penalty if you carelessly or deliberately give inaccurate information in your tax return that results in you:

not paying enough tax

over-claiming tax reliefs

Deadlines

What you need to do | Deadline

Submit your P11D forms online to HMRC (HM Revenue and Customs (HMRC)) | 6 July following the end of the tax year

Give your employees a copy of the information on your forms | 6 July (6 July following the end of the tax year)

Tell HMRC (HM Revenue and Customs (HMRC)) the total amount of Class 1A National Insurance you owe on form P11D(b) | 6 July (6 July following the end of the tax year)

Pay any Class 1A National Insurance owed on expenses or benefits | Must reach HMRC (HM Revenue and Customs (HMRC)) by 22 July (19 July if you pay by cheque)

If you have a PAYE Settlement Agreement pay tax and Class 1B National Insurance | Must reach HMRC (HM Revenue and Customs (HMRC)) by 22 October (19 October if you pay by cheque)

Pay any PAYE tax or Class 1 National Insurance owed on expenses or benefits | Pay monthly through payroll

You’ll get a penalty of £100 per 50 employees for each month or part month your P11D(b) (form P11D(b)) is late. You’ll also be charged penalties and interest if you’re late paying HMRC (HM Revenue and Customs (HMRC)).

Record keeping

You must keep a record of all expenses and benefits you provide to your employees.

Your records need to show that you’ve reported accurately and your end-of-year forms are correct.

HM Revenue and Customs (HMRC) may ask to see evidence of how you accounted for each expense or benefit at the end of the tax year.

What you should keep

You’ll need to keep a record of:

the date and details of every expense or benefit you provide

any information needed to work out the amounts you put on your end-of-year forms

any payment your employee contributes to an expense or benefit

You should also keep any correspondence you have with HMRC (HM Revenue and Customs (HMRC)).

Records must be kept for 3 years from the end of the tax year they relate to.

Exemptions and dispensations

You don’t have to report some routine employee expenses to HM Revenue and Customs (HMRC). This is called an ‘exemption’.

Exemptions have replaced dispensations. You can’t apply for a dispensation any more.

Expenses covered by an exemption

You don’t have to report certain business expenses and benefits like:

business travel

phone bills

business entertainment expenses

uniform and tools for work

To qualify for an exemption, you must be either be:

paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC (HM Revenue and Customs (HMRC))

paying back the employee’s (your employee) actual costs

You must deduct and pay tax and National Insurance on all other expenses and benefits you give to your employees, and report them to HMRC (HM Revenue and Customs (HMRC)) as normal.

Apply for an exemption

You don’t need to apply for an exemption if you’re paying HMRC’s (HM Revenue and Customs (HMRC)) benchmark rates (a benchmark rate) for allowable expenses.

You only need to apply for an exemption if you want to pay bespoke rates to your employees.

You’ll have to give HMRC (HM Revenue and Customs (HMRC)) evidence that the rates you’re suggesting (bespoke rates) are based on your employees’ (your employees) actual expenses.

If you had a dispensation from HMRC (HM Revenue and Customs (HMRC))

Your dispensation (a dispensation from HMRC (HM Revenue and Customs (HMRC))) won’t apply after 5 April 2016, but the expenses covered by it (a dispensation from HMRC (HM Revenue and Customs (HMRC))) should also be covered by the exemption (a dispensation from HMRC (HM Revenue and Customs (HMRC))).

If you agreed bespoke rates with HMRC (HM Revenue and Customs (HMRC)) between 6 April 2011 and 5 April 2016 as part of your dispensation, you can apply to carry on using them.

You can only use the bespoke rates (bespoke rates) for up to 5 years from the date they (bespoke rates) were agreed.

Checking expenses

You must have a system in place to check payments you make at benchmark or bespoke rates.

Your employees aren’t allowed to check their own expenses, so someone else within your company needs to do this to make sure they’re legitimate.

Tell your employees to keep proof of their expenses, for example receipts or bills, in case you need to check them.