Good records, honest money habits, a safe workplace, and knowing your own safety net. This is how a business stays out of trouble.
This chapter is about the everyday duties that keep your business — and you — safe and legal. It covers your records, the special rules for company money, keeping people safe, and looking after yourself.
Every business must keep records. For sole traders, the simplest method is cash basis — record money when it actually moves. It is the default. Limited companies must use traditional accounting instead.
An allowable expense is a cost you can take off your income before working out tax. The golden rule is that it must be spent wholly and exclusively for the business.
Things you can usually claim:
Office costs, stock and raw materials, staff costs.
Travel for work (but not your normal commute).
Premises costs, insurance, marketing, and interest on business borrowing.
Professional fees, and training that updates skills you already have.
This is the single biggest change for a first-time company director. Your company is a separate legal person. Its bank account is not your bank account. You cannot just take money out.
The company's money is not your money. It can only come out in these four ways.
Money can leave the company in only four ways:
Salary through PAYE. It lowers Corporation Tax, and Income Tax and National Insurance apply.
Dividends — a share of profit. These can only be paid from profit left after tax (the distributable profits). You need a short written note each time, even in a one-person company. Dividends use UK-wide tax rates and pay no National Insurance.
Paid-back expenses — real business costs, with receipts.
When you work for yourself, you lose the safety net an employer used to give you. Plan for it.
No sick pay. The self-employed get no statutory sick pay. Think about income protection insurance or a savings buffer.
No workplace pension for you. As a sole trader there is no auto-enrolment for yourself. A personal pension gets tax relief; company directors can make pension payments through the company. Your State Pension depends on your National Insurance record.
Protect your State Pension. If your profits are low (below about £6,725), pay voluntary Class 2 National Insurance — only a few pounds a week — to keep your pension record going. Cheap, and easy to forget.
Maternity. Self-employed mothers may be able to claim Maternity Allowance (not the employee version), depending on their National Insurance record.
Universal Credit. If you claim it, be aware of the “Minimum Income Floor”, which can assume a set income for the self-employed after your first year.