All employers (including those taking on staff for the first time) are required to automatically enrol eligible employees into a suitable workplace pension scheme as soon as they start work. The rules are designed to encourage people to save more towards their retirement. However, employees can choose to withdraw from the scheme if they want to.

You can check if you're an employer on the Pensions Regulator website.

Enrol eligible workers into your pension scheme

Employers must enrol eligible workers into a pension scheme. Eligible workers must:

• normally be based in the UK
• be aged between 22 and the state pension age
• have a salary over the automatic enrolment earnings trigger (£10,000)
• not already a member of a qualifying pension scheme

Eligible workers can opt out but must make a positive decision to do so.

If a worker becomes eligible after they have started working for you (for example, they reach 22 or their earnings increase), you must enrol them within six weeks unless they actively opt out.

Every three years employers must re-enrol certain employees - for example eligible employees who left an employer's automatic enrolment pension scheme more than 12 months before the employer's re-enrolment date.

Failure to comply with the rules can result in daily fines, criminal prosecution and even imprisonment.

Other, non-eligible workers aged between 16 and 74 who earn at least £6,240 (entitled workers) have the right to opt into the pension scheme. Employees earning less than this can also join, but the employer does not have to pay pension contributions for these employees.

Choosing a workplace pension scheme

Many businesses opt to use NEST, the pension scheme set up by the government when auto-enrolment was introduced. However, you are free to choose your own scheme providing it meets the qualifying criteria.

There are different types of occupational pension scheme. They offer different levels of risk for you as the employer and a variety of benefits such as death-in-service benefits. It is advisable to take advice from an independent financial adviser. They can help you choose the right scheme for your business and understand the costs involved.

Contributing to your workplace pension scheme

The rules require employers to pay a minimum percentage of each participating employee's wages to be paid into the scheme. You have to contribute a minimum proportion of this amount with employees making up the balance.

Employers must pay at least 3% of 'qualifying earnings' between £6,240 and £50,000 into the pension. Employees must pay at least 5% of their qualifying earnings. The combined minimum total contributions is 8% (3% employer contribution and 5% employee contribution) although both the employer and employee can opt to pay more than this.

Paying pension contributions

You must pay your pension contributions on time. You can be fined if you are late. You must pay pension deductions to the pension scheme provider no later than the 22nd day of the next month (19th if you pay by cheque). There are special rules if you are making your first contribution deductions under auto-enrolment.

To make the pension contribution calculations and deductions easier, it helps to use an automated payroll system or payroll provider.

What happens to the pension when an employee changes job?

Your contributions end when an employee leaves your employment. The pension belongs to the employee and when they leave, they have a number of options:

• They can cease making contributions to your pension scheme. Their money remains invested in the scheme and they can access the funds when they reach the retirement aged specified by your scheme.
• The employee can continue contributing to the scheme.
• The employee can combine the contributions they have made into your scheme with their new employer's pension scheme.

If the employee was contributing to a defined benefit scheme for less than two years, they may be able to get a refund of their contributions or transfer the value to a new pension scheme.

Getting help with auto-enrolment

As an employer, it's likely you will have a number of questions about your role and responsibilities in relation to auto-enrolment.

You can find out about auto-enrolment pension rules for employers on the Pensions Regulator website.

You can also find advice on setting up a workplace pension scheme on the GOV.UK website.

Taking advice from an independent financial adviser can also help you identify a pension scheme for your business.

Most businesses have dedicated business bank accounts, making it easier to keep the financial affairs of the business separate from those of the owner. It can be tempting for the smallest businesses to make do without a business bank account, particularly as business bank accounts often incur charges. But having a business account tends to be worthwhile, and may be a legal requirement.

Sole traders and business bank accounts

If you are a self-employed sole trader, you aren’t legally required to have a business bank account. You could choose to run your business using your personal account – though some banks object to this, and will ask you to open a separate business account if they realise this is what you are doing.

However, there are good reasons why you should have a business account:

• It makes it easier to keep financial records and to check for any errors.
• It’s easier to pull together the information you need for annual accounts and tax returns, and for VAT / PAYE returns (if your business is VAT-registered or has employees).
• You may find it easier to convince HM Revenue & Customs that your records are accurate and that you are paying the correct amount of tax, particularly if your business makes or receives cash in hand payments.
• You have a clearer view of how your business is performing.
• You can get a bank account that uses your trading name. This can create a better impression than using your personal name.

If you have a very limited business income – with annual turnover below the tax-free trading allowance of £1,000 – you will not normally need to register as self-employed, and probably will not find it worthwhile having a separate bank account.

Company and partnership bank accounts

If your business is a limited company, it must have its own company bank account. The company’s financial affairs must be kept separate from those of its owners and directors. The same applies if your business is a limited liability partnership (LLP).

If your business is a traditional partnership – where self-employed partners work together – you could in principle run the business without having a separate business account. But using individual partners’ accounts would be a recipe for confusion, making it difficult to keep track of both business performance and each partner’s financial position.

Having a separate bank account for your company or partnership offers the same advantages as it does for a sole trader. In addition:

• The business bank account ‘mandate’ lets you specify who is authorised to access the account and make payments.
• A business account is essential if you are raising money from external investors.
• Your business account provider may offer additional, useful business financial services – for example, cards for your employees to use for expenses payments.

Using multiple accounts

As well as having a main business current account, you may find it useful to have other accounts. For example, many businesses find it useful to keep a separate tax savings account, into which you can make regular deposits towards future tax payments. This helps prevent the business spending money which it is going to need.

Other circumstances in which you may want to have more than one business account include:

• Keeping client funds in a separate account (or in separate, designated accounts for each client). This is common for professional practices such as law firms and estate agents, and in some cases is required by regulation.
• If you trade internationally. For example, you may want to have separate accounts for different currencies, or local accounts in banks in the countries where your business operates.

If you're a self-employed sole trader, partnership or limited company in the UK, you will need a Unique Taxpayer Reference (UTR) number. The number is unique to the individual or organisation and will never change.

You will also need a UTR if you have other forms of income or expenses that require you to file a self assessment tax return.

What is a Unique Taxpayer Reference (UTR)?

A UTR is a ten-digit reference number, also known as a tax reference. You will be sent a UTR automatically when:

• you register for self assessment
• you start a limited company

You will receive the UTR within 10-working days. Once you have your UTR, you will have to use it for all future correspondence with HMRC. Your UTR will help HMRC identify and process your tax returns against the correct taxpayer’s records.

Why would you need a Unique Taypayer Reference?

If you haven't got your UTR yet, you will be unable to submit your self assessment tax return. Obtaining a UTR can take a couple of weeks. If you don't apply in time, you run the risk of filing your tax return late and there are penalties that can be issued by HMRC for late filing and payment of any tax owed.

Who needs a Unique Taypayer Reference?

You will need a UTR if you need to complete a self assessment tax return. Individuals with self-employed income or income from rental property probably form the biggest group that will need a UTR. However, you will also need a UTR and to complete a self Assessment tax return if you

• are a sole trader earning more than £1,000
• are a partner in a business partnership
• have a total income over £100,000 or have complicated tax affairs
• have an income over £60,000 and either you or your partner receive child benefit
• get income from savings and investments or dividends over £10,000
• have property income over £10,000, or profits over £2,500
• need to pay capital gains tax on assets you have sold
• are a religious minister, Lloyd's underwriter, examiner or share fisherman

For other taxpayers, it may also be relevant when registering for the Construction Industry Scheme or working with an accountant.

It should be noted that the government have announced some changes to who will need to complete a self assessment tax return starting from the 2024/25 tax year.

How do I get a Unique Taypayer Reference?

You won't receive a UTR number unless you’re registered as either self employed or as starting a new business. You’ll need to do this on HMRC’s website. Alternatively, you can call them on 0300 200 3310. There is no charge for doing either.

Be careful if you have already started trading. HMRC expects you to register within three months of the end of your first month in business. You could be subject to heavy penalties if you fail to do so.

To avoid these fines, register as soon as you can. Make sure you have the following information to hand:

• full name
• date of birth
• email address
• home address
• phone number
• National Insurance number
• the date you started self-employment

Double-check that you have completed the process correctly if you do not receive your UTR within 10-working days following your registration.

What if I'm already registered for self assessment?

You should already have a UTR code somewhere. If you’ve misplaced it, start by checking any correspondence that you may have received from HMRC. All previous tax returns will reference it, along with any notices you may have had to file a return, payment reminders or statements of account. You can also find a lost UTR on the GOV.UK website.

In addition, your HMRC online account will also display your reference number, provided you can access it. If none of these options prove fruitful, contact the Self Assessment helpline.

You can watch this HMRC video for more information on how to find your UTR.

Written by Mike Parkes of GoSimpleTax - tax return software that can help you manage your self-assessment.

It has been a contentious issue for many years that HMRC have insisted that all company directors file a tax return. Arguably this was inconsistent with tax law and it has been successfully challenged in recent tribunal cases.

Do you need to send a tax return as a company director?

The criteria for company directors are the same as for any employed individual. If your only income is already taxed at source, such as PAYE, or you only have small amounts of savings interest or dividends below £2,500, you may not need to file a return.

You can quickly check whether you need to file a self assessment tax return using the updated HMRC self assesssment tool. However, beware the first question1 It asks "did you work for yourself…?". Always reply "yes" if you are a director even if you are not the majority shareholder. The remaining questions are more straightforward and will give you a decision on whether you need to file a tax return.

Has HMRC issued you with a notice to send a tax return?

If you think that you don’t need to submit a return, you must contact HMRC to ask them to withdraw the notice. Otherwise, you will be required to submit a self assessment tax return and you will incur penalties if you do not - even if you don't owe any additional tax.

Contact HMRC online if you already have a personal tax gateway account. Alternatively contact them by phone on 0300 200 3310 or by post: Self Assessment, HM Revenue and Customs, BX9 1AS. Make sure you have your NI number and Self Assessment Unique Taxpayer Reference (UTR) details to hand.

How to file a self assessment tax return

You can register for self assessment online (which may take up to 10 days to set up an account before you can begin to fill in your return). The income tax self assessment process is then the same as for any other individual.

If you are too close to the filing deadline of 31 January and you do not have an online account, your only option may be to use a Tax Agent if you want to avoid a late filing penalty.

Running a small business can feel lonely at times. Combat the isolation and connect with other small business owners in our friendly Facebook group, the Donut Small Business Collective. 

What is the Donut Small Business Collective?

The Donut Small Business Collective is the friendly and supportive Facebook group created by the team behind the Donut websites including the Start Up Donut.

The Donut team have been passionate about helping other small UK-based businesses to succeed for more than 20 years. Our websites attract more than 3.5 million users a year. 

Who are the Donut Small Business Collective members?

Our members are UK-based start-ups, small businesses and people with a spark of a business idea - they are all welcome in the Donut Small Business Collective. Our members come from a wide range of backgrounds and their businesses cover a plethora of business sectors. Some are still in the pre-start phase and others are established firms with years of experience behind them.

What they all have in common is a desire to learn from and share experience and knowledge with other small businesses.

How will I benefit?

We’re dedicated to building a supportive and non-judgemental community where people like you can share tips and experience, ask questions and be inspired by other small business success stories.

Members get access to exclusive Q&As with our Donut experts, an offer of the week, sneak peeks of our podcasts before everyone else, the opportunity to feature as a 'business of the week' (where we go behind the scenes to learn a bit more about one of our members) and join our Friday networking.

Above all, you can join a group of entrepreneurs who are navigating the same business challenges as you. Share your problems, ask questions, and make new connections with peers who might just be able to help your business take the next step. Who knows, you might find new customers, suppliers or the answer to that burning question.

How do I join the Donut Small Business Collective?

Simple! You can join here. All you need to do is answer a couple of quick questions so we can check our group is right for you.

Are there any rules?

We want to make sure the group is a positive and supportive place for all our members. For everyone's benefit we simply ask that don't:

• Post any adverts or anything spammy. If you want to advertise your business, we have a Friday networking opportunity where you can tell everyone what you do.
• Be rude or disrespectful to other members.
• Contact group members without their permission.

Do I have to take part?

We encourage members to get involved. You're welcome to ask questions, create polls and chip in with help and advice if you think you can help another group member.

Like any networking group, you will get out as much as you put in. Some members are simply looking for the answer to a quick question from someone who has been there, seen it and done it. Others regularly contribute by answering others' questions, passing on interesting news, leads or advice or by featuring as a 'business of the week'.

There are no hard and fast rules. The group exists to be useful to all members.

So, if you have a burning question or want some advice from like-minded business owners, join us and start making connections today. 

Whether you're new to self employment or not, record keeping might sound like hard work. And while that may be true, it does come with its own reward – namely, that you, as a sole trader, can claim back allowable expenses and pay less tax on your earnings

HMRC has a number of rules about record keeping though. Mostly, they relate to the storage of receipts and other documentation after you've filed your Self Assessment tax return each tax year. By not adhering to the rules, you run the risk of losing out on any tax relief – or worse, being penalised by HMRC.

What expenses can sole traders claim for?

There's a whole host of expenses you can claim as a sole trader, and they can potentially net you big savings if you utilise all that are available to you. Generally, people are aware that equipment purchases qualify as expenses, but there are many others.

They include:

Travel and accommodation

As a sole trader you may have to travel up and down the country for long periods of time, staying overnight far from home. Luckily, HMRC considers hotel stays viable business expenditure. The accommodation records (how long you've booked) should be as close as possible to the proposed timescale of the project you're there to oversee. 

You can also claim tax relief on mileage or travel bookings made over the year, as well as meals on overnight trips. To ensure you stay within the bounds of eligible allowances, it's worth consulting government guidance on expenses for the self employed.

Legal and financial costs

• If you need to hire an accountant to support you in your venture, you can claim on their total costs. This may also be the case for any other professional services you may need for business purposes. Likewise, you can claim against bank costs such as overdraft and credit card charges. Costs including professional indemnity insurance premiums and lease payments can also be claimed back, although there are rules if you're using cash basis accounting.

Marketing costs

As you are using these services purely for the purpose of driving your business forward, HMRC will permit marketing campaigns as eligible expenses. That's great news for sole traders who use flyers to drum up work, for example, or need a website to advertise their services.

Clothing expenses

While you operate as a self-employed individual, you may also represent certain authorities when you're caring for patients or vulnerable people. As a result, you may be expected to purchase a uniform or your own PPE.

Fortunately, you're able to claim for it as an allowable business expense. Provided that what you're purchasing is either a uniform or necessary protective clothing needed for your work, you'll qualify for tax relief.

What's more, if you need to purchase any additional PPE for your role (say, gloves and face masks), this is also considered an allowable expense.

Utilities

If you work from home, you're entitled to claim a proportion of your gas, electric, water, broadband and telephone bills as allowable expenses. There's no exact science to this, but generally you'd divide the bill by the number of rooms in your house and then divide that figure based on the amount of time you work from home. The GOV.UK website has a good example. If that sounds too complex, you can claim simplified expenses instead.

Subscriptions

If your freelance work requires you to pay a membership fee or would benefit from you purchasing a trade publication, these costs can be claimed back on. However, this does not extend to political party subscriptions.

These are just some of the examples of expenditure that you can claim, but they highlight the wealth of opportunities available to all sole traders – provided they keep the relevant records. Claiming these expenses through your Self Assessment tax return helps to further reduce your tax liability and maximise your take-home pay.

What accounting records should I keep?

In order to qualify for tax relief, you need to be able to present receipts when asked by HMRC. But to be wholly compliant, expenses aren't the only figures you'll need to report. In fact, if you're self-employed, you're legally required to keep records of the following:

• all sales and income
• all business expenses
• VAT records (if you're registered for VAT)
• records about your personal income
• your COVID-19 support grant

You won't need to submit all of the above as part of your Self Assessment tax return. However, HMRC may ask you for them should they launch an investigation. Additionally, it helps you to work out your taxable income when you're filing your self assessment tax return.

If HMRC does launch an investigation, you'll need to provide evidence of your finances. This will need to come in the form of:

• receipts for goods and stock
• bank statements and chequebook stubs
• sales invoices, till rolls and bank slips

Only with all of the above will you be able to safely claim any relevant expenses and stay on the right side of the taxman.

How long should I keep my accounting records for?

Where businesses have to store receipts for six years, sole traders are only required to store theirs for five. That's at least five years after the 31st January submission deadline of the relevant tax year.

This allows HMRC to investigate your accounts over a long period of time should they believe it necessary. Obviously, if you have claimed relief but misplaced the evidence, you may be penalised by HMRC all the same. So, it's best to invest in suitable storage for your receipts.

How should I store my accounting records?

Ideally, electronically. Train tickets and similar paper receipts are near impossible to keep in good quality for that length of time – especially if you're lugging them around for up to five years in your coat pocket. You could have a physical filing system, but the amount of admin that would be required to keep it in order could quickly get exhausting.

Tax software, on the other hand, allows you to store certain documentation online. Some allow users to take photos of receipts from their phone, for instance. They can then upload the image to the app, keeping it secure in case you ever find yourself under investigation.

However, it's worth bearing in mind that there are documents that HMRC will expect you to hold on to in their original form. Such documents usually show that you've had tax deducted. For example, if you've been an employee in that tax year, your P60 will prove your exemption.

Written by Mike Parkes, technical director, GoSimpleTax.

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You don't need to be an expert to complete your self assessment tax return with GoSimpleTax. With hints and tips along the way highlighting expenses and savings you can reduce your tax bill too.   

• Reduce tax - get prompts on applicable allowances and expenses
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