Category: Tax Tip

HMRC have long held the power to seize money from your bank accounts to recover tax debts over £1,000. They paused this during covid but last month HMRC announced that they would be resuming collections. 

We therefore recommend that, if you have tax debts outstanding, you contact HMRC to organise a Time to Pay option. There are further details of how to contact HMRC here 

If you cannot pay your tax bill on time: Setting up a payment plan – GOV.UK 

This must be done by the tax payer and not their accountant. 

HMRC have a new voluntary repayments scheme for individuals and business to return any pandemic scheme money with no questions asked. The window is open until December 2025 so, if you think you may have claimed too much covid support, we encourage you to contact us or to repay it now. 

You can make a voluntary repayment here before HMRC start using less comfortable tactics in the new year.  

Make a Voluntary Repayment of COVID-19 Funding – GOV.UK 

Business entertaining is not allowed for VAT or Corporation/Income tax purposes. 

The only exception is staff entertaining. I’ve written on this separately if you want the detail but it must be below £150 per person per year. 

Customer and supplier entertaining are never allowable and this is one of the many adjustments that we make when we prepare your tax returns. 

The rules are different for sole traders and for companies. 

Generally sole traders can NOT claim for eating out. Eating is not ‘wholly, exclusively and necessarily for the purposes of business’ because it fulfils the dual purpose of keeping you alive! 

Employees of limited companies can claim if the meal is wholly and exclusively for business purposes. If business reasons require them to be away from home/office around mealtimes (so that they are unable to make their usual arrangements) then it is a reasonable business expense.  

The amount they can claim for a meal will be agreed with their employer but should not be overly lavish and I would suggest limiting alcohol to one drink with the meal. 

Entertaining is generally not allowed (see other Tax Tips on staff entertaining) for tax or VAT purposes 

If you work from home because you have no other premises, then you can claim £6pw tax free use of home allowance as a contribution to your bills.  

If you use a substantial part of your home for business, then it may be beneficial for the director to rent part of their home to the business. (As this is a commercial letting it is not applicable for the rent a room allowance) 

You should have a rental licence between the director and the company showing the agreed rent and the hours available. The rent may be set at the level of the costs. This rent will reduce corporation tax for the business. The director will then show the rental income and costs on their income tax return. If the rent = costs, there will be no tax to pay. If income exceeds costs, then the director will pay income tax on the profit but there is no national insurance. 

Costs that can be included are: 

• Rent 

• Ground rent 

• Council tax 

• Service charges 

• Maintenance 

• Utilities 

• Security 

• Cleaning 

There may also be some relief for mortgage interest (but not repayments so do ensure that you split the monthly charge) 

The costs should be apportioned across the available space by floor area or number of rooms (excluding kitchens and bathrooms). You can choose the most beneficial method, but you cannot keep changing it. In practice it is often simplest to allocate the household costs by the number of rooms. 

If the room is used full time for business, then when you come to sell your home, you may have to pay capital gains tax on this portion of the property. In practice you will probably only use the room part time. If your spare room doubles as your office 5 days per week then 5/7 of the costs can be claimed to offset the rent from the business. 

Reply to this email if you’d like a spreadsheet to calculate how much you can claim 

If you are a sole trader or landlord with (combined) income over £20,000 per year you need to take action now. 

You need to be keeping digital records (eg Xero or Zoho Books), up to date bookkeeping, and making quarterly submissions from April 2026* onwards. This means that you will be trying to figure out the new regime at the same time as completing your 2025/26 tax return so we recommend getting your bookkeeping onto software and up to date NOW so that you can complete your 2025/26 tax return asap.  

*For those over £50kpa. There is a staggered start for those earning less than this. 

Should sole traders take advantage of the £1k trading allowance or utilise losses instead?

£1,000 trading allowance is available for use across your sole trader businesses (one allowance per person, not per business!)

If you have a small side hustle or startup with income (not profit) of less than £1,000pa then you don’t need to report this to HMRC

BUT

you might choose to do so.

If the business is making a loss then you can either offset this ‘sideways’ against your other personal income in the same year to reduce the overall tax paid OR carry it forward to set against future profits from the same business and therefore minimise future tax.

This sideways loss relief is particularly useful if you are starting your business as a side hustle to your main employment.