The Complete UK Guide for Limited Companies, Sole Traders and Partnerships

Last updated: July 2026

Wondering whether something is a legitimate business expense? This guide explains what you can and can’t claim, how HMRC’s rules work, and the most common mistakes businesses make.

Contents

• The golden rule
• Quick reference table
• Office equipment
• Software and subscriptions
• Phones and broadband
• Home office expenses
• Travel and subsistence
• Vehicles and mileage
• Staff costs
• Clothing
• Marketing and advertising
• Professional fees
• Gifts and entertaining
• Frequently asked questions

The Golden Rule

Most business expenses are tax deductible if they are incurred wholly and exclusively for the purposes of your business.

In simple terms, ask yourself:

• Was the expense incurred because of the business?
• Would I have bought it if I wasn’t running the business?
• Can I prove the purchase if HMRC ask?

If the answer to all three questions is yes, there’s a good chance the expense is allowable.

Some expenses have additional rules, which we’ll explain throughout this guide.

Remember: Just because something is paid from your business bank account doesn’t automatically make it tax deductible.

Quick Reference Guide

Office Equipment

One of the most common questions we receive is:

“Can I buy equipment through my business?”

In many cases, the answer is yes.

Computers and Laptops

Usually allowable.

Examples include:

• Desktop computers
• Laptops
• Tablets used for work
• Monitors
• Docking stations
• Keyboards
• Mouse
• Webcams
• Printers
• Scanners

These purchases are normally treated as capital assets, but most businesses can obtain full tax relief through capital allowances.

Example

Sarah runs a graphic design company.

She buys:

• Laptop – £1,300
• Monitor – £250
• Docking station – £180

All are purchased solely for business use.

Result: These would normally qualify for tax relief.

Office Furniture

Usually allowable.

Examples:

• Office desks
• Ergonomic chairs
• Filing cabinets
• Bookshelves
• Office lighting
• Whiteboards

Furniture purchased for genuine business use is generally deductible.

Standing Desks

Yes.

Standing desks have become increasingly popular and are generally allowable where purchased for business use.

The same applies to:

• Monitor arms
• Laptop risers
• Footrests
• Ergonomic keyboards
• Wrist supports

Cameras

Often allowable if required for your business.

Examples include:

• Photographers
• Estate agents
• Marketing agencies
• Surveyors
• Construction businesses
• Online retailers

Buying an expensive camera purely for personal photography would not qualify.

Drones

Sometimes.

A drone used for:

• surveying
• photography
• videography
• inspections
• agriculture

may qualify.

A drone bought mainly for personal enjoyment would not.

Coffee Machines

This is one of the questions accountants hear surprisingly often.

If the coffee machine is provided for employees in the workplace, it’s generally allowable.

If it’s mainly for your personal enjoyment at home, HMRC could challenge the claim.

TVs

Sometimes.

Examples where a TV could be allowable include:

• waiting rooms
• conference rooms
• presentations
• digital signage
• video production

Buying a television for your living room and calling it a business expense would almost certainly fail the HMRC test.

Books

Professional books are generally allowable.

Examples include:

• tax manuals
• engineering manuals
• legal reference books
• industry publications

Novels and general-interest books would not normally qualify.

Tools and Equipment

Tradespeople can usually claim equipment such as:

• drills
• saws
• ladders
• toolboxes
• testing equipment
• measuring devices
• safety equipment

Provided they’re purchased for business purposes.

Software and Online Services

Software is usually straightforward.

Most subscriptions used to run your business are allowable.

Examples include:

• Accounting software
• Payroll software
• Microsoft 365
• Google Workspace
• Adobe Creative Cloud
• Canva Pro
• Zoom
• Dropbox
• OneDrive
• Antivirus software
• Password managers
• Cloud storage

AI Subscriptions

Artificial intelligence tools are becoming common business expenses.

Examples include:

• ChatGPT
• Microsoft Copilot
• Claude
• Gemini
• Perplexity

Where they’re used for business activities, subscriptions are generally allowable.

Website Costs

Most website costs are deductible.

Examples include:

• Domain registration
• Website hosting
• Website maintenance
• SSL certificates
• Email hosting

Building an entirely new website may have different tax treatment depending on the circumstances, but in practice most small businesses receive tax relief.

Mobile Apps

Business apps are normally allowable.

Examples:

• Mileage trackers
• Receipt scanning apps
• CRM software
• Calendar apps
• Time recording software
• Project management software

Online Memberships

Business memberships are generally allowable where they relate to your trade.

Examples:

• Professional bodies
• Industry associations
• Business networking groups
• Technical resources

Purely personal memberships are not deductible.

Before Buying Anything

Before making a purchase, ask yourself these three questions:

✅ Is it wholly and exclusively for the business?

✅ Can I explain to HMRC why the business needed it?

✅ Do I have evidence of the purchase?

If the answer is yes to all three, it’s often a good indication that the expense will qualify.

Next: In Part 2 we’ll cover phones, broadband, home office costs, travel, hotels, meals, mileage, company cars and electric vehicles.

Phones, Broadband, Home Working and Travel Expenses

These are some of the most misunderstood business expenses. The rules depend on who owns the asset, how it’s used, and whether there is any personal benefit.

Mobile Phones

Can I claim my mobile phone?

Usually, yes.

The tax treatment depends on who owns the phone contract.

Company-owned contract

This is generally the simplest option.

If your limited company takes out the contract and pays the bill:

• ✅ Monthly line rental is usually allowable.
• ✅ Calls, texts and data are usually allowable.
• ✅ The handset is usually allowable.
• ✅ Private use is generally ignored for one phone per employee or director.

For most company directors, this is the most tax-efficient arrangement.

Personal contract

If the contract is in your personal name, the rules are different.

Business calls can usually be reimbursed by the company, but the monthly line rental cannot normally be claimed, because you would be paying it anyway for personal use.

Example

John pays £45 per month for his personal mobile phone.

He uses it for business and personal calls.

The company can usually reimburse the identifiable business calls, but not the entire £45 monthly contract.

Additional Phones

A second business phone may also be allowable where there is a genuine business need.

Examples include:

• Separate work number
• International business
• Testing mobile apps
• Different operating systems

Broadband

Can I claim my home broadband?

It depends.

Company broadband

If your company arranges and pays for the broadband contract primarily for business purposes, the cost is generally allowable.

Personal broadband

If you already had broadband before starting your business, you generally cannot simply claim the whole bill.

You may be able to claim the additional business costs, but not the personal element.

Business Premises

Broadband installed at business premises is generally fully deductible.

Home Office Expenses

Many businesses operate partly or entirely from home.

HMRC allows tax relief, but there are different methods depending on your circumstances.

Sole Traders

You can usually choose between:

• simplified expenses
• claiming a proportion of actual household costs

Examples include:

• electricity
• gas
• internet
• insurance
• council tax
• rent
• mortgage interest (where applicable)

The business proportion should be reasonable.

Limited Companies

The rules differ.

You may:

• claim certain costs directly
• reimburse allowable expenses
• have a formal licence agreement in some situations

Professional advice is worthwhile if you work from home permanently.

Office Equipment at Home

Equipment used for your business is normally allowable even if you work from home.

Examples include:

• desk
• chair
• monitor
• printer
• filing cabinet
• lighting

Internet and Streaming Services

Can I claim Netflix?

Usually no.

Although there are exceptions for certain creative businesses, Netflix is normally regarded as personal expenditure.

Spotify

Generally no, unless there is a genuine business purpose.

A shop playing background music should instead ensure it has the appropriate commercial music licences.

Business Streaming

Subscriptions used directly within your business activities may qualify.

Examples include:

• educational platforms
• industry training
• technical libraries
• stock photography
• stock video

Travel Expenses

Business travel is usually allowable.

Ordinary commuting is not.

Understanding the difference is extremely important.

Business Journeys

Examples include:

• Visiting clients
• Visiting suppliers
• Travelling between workplaces
• Business meetings
• Conferences
• Training courses
• Temporary workplaces

These journeys are usually allowable.

Ordinary Commuting

Travel between:

Home ↔ Permanent Workplace

is normally not tax deductible.

This applies even if you own the business.

Temporary Workplaces

Travel to a temporary workplace is often allowable.

There are detailed rules, including the well-known 24-month rule, so seek advice if you’re working at another location for an extended period.

Hotels

Hotel accommodation during business travel is generally allowable.

Examples:

• Overnight client meetings
• Conferences
• Trade exhibitions
• Multi-day training
• Working away from your normal area

Luxury upgrades for personal reasons may not qualify.

Parking

Business parking charges are generally allowable.

Examples include:

• Client visits
• Meetings
• Temporary workplaces

Congestion Charges and Toll Roads

Usually allowable where incurred during business journeys.

Examples:

• Congestion Charge
• Dart Charge
• Toll bridges
• Toll roads

Speeding Fines

These are never tax deductible.

The same generally applies to:

• parking fines
• fixed penalty notices
• penalties
• court fines

Even if the offence occurred during business travel.

Trains, Flights and Taxis

These are usually allowable where incurred for business purposes.

Examples include:

• Rail tickets
• Underground travel
• Flights
• Ferries
• Taxi fares
• Airport parking

Keep receipts wherever possible.

Food and Drink

One of the biggest areas of confusion.

Meals During Business Travel

Food purchased while travelling on business is often allowable.

Examples include:

• Breakfast during an overnight stay
• Lunch while attending a conference
• Evening meal when working away

The travel itself must qualify as business travel.

Everyday Lunches

Buying yourself lunch while working in your normal office is not normally allowable.

Everyone needs to eat, so HMRC generally regards this as personal expenditure.

Coffee

A coffee bought during a qualifying business journey will usually be treated the same as other subsistence costs.

Buying coffee every morning on your way to your normal workplace is generally a personal expense.

Mileage

If you use your own vehicle for business journeys, you can usually claim mileage.

The approved mileage rates cover costs such as:

• fuel
• servicing
• insurance
• depreciation

This means you cannot normally claim those costs separately when using the approved mileage method.

Electric Vehicles

Electric vehicles have become increasingly tax-efficient.

Depending on your circumstances, you may be able to claim relief for:

• charging costs
• business mileage
• capital allowances
• home charging equipment

If you’re considering buying an electric company car, it’s worth obtaining advice before making the purchase, as the tax savings can be significant.

Quick Checklist Before Claiming Travel

Before claiming travel costs, ask yourself:

• Was the journey necessary for my business?
• Was I travelling to a temporary workplace or client?
• Was this ordinary commuting?
• Have I kept receipts or mileage records?

If you can answer those questions confidently, claiming your travel expenses should be much easier.

Next: Part 3 covers company cars, business entertaining, staff costs, clothing, training, professional fees, insurance and marketing expenses.

Company Cars, Staff Costs, Marketing and Professional Expenses

Some business expenses are straightforward. Others depend on who benefits, whether there’s any personal use, or specific HMRC rules. This section covers the expenses that often generate the most questions.

Company Cars

Can my company buy a car?

Yes.

A limited company can purchase a car for business use, but the tax consequences depend on the type of vehicle and whether there is any private use.

If a director or employee uses a company car privately (including commuting), a Benefit in Kind (BIK) usually arises and tax may be payable.

Electric Company Cars

Electric cars are currently one of the most tax-efficient company vehicles.

Potential advantages include:

• Low Benefit in Kind rates
• Corporation Tax relief
• Possible VAT recovery in some situations
• Lower running costs

If you’re considering buying an electric vehicle through your company, it’s worth obtaining advice first, as the tax savings can be substantial.

Fuel

The rules depend on whether you’re using:

• your own vehicle
• a company vehicle
• approved mileage rates
• actual running costs

Fuel for business journeys is usually allowable.

Fuel for private journeys generally isn’t.

Charging an Electric Vehicle

Business charging costs are generally allowable.

Examples include:

• charging at work
• charging at public charging stations
• reimbursing business charging costs

Different rules apply depending on vehicle ownership.

Bicycles

A bicycle purchased for genuine business use may qualify for tax relief.

Many employers also use the Cycle to Work Scheme, which has separate rules.

Insurance

Most business insurance is tax deductible.

Examples include:

• Public liability insurance
• Professional indemnity insurance
• Employers’ liability insurance
• Cyber insurance
• Office insurance
• Contents insurance
• Business interruption insurance

Personal insurance policies are generally not deductible.

Professional Fees

Professional services used by your business are normally allowable.

Examples include:

• Accountant’s fees
• Bookkeeping
• Payroll
• Tax advice
• Solicitor’s fees
• Business consultants

Legal Fees

Some legal costs are deductible.

Examples include:

• Debt recovery
• Employment advice
• Commercial contracts
• Business disputes

However, legal costs relating to buying assets or acquiring businesses may be treated differently.

Bank Charges

Business banking costs are usually allowable.

Examples include:

• Monthly bank fees
• Merchant charges
• Card processing fees
• Foreign currency charges
• Payment platform fees

Interest

Business loan interest is often allowable.

Examples include:

• Business loans
• Overdraft interest
• Asset finance

Personal borrowing normally isn’t deductible unless it has been used for qualifying business purposes.

Marketing and Advertising

Marketing expenses are usually straightforward.

Examples include:

• Google Ads
• Facebook advertising
• LinkedIn advertising
• Printed leaflets
• Flyers
• Business cards
• Brochures
• Website design
• Logo design
• Photography
• Videography
• Search Engine Optimisation (SEO)

These costs are generally allowable.

Social Media

Costs associated with promoting your business online are normally deductible.

Examples include:

• Facebook
• Instagram
• LinkedIn
• TikTok
• YouTube
• X (formerly Twitter)

Advertising and content creation costs are usually allowable where incurred for business purposes.

Sponsorship

Business sponsorship is often allowable where it genuinely promotes your business.

Examples include:

• Local sports teams
• Charity events
• Community events

There should be a commercial benefit to the business.

Training

Training costs are usually allowable where they help you maintain or improve existing business skills.

Examples include:

• CPD courses
• Industry seminars
• Software training
• Compliance courses

Training that equips you for an entirely new trade or profession may not qualify.

Trade Subscriptions

Professional subscriptions are often allowable where they relate to your business.

Examples include:

• Professional bodies
• Industry associations
• Technical journals
• Business memberships

Staff Costs

Most genuine employee costs are deductible.

Examples include:

• Salaries
• Wages
• Bonuses
• Employer’s National Insurance
• Pension contributions
• Payroll costs

Staff Training

Training provided to employees is generally allowable.

Examples include:

• Technical training
• Health and safety
• First aid
• Professional qualifications
• Software training

Staff Uniforms

Uniforms are generally allowable.

Examples include:

• Branded polo shirts
• High-visibility clothing
• Safety boots
• PPE
• Protective clothing

Everyday Clothing

This surprises many people.

Normal clothing is not tax deductible.

Examples include:

• Business suits
• Shirts
• Dresses
• Shoes
• Coats

This applies even if you only wear them for work.

Safety Clothing

Protective clothing is usually allowable.

Examples include:

• Hard hats
• Gloves
• Steel toe boots
• Eye protection
• Hearing protection
• Respirators

Gifts to Employees

Employers can often provide gifts to staff.

Different tax rules apply depending on:

• value
• type of gift
• reason
• whether it’s available to everyone

Small gifts may qualify as trivial benefits, provided the relevant conditions are met.

Staff Parties

Many businesses can provide annual staff events without creating a tax charge.

Typical examples include:

• Christmas parties
• Summer BBQs
• Annual dinners

Conditions apply, including an annual cost limit per attendee.

Gifts to Customers

Customer gifts are a common area of confusion.

Some gifts are allowable.

Others aren’t.

The VAT and Corporation Tax rules are different, so it’s worth checking before making large purchases.

Business Entertaining

Can I claim meals with clients?

Usually no.

Business entertaining of customers and potential customers is generally not tax deductible for Corporation Tax purposes.

Examples include:

• Taking clients to lunch
• Restaurant meals
• Sporting events
• Theatre tickets
• Hospitality

Many business owners are surprised by this rule.

Staff Entertaining

Staff entertaining is different.

Events primarily for employees are generally allowable.

Examples include:

• Christmas parties
• Team lunches
• Staff events

Separate tax rules apply if directors attend with employees.

Charity Donations

Companies can often obtain tax relief on qualifying charitable donations.

Different rules apply depending on how the donation is made.

Professional Books

Reference books used within your profession are generally allowable.

Examples include:

• Tax manuals
• Engineering standards
• Legal texts
• Industry reference books

Novels and leisure reading are not.

Newspapers

Daily newspapers are generally regarded as personal expenditure.

However, specialist trade publications used within your business may qualify.

Magazines

Industry-specific magazines are often allowable.

Examples include:

• Construction journals
• Medical publications
• Engineering magazines
• Accounting updates

Before Claiming…

Ask yourself:

• Does this help my business earn income?
• Would I still buy it if I didn’t run the business?
• Is there any personal benefit?
• Can I explain it to HMRC?

If you’re unsure, it’s always safer to ask before submitting your accounts.

Next: Part 4 includes the most frequently asked questions, common mistakes, VAT considerations, record keeping tips and a final checklist.

Frequently Asked Questions About Business Expenses

Below are answers to some of the questions we’re asked most often.

Can I Claim Business Expenses Without a Receipt?

Sometimes.

HMRC doesn’t specifically require a receipt for every expense, but you must be able to prove the expense was genuine.

Alternative evidence might include:

• Bank statements
• Credit card statements
• Online order confirmations
• Invoices
• Booking confirmations

Where possible, always keep receipts.

If you’d like to know more, read our guide on claiming business expenses without a receipt.

Can I Claim Cash Purchases?

Yes, provided you have suitable evidence and the purchase was wholly and exclusively for your business.

Can I Claim Coffee?

Usually only if it’s part of qualifying business travel.

Examples that are normally allowable:

• Coffee while travelling to a client
• Coffee during an overnight business trip
• Refreshments while attending a conference

Buying your usual morning coffee on the way to your normal workplace is normally a personal expense.

Can I Claim Lunch?

It depends.

Usually allowable

• Lunch while travelling on business
• Lunch during an overnight business trip
• Lunch while attending a qualifying training course away from your normal workplace

Usually not allowable

• Lunch at your normal workplace
• Your everyday meal while working

Can I Claim Alcohol?

Sometimes.

Examples include:

• Staff Christmas parties
• Staff social events

Buying alcohol for yourself is generally a personal expense.

Alcohol purchased while entertaining clients is generally not tax deductible.

Can I Claim a Watch?

Usually no.

Even if you wear it while working, a watch is generally regarded as a personal item.

The same usually applies to:

• luxury watches
• smart watches
• fitness watches

Can I Claim Glasses?

Normally no.

Prescription glasses are generally regarded as personal.

There are limited exceptions for specialist safety eyewear required for work.

Can I Claim a Gym Membership?

Usually no.

Even if improved fitness helps your work, gym membership is normally regarded as a personal expense.

Can I Claim a Bicycle?

Sometimes.

A bicycle used for business journeys may qualify.

If you’re an employer, the Cycle to Work Scheme may also be worth considering.

Can I Claim My Internet?

It depends.

If it’s a business contract, usually yes.

If it’s your personal home broadband, only certain business costs may be claimable.

Can I Claim My Electricity Bill?

If you work from home, you may be able to claim an appropriate proportion of household running costs.

The exact calculation depends on whether you’re a sole trader or operate through a limited company.

Can I Claim My Mortgage?

Mortgage capital repayments are not a business expense.

Some home-working arrangements may allow relief for certain household costs, but professional advice is worthwhile before making significant claims.

Can I Claim a Holiday?

No.

A family holiday isn’t transformed into a business expense simply because you answer a few emails while you’re away.

However, genuine business travel may qualify.

Can I Claim Childcare?

Normally no.

Childcare is generally regarded as a personal expense.

There may be other government schemes available, but it isn’t usually a deductible business expense.

Can I Claim a TV Licence?

Only where it’s genuinely required for business purposes.

For most businesses, the answer will be no.

Can I Claim Spotify or Netflix?

Usually no.

These are generally regarded as personal subscriptions.

Creative industries may occasionally have different circumstances.

Can I Claim My Dog?

Almost certainly no.

There are limited exceptions for genuine working animals, but family pets are not business expenses.

Common Mistakes

Here are some of the most common errors we see.

❌ Claiming ordinary commuting.

❌ Claiming everyday clothing.

❌ Claiming client entertaining.

❌ Claiming personal shopping.

❌ Forgetting to keep receipts.

❌ Paying personal expenses from the company bank account.

❌ Assuming everything paid by the business is tax deductible.

Avoiding these mistakes can save both tax and unnecessary discussions with HMRC.

VAT and Business Expenses

Remember that Corporation Tax and VAT don’t always follow the same rules.

For example:

• An expense may be deductible for Corporation Tax but not qualify for VAT recovery.
• Some expenses qualify for VAT recovery only in certain circumstances.
• Business entertaining has different VAT rules to Corporation Tax.

If your business is VAT registered, it’s worth checking both sets of rules.

Keeping Good Records

Good bookkeeping makes claiming expenses much easier.

We recommend keeping:

• Receipts
• Invoices
• Bank statements
• Mileage records
• Hotel confirmations
• Travel bookings

Digital copies are usually perfectly acceptable, provided they’re clear and complete.

What Happens If HMRC Ask Questions?

HMRC may ask you to explain:

• why you bought something
• how it relates to your business
• whether there was any personal use
• where the supporting evidence is

Keeping clear records makes these enquiries much easier to deal with.

Our Advice

If you’re unsure whether something is a business expense, don’t guess.

A quick conversation before making a purchase can often save:

• tax problems
• bookkeeping corrections
• HMRC enquiries
• unnecessary costs

Still Not Sure?

Every business is different.

The correct answer often depends on:

• your business structure
• whether you’re VAT registered
• who owns the asset
• how it’s used
• whether there’s any private benefit

That’s why it’s difficult to answer every question with a simple “yes” or “no”.

If you’re one of our clients, just get in touch before making the purchase and we’ll be happy to advise.

If you’re not yet a client and would like straightforward advice from qualified accountants, we’d love to help.

Contact CloudBook today to discuss your business and make sure you’re claiming everything you’re entitled to.

Quick Checklist

Before buying anything through your business, ask yourself these five questions:

✅ Is it wholly and exclusively for my business?

✅ Would I have bought it if I didn’t run the business?

✅ Can I prove the purchase if HMRC ask?

✅ Is there a specific HMRC rule that affects this expense?

✅ If I’m VAT registered, can I recover the VAT?

If you can answer yes to those questions, there’s a good chance the expense will qualify.

Disclaimer

This guide provides general information based on UK tax rules at the time of writing. Tax legislation changes regularly, and the correct treatment depends on your individual circumstances. Please contact us before relying on this guide for significant purchases or tax decisions.

Last reviewed: July 2026

Xero are increasing their prices again by up to 12.5%, effective from September 2026, however, it could be much more than that. Over the past 3 years prices have increased by up to 31%. If you’re looking for Xero’s pricing changes from the previous year, please visit our previous post on Xero’s Price Increase.

Multi-Organisation Discount Ending

In addition to the Xero price changes, the multi-organisation discount will end on 1st September 2026. So some subscribers could be paying an extra 15%-25% for Xero on top of the price increases above. Other discounts and promotional codes will continue until they expire.

Why are Xero’s Prices Increasing Again?

Xero say that they have continued to invest heavily, making the software faster, more insightful, and smarter. We’ve been impressed with the new automated bank reconciliation, which uses AI to add bank transactions automatically. It’s a real time saver. Xero have an interactive tool called The Long and the Short of it to show the changes it has made, so you can judge for yourself.

The Simple plan has just enough permissions for small sole traders and landlords to comply with Making Tax Digital for Income Tax when that started in April 2026. It’s competitively priced at £7pcm plus VAT. However, it can’t be used if you are VAT registered and quotes and invoices are limited to 10 per month.

In our opinion Xero remains the best online accounting software. It’s much easier to use than the others. So if you can afford to pay their prices, it’s usually worth it due to the time it will save you.

The Xero Price Increase

Xero’s prices will increase from 1 September 2026. Here are the Xero Price increases for 2026 and the past few years for their main plans.

The Xero Plans

Ledger: A very basic version of Xero without bank feeds. You can import or manually add bank transactions, then categorise them. That’s about it.

Simple: Sole traders and landlords only. Create quotes and 10 invoices per month. Payroll, Pay Bills, Multi-currency, Expenses, Projects and Analytics Plus not available.

Ignite (Starter): Create 20 quotes and invoices, and 10 bills per month. Payroll is £1.50pcm per person. Multi-currency, Expenses, Projects and Analytics Plus not available.

Grow (Standard): Unlimited quotes, invoices and bills. Expenses for 1 plus £2.50pcm per extra person. Payroll for 1 plus £1.50pcm per extra person. Pay directly from Xero for up to 5 bills per month plus £0.20 per additional bill payment. Multi-currency, Projects and Analytics Plus not available.

Comprehensive (Premium): Expenses for 5 plus £2.50pcm per extra person. Payroll for 5 plus £1.50pcm per extra person. Pay directly from Xero for up to 10 bills per month. Multi-currency and Analytics Plus included. Projects not available.

Ultimate: Expenses for 10 plus £2.50pcm per extra person. Payroll for 10 plus £1.50pcm per extra person. Projects for 10 plus £5.00pcm per extra person. Pay directly from Xero for up to 15 bills per month. Multi-currency and Analytics Plus included.

Alternatives to the Xero Price Increase

Use CloudBook Online Accountants

With CloudBook Online Accountants, unlike other accountants, you can use whichever software you prefer. We don’t make you use Xero’s accounting or payroll software, so you don’t have to pay their high prices. As well as that, you’ll probably save on accountancy fees too, with our low fixed monthly fees.

Downgrade Xero Plan

To avoid the price increase, could you downgrade your Xero plan? Simple could be all you need as a sole trader or landlord, or even a non-VAT registered company. The Ignite plan now has unlimited bank transactions and allows up to 20 sales invoices and 10 bills per month. Instead of using bills you could just attach them to the bank transaction. The Grow plan is mostly only missing multi-currency which is only essential if you have foreign bank accounts. If you have few foreign currency transactions you could convert them manually.

Use Move My Books

Move My Books is a free service that helps you move your accounting data to Xero, QuickBooks or Sage Accounting. This could be useful if you are thinking of moving from Xero to QuickBooks or Sage.

Pandle

Pandle is unlimited and comes with multi-currency and bank feeds for £5pcm. We can get it for £2.50pcm. It’s relatively new, sometimes slow, and takes a while to get used to. However, it should cope with most things you use Xero for.

QuickBooks

QuickBooks is our next most popular software after Xero. It does most things that Xero can do and is quite easy to use once you get used to it. Their Self-Employed package is £10pcm, Simple is £16pcm, Essentials is £38pcm, Plus is £56pcm. We may be able to arrange a discount if enough clients ask for it.

FreeAgent

FreeAgent is geared towards small business and freelancers. Natwest, RBS and Mettle bank customers can get it for free. We can get it for our clients for £23pcm. Or it costs £33pcm or less if you pay annually.

Kashflow

Kashflow is less popular than it used to be and we no longer have any clients using it. However, if you have straightforward accounting transactions, it can work well for you. Starter is £13.50pcm, Business is £27.50pcm excluding payroll.

QuickFile

Quickfile is used by a few of our clients. It’s less easy to use but it can be free if you have less than 1000 entries per year, otherwise it’s just £60pa pls VAT. If you want automated bank feeds, that’s an extra £15pa.

MyT

MyT accounting is a new software with a built-in receipt reader using AI to categorise your costs automatically. The Standard subscription is £10pcm, Plus is £20pcm and Pro is £30pcm.

Sage Accounting

From our experience Sage have struggled to keep up with their online competition. As such, we still don’t have any clients using Sage at the time of writing but we’d be happy to help you use it. However, it’s not much cheaper than Xero. The Start price is £18pcm. Standard is £39pcm and Plus is £59pcm.

Spreadsheets

If you’re not VAT registered, you could use a spreadsheet (e.g. Excel, Google Sheets, Numbers) to do your accounting. While we prefer online accounting software, if your accounting transactions are straightforward, a tidy spreadsheet would be ok. All transactions need to be categorised. Read more on our bookkeeping using a spreadsheet page.

Other Online Accounting Software

There are many other online accounting software platforms available. We’ll consider doing your accounts etc using any online accounting software. Look out for ones that can link to UK bank accounts and are MTD compliant.

A director’s salary is a good way to take money out of a company. But how much salary should a director receive? How do you give yourself a director’s salary? How do you account for director’s wages? Here we’ll explain everything you need to know about a director’s salary.

Why pay a director’s salary?

There are two main ways a small company can pay its owner managers. As directors they can receive a salary. As shareholders they can receive dividends if the company has made enough profit. Dividends are paid from taxed profits, so the company does not get tax relief on dividend payments. Whereas a director’s salary is an expense that reduces the company’s taxable profits. So the company does get tax relief on director’s salaries. So a director’s salary is a good way to take money out of a company. This is because it saves the company tax. However, there are other taxes to consider such as PAYE and NIC. So to save the most tax you need to consider how much to pay.

How much director’s salary?

The following are the amounts and rates applicable to the UK. Employer’s NIC is payable by the company at 15% of the salary exceeding £5,000pa. Employee’s NIC at 8% is deducted from the salary exceeding £12,570pa. PAYE at 20% is usually deducted on wages over £12,570pa. But this could vary depending on the director’s PAYE tax code.

So, directors’ salaries of £12,570 attract Employer’s NIC at 15% but save corporation tax at 19% or more. So it saves more tax overall. However, this is only if the company is profitable or is expecting to be soon. Otherwise, for loss making companies a salary of £5,000 would be best. This is because no tax is payable and it could potentially reduce corporation tax in the future. That’s because you can carry forward a company’s losses to get tax relief in the future.

The amount of salary exceeding £12,570 would attract PAYE at 20%, Employees NIC at 8% and Employers NIC at 15%. But it saves corporation tax at 19%-25%. That’s a net percentage cost of 18%-24% The alternative is to take dividends which are taxed at 8.75% or 10.75% from April 2026 (on total income below £50,270pa). Even if a company saves tax at 25%, dividends will cost the least amount of tax overall.

So the best salary to pay a director from a profitable company is £12,570pa. Then they should receive dividends on top of this. See How Dividends Work for more on this.

Example comparison of salary v dividend

If a company has £50,000 to pay out as either salary or a salary plus a dividend here is a comparison of the two methods.

Salary

The salary would have to be £44,130 to allow for the extra cost of employers NIC at 15% (above £5,000) which is £5,870, and they both total £50,000. On the salary exceeding £12,570 there’s 20% tax of £6,312 and 8% employees NIC of £2,525. That leaves a net salary of £35,294.

Salary + Dividends

The salary would be restricted to £12,570. Employers NIC on that salary at 15% (above £5,000) is £1,136. That leaves a taxable profit in the company of £36,295 which after deducting 19% corporation tax of £6,896, leaves a net profit of £29,399. This would be taken as dividends which will be taxed at 10.75% from April 2026 (was 8.75%), resulting in tax of £3,107 and a net dividend income of £26,272. After adding the salary of £12,570, this gives a total net income of £38,862. A saving of £3,568 compared to taking all salary.

Even if the corporation tax rate was 25%, the saving would be £1,625 compared to taking all salary.

What if the company can’t pay that much salary?

The minimum director’s salary should be £6,500pa if the director needs qualifying years towards a state pension. This exceeds the Lower Earnings Limit for NIC which is the minimum required to include it on your NIC records. For a full state pension you need 35 qualifying years.

If the company doesn’t have enough profit to pay a salary, it can still go ahead with the salary to reduce the profit or make a bigger loss. You can use the loss to get tax relief either in the previous 12 months, or in the future.

If the company does not have enough cash to pay a director’s salary, the company can owe it to the director. There is no limit on how much the company can owe to a director, or for how long. So you can process a salary and just add it to a director’s loan instead of paying it.

How do you give yourself a director’s salary?

Unless director’s wages are less than £6,500pa, you need to process the wages through a registered PAYE scheme. The director’s company must register as an employer so that it has the two PAYE reference numbers. The company will then need to submit payroll reports to HMRC every month and every year. It must submit a payroll every time it pays employees if it pays employees more frequently than monthly.

The company will also need to provide payslips, P60 forms, and P45 forms to its employees. It also must pay HMRC every month or quarter, any deductions from wages (e.g. PAYE, NIC, Student Loans). Free or paid software is available to help companies manage their payroll. Some online accounting software comes with payroll or charge extra for it. The benefit of this is it automatically enters the payroll amounts into the accounts. We can do your payroll for you for £12pcm plus VAT per 4 payslips per month.

How to account for directors’ salaries

Your accounts need to reflect the wages processed through a payroll. This is to show an accurate profit/loss and balance sheet. If your payroll software is part of your accounting software it should be easy to update your accounts. The combined software should put all of the payroll amounts in the correct place automatically. So all you need to do is categorise the payments to wages payable and PAYE payable. Otherwise, you will need to adjust your accounts to reflect the wages.

If a company physically pays all wages there is a quick and easy way to account for the wages. However, it’s often not the most accurate. The cash method is to just categorise all of the payments to the wages or salaries expense account. If PAYE/NIC is payable you could also categorise those to the same expense account or to its own expense account. Your accountant will make any necessary adjustments when doing the quarterly or annual accounts.

A more accurate method, or when wages aren’t physically paid, is to add a journal adjustment to your accounts. You can use a journal adjustment to debit the cost of the salaries to expense accounts. A journal must balance so it also credits the amounts payable to liability accounts. Then you need to categorise the payments to the wages payable and the PAYE payable accounts. Credit unpaid director’s salaries to the directors loan account instead of wages payable.

Summary

A small director’s salary of £12,570pa is the best way to minimise the overall tax paid by small business owners. If the company has sufficient profit, it can pay dividends on top of that salary. A company will need to register as an employer. It will also need to use software to process the payroll and submit forms to HMRC. Accounts should be up to date with the salaries.

Our clients can receive personalised advice on any of this, all included in our accounts packages from £24pcm plus VAT. We can also do payroll for £12pcm plus VAT per 4 payslips per month.

We are often asked by start ups, sole traders and partnerships: will I pay less tax as a limited company? Yes, you can, but not in all circumstances. Here we’ll explain how to save tax as a limited company. We’ll look at how tax is calculated, compare sole trader v limited company tax, and explain other ways why it is more tax efficient to be a limited company. This has been updated following the 2025 Budget announcement which is subject to change.

How much tax does a limited company pay?

Before working out how to pay less tax as a limited company, we should explain: how much tax does a limited company pay. A company pays tax at between 19% for the smallest companies and up to 25% for the largest companies. The percentage applied to the company’s taxable profit to calculate the corporation tax due. To work out the taxable profit, you start with the profit before tax in the accounts. This is its sales minus costs including salaries but before tax and dividends. This profit is then increased for non-taxable costs like depreciation of equipment. Then decreased for non-taxable income and allowances such as the 100% allowance for buying equipment used by the company. The result is the company’s taxable profit.

The rate of tax is determined by the size of the profits. Effectively the first £50,000 of profits are taxed at 19%. The next £200,000 of profits are taxed at 26.5%. It’s more than 25% so that the total tax paid gradually increases from 19% to 25%. Then anything above £250,000 is taxed at 25%. However, these thresholds are divided by the number of associated companies. So if two companies are owned by the same people, there are 2 associated companies, so the thresholds reduce to £25,000 and £125,000.

How much tax does a sole trader pay?

A sole trader pays tax on his/her profits at the income tax rates, which are 20%, 40% and 45%. Like everyone else a sole trader doesn’t pay tax on the first £12,570 of income. The next £37,700 is taxed at 20%. Then 40% is applied to income between £50,270 and £100,000. The effective tax rate then increases to 60% because the personal allowance is gradually withdrawn between £100,000 and £125,140. Above that income is taxed at 45%.

He/She also pays class 4 NIC which is 6% on profits between £12,570 and £50,270 then 2%. The taxable profits are worked out almost the same way as company (see above). A partnership does not pay tax – it’s profits are shared between the partners and that profit is taxed on the partner the same way a sole trader pays tax.

Do you pay less tax as a limited company?

Yes. Simply comparing the rates above, you do pay less as a limited company compared to a sole trader or partnership. A company pays tax at between 19% and 25% which is less than a sole trader at between 20% plus NIC of 6%, and 45% plus NIC of 2%. However, that’s not the full picture unless you intend to leave all of the money in the company. Which of course is one way how to save tax as a limited company. However, most director/shareholders need something to live off!

Extracting funds from a company

It is more tax efficient to be a limited company if directors/shareholders take a small salary of £12,570 plus dividends. The salary is tax-free for the employee but the employer will pay 15% NIC on the amount exceeding £5,000. Dividends are the company’s profits paid out to shareholders. The first £500 of dividends are tax-free. Then they are taxed at 10.75% (8.75% until 2025/26) up to the higher rate threshold of £50,270. Then 35.75% (33.75% until 2025/26) up to £100,000. After that, there’s an effective 55.75% up to £125,140. Then 39.35% above that. So, adding together the corporation tax rates and the dividend rates, brings us close to the sole trader tax and NIC rates.

Will I pay less tax as a limited company or sole trader?

All of that is quite confusing and difficult to compare if you’re trying to work out is it more tax efficient to be a limited company or sole trader. So we’ve crunched the numbers at different profit levels (at the bottom of this post) to show how much tax do you save as a limited company. The maximum saving is where dividends are limited to the tax-free allowance and you share the business with family.

£10,000 Profit

£20,000 Profit

£30,000 Profit

£40,000 Profit

£50,000 Profit

£60,000 Profit

£70,000 Profit

This is where the big savings from sharing the company with family members kick in, assuming they have no other income, and do actual work for the company to earn £12,570pa in wages. The biggest saving is here because the higher tax rates are avoided because the total income is split between more than one person.

£80,000 Profit

As above, the rates are now higher as company. However, the maximum savings continue to grow. And with more profit there’s more scope to leave money in the company to reduce your dividend tax and pay less tax as a company.

£90,000 Profit

Finally, if you are going to take all of the money out of the business, you now pay less tax as a sole trader. However, with this much profit, paying a little more tax to have all the benefits of trading as company must be worth it.

£100,000 Profit

Again the maximum savings continue to grow but the sole trader pays less tax if all the profits are taken out of the company.

Conclusion: Do I pay less tax as a limited company?

You pay less tax as a limited company v sole trader at all profit levels if you restrict dividends and keep profit in the company (e.g. over £12,000 at £100k), or if you share the business with a partner. Otherwise, you will pay less tax as a sole trader.

Other ways to save tax as a limited company

Company owners have been hit with increases to dividend tax over the past few years. Now they have a potential corporation tax increase of up to 6%. Company owners with large profits may soon be paying more tax as a limited company compared to a sole trader or partnership. However, there are other ways to save tax by using a company. Also, there are benefits to trading through a company such as protection of your personal assets (home etc), and prestige. Read more about the non-tax benefits of trading as a company here.

Companies save you tax by not taking dividends

Company owners can choose whether or not to take dividends from their company’s profits. They only pay tax on the dividends taken, so by leaving profits in the company, owners will save tax. Whereas sole traders and partnerships pay tax on the profits made, regardless of how much money they take out of the business.

Companies save you tax when your family owns it

If a company has one owner, only that owner can take dividends from the company. So all of the profits taken out of the company (as a dividend) are taxed on that one owner. Which could mean they pay higher rates of tax if their total income for the tax year exceeds about £50k. However, say a husband and wife own the company 50% each. Both the husband and wife will be able to receive dividends from the company. The total dividend is split into two – 50% each. So the dividends received per owner is halved. If that means both owners pay lower rates of tax on the dividends, rather than the one owner paying a higher rate of tax, the family saves tax overall.

Family ownership example

For example, a company has retained profits of over £100k and the directors decide to pay a dividend of £100k. So, if there’s only one shareholder (owner), and they have no other income in the tax year, they will pay no tax on £13k, lower rates of tax on £37k and higher rates of tax on the other £50k. This is a total tax of about £20k.  However, if there are two 50% owners, they will each receive £50k. Then if they have no other income, they will each pay no tax on £13k, and lower rates of tax on £36k. A total tax of about £6k. That’s a total saving of about £14k! You could take this further by making adult children shareholders too. You can also own the company in different proportions e.g. 75%/25%, so that the total dividend is split 75%/25%.

ABC Shares

If each owner’s other income is different and varies from year to year, the company could create different types of owners, so that it can pay different dividends to each owner. A company does this by having different types of shares. For example, instead of having 100 ordinary shares, a company could have 50 A shares and 50 B shares. If one owner owns all the A shares and the other owner owns all the B shares, they both still own the company 50% each. However, they can each receive totally different dividends.

So let’s say the company wants to pay a total dividend of £80k, and the B shareholder has other income of £20k. If the B shareholder was to receive a 50% dividend of £40k, their total income would be £60k. So they would be paying higher rates of tax on £10k of that dividend. However, the company can pay £50k to the A shareholder and £30k to the B shareholder. That way they both stay under the £50k higher rate threshold, so they both pay lower rates of tax.

Other ways of extracting profits

As a company is a separate legal entity to you, the director/shareholder, you can take profits out in other ways.

You could charge the company rent for using part of your home using what’s called a licence agreement. The rent received is taxable income, however, you can deduct proportion of your home costs from the rent. So there is no/little tax payable. This is the only way of claiming rent or mortgage interest as an expense.

If you loan money to the company you could also charge it interest on that loan. The interest is taxable but only if your interest is more than the tax-free savings allowances. The company also has to deduct income tax from the interest but that’s taken into account on your tax return.

How to save tax as a limited company

So hopefully you now know how to pay less tax as a limited company compared to a sole trader. To summarise you can either 1) keep enough profit in the company, or 2) share the company with your family, or 3) take funds out in other ways. We don’t charge any fees for registering a new company for new or existing clients. New clients are asked to pay the first month of their accounts fee. Companies House charge a fee of £50 for a new company and then £34 per year.

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Here we explain the new Companies House identity verification and personal code requirements for directors and Persons with Significant Control (PSC). We set out, who needs to be verified, what you need to do, and when. There are different scenarios for when a director is also a PSC, and when a PSC is not a director.

What is Changing / Why

• Under the Economic Crime and Corporate Transparency Act 2023 (ECCTA), Companies House is introducing mandatory identity verification (IDV) for all individual directors and persons with significant control (PSCs), and for individual members of limited liability partnerships (LLPs).
• From 18 November 2025 this requirement starts to be enforced.
• Those who are already directors or already PSCs will have transitional deadlines, depending on their role.

What is a “Personal Code”

• After a person verifies their identity (either directly with Companies House via GOV.UK One Login, or via an Authorised Corporate Service Provider (“ACSP”)), Companies House will issue a personal code to that person. (GOV.UK)
• That code is unique to the individual, and once obtained it can (and must) be reused across different filings / roles (director, PSC, etc.) rather than verifying each time. (GOV.UK)

Who is Affected

• All individual directors of UK companies.
• All individual PSCs (Persons with Significant Control) of UK companies. That includes those PSCs who are also directors, and those who are not. A person who owns 25% or more of a company is a PSC, but there may be other reasons why a person is a PSC. (GOV.UK)
• Individuals appointed after 18 November 2025 fall under the new requirements immediately.

When Each Role Needs to Provide Their Personal Code (“Deadlines”)

Below are the key deadlines or “trigger points” for when each director or PSC needs to verify identity and provide their personal code. Because there are different cases (existing vs new, PSC also director vs PSC not director), you need to know which applies to you.

What the Process Looks Like — What You Need to Do

To protect our authority to submit accounts etc, our firm is not going to be offering identity verification as a service. So you (directors and PSCs) will need to do certain things yourselves. Below is a step-by-step guide, plus what we will need from you, and what we will do as part of confirmation statement filings.

Steps for Individuals (Directors / PSCs) to Get their Personal Code

1. Check whether you have already verified Your Identity
   • It may have been done voluntarily if you acted early. If so, you may already have a personal code.
   • You can check via your Companies House / GOV.UK account whether your identity is verified and whether you have the code. (GOV.UK)
2. If not yet verified, verify identity
   • Use the GOV.UK One Login service (“Verify your identity for Companies House”). This involves uploading / showing acceptable photo ID (passport, UK driver’s licence, or certain biometric residence permits or cards), possibly taking a selfie, etc.
   • Alternatively, if you wish you can go through an Authorised Corporate Service Provider (ACSP) who will do the verification on their behalf. We will not be registering as an ACSP because it puts at risk our ability to submit accounts etc.
3. Obtain and Safely Keep the Personal Code
   • After successful verification, Companies House will issue the personal code.
   • Keep that code safe; you will need to share it with us so that we can include it in filings. (GOV.UK)
4. Use the Personal Code where required
   • For directors: when filing the Confirmation Statement (if existing director) or when appointed (if new director).
   • For PSCs: depending on case, either within 14 days of being registered as PSC (for new PSCs), or in the first 14 days of birth month (if existing PSC not director), or via service after confirmation statement (if PSC + director).

What We Will Need From You

As we are not offering to carry out the identity verification, we’ll need certain information from you in good time:

• Your personal code, once you have verified your identity, from every director and every PSC.
• Confirmation of which role(s) you fulfil (director, PSC, both) so we can work out which deadlines apply.
• Date of birth (as registered at Companies House) to check when the “birth-month” deadlines apply for PSCs only (not PSCs who are also directors of the same company).

What We Will Do

• Submit directors personal codes with the first confirmation statement on or after 18 November 2025
• Submit PSCs (who are also directors) personal codes with the first confirmation statement on or after 18 November 2025
• Submit PSCs (who are not directors) personal codes at the start of their birth month.

Possible Consequences if Deadlines Are Missed

• If a director fails to verify identity by the relevant deadline, acting as a director becomes an offence under new law.
• The company may be unable to make certain filings (Confirmation Statements etc.) until compliance is met.
• For PSCs, there will also be obligations and potential penalties. The individual PSC may commit an offence if they fail to provide the code in time.

Practical Timeline and When Action Should Be Taken

Here’s a suggested timeline / checklist for you so you’re not caught short when the deadline arrives.

Example Scenarios

To make this more concrete, here are a few examples:

• Case A: Person X is both Director and PSC of Company Y
  • They must verify identity and get personal code.
  • As a director: personal code must be provided in Company Y’s next Confirmation Statement after 18 November 2025.
  • As PSC: the code must also be submitted via the separate PSC identity verification service within 14 days after the Confirmation Statement date.
  • We will need the personal code from X in advance of the Confirmation Statement.
• Case B: Person Z is a PSC but not a Director of Company W
  • If Z is an existing PSC as of 18 November 2025, then Z must provide code before the first 14 days of their birth month after November 2025.
  • If Z becomes a PSC after 18 November 2025, then Z must verify and provide code within 14 days of being added as PSC.
  • We will need Z’s date of birth so we know when that birth-month window is.

Key Takeaways & What You Should Do First

1. Don’t wait until the deadline. It’s best that directors and PSCs do the identity verification now (or as soon as possible), so their personal codes are ready well in advance.
2. Check roles and dates: make clear who is director, who is PSC (or both), note the Confirmation Statement date, note PSC birth months, etc.
3. Provide us with your personal code, roles and dates, in good time from all necessary individuals.

Here’s our Q&A on Making Tax Digital (MTD) for Income Tax. It covers upcoming HMRC regulations, key questions you might ask, recommended software (with indicative costs), and how we can assist with fixed-fee support. Let’s dive right in:

1. What is Making Tax Digital (MTD) for Income Tax?

MTD for Income Tax is HMRC’s initiative to digitise the way sole traders and landlords report their self-employment and property income. Instead of submitting a single end-of-year return, taxpayers must now keep digital records and send quarterly updates via HMRC-approved software, culminating in an annual final declaration.(totallandlordinsurance.co.uk, Quality Company Formations, British Business Bank, Xero)

2. Who does it affect and when do the rules apply?

• From 6 April 2026, sole traders and landlords with total annual income from self-employment or property over £50,000 must comply.(GOV.UK, totallandlordinsurance.co.uk, Quality Company Formations, Xero)
• From April 2027, the income threshold lowers to £30,000.
• From April 2028, it further drops to £20,000.(QuickBooks, Xero, Quality Company Formations)
• These thresholds are measured against your income for the tax year 2 years prior. For example, if your 2024/25 income is relevant for the 2026/27 MTD regulations.
• Currently, participation is voluntary for those below thresholds, but early adoption is possible.(Quality Company Formations, www.rossmartin.co.uk)

3. What are my reporting obligations under MTD for Income Tax?

If you’re impacted, you must:

1. Keep digital records of self-employment and property income and expenses using MTD-compatible software.
2. Submit four quarterly updates to HMRC summarising income and expenses. These updates are due just over 1 month after the quarter end, on 7th August, 7th November, 7th February and 7th May.
3. File a final declaration (tax return) after the end of the tax year and by 31st January. This needs to include any other income or reliefs that are not reported via MTD. (GOV.UK, Xero, totallandlordinsurance.co.uk, Quality Company Formations, British Business Bank)

4. How can I comply?

A. Using MTD-compliant software

HMRC requires commercial, approved software capable of:

• Creating/storing digital records or integrating with your existing spreadsheets (via bridging software).
• Sending quarterly updates and the final declaration.(GOV.UK, Xero)

Popular compatible solutions include:

• QuickBooks
• Xero
• Sage Business Cloud Accounting
• FreeAgent
• FreshBooks
• Zoho Books
• GoSimpleTax
• TaxCalc

Some key highlights:

• GoSimpleTax: Great for straightforward annual filings; pricing starts at £64.99/year for individuals, with additional tiers for residency or partnership returns.(TechRadar)
• Others like Sage, QuickBooks, Xero, FreeAgent, etc., offer comprehensive cloud tools with bank feeds, invoicing, dashboards, and automated bookkeeping.(TechRadar, Xero, QuickBooks)

B. Typical software costs

• Standard small-business accounting packages range from £15 to £35/month (~£180–£420/year).(Fairmans)
• Dedicated tax-only software like GoSimpleTax offers tax-year pricing (e.g. ~£65/year).(TechRadar)

5. Why is HMRC moving to MTD?

MTD aims to:

• Reduce errors and administrative burden.
• Encourage real-time tax awareness and planning.
• Modernise the tax system by encouraging digital record-keeping.(British Business Bank, Xero, Quality Company Formations)
  It’s part of a broader initiative following MTD for VAT (since April 2022).(British Business Bank, Xero)

6. What if I miss a deadline?

• You will be given 1 penalty point each time you miss a deadline
• On reaching 4 or more penalty points you will receive a £200 penalty
• Penalty points stay on your record for 2 years.

7. Can your accountancy firm can help?

We offer fixed-fee packages for both quarterly submissions and final annual declarations under MTD:

• We manage your MTD compliance from end to end.
• You can rely on our fixed fees, with no surprises (see Pricing on our site).(CloudBook Online Accountants Ltd)
• Our services include selecting and configuring MTD-approved software, maintaining digital records, submitting updates, and final submissions.
• We save you time, reduce risk, and help you plan your tax liability throughout the year.

8. Can you Summarise MTD Income Tax?

Final Thought

MTD for Income Tax marks a significant shift—but you’re not alone. With the right software and our fixed-fee support, you can make the transition smoothly and confidently. Check our fixed-fee packages on our Pricing page.

Xero are increasing their prices again by up to 12%, effective from September 2025. If you’re looking for Xero’s pricing changes for 2026, please visit Xero’s Price Increase. We’re disappointed that Xero has increased most of its prices again, so soon after the potentially huge increases due to price/package changes in the previous year. In fact, Xero are still phasing in those changes now, so you would think they would have held off until next year.

It’s not all bad news because the cheapest package prices will not increase in 2025. However, those packages will potentially become more restrictive once the previous year’s changes are phased in. The other more expensive packages have increased by between 6% and 12%.

Why are Xero’s Prices Increasing Again?

Xero say that they have continued to invest heavily, making the software more reliable, secure, and useful. The only significant change we’ve noticed is the addition of JAX (Just Ask Xero) which could be a useful AI tool to get Xero to do things for you like add an invoice. However, Xero is easy to use, and JAX can only do simple tasks, so we’re not convinced that this is enough to justify another inflation busting price increase. Xero have made a new interactive tool called The Long and the Short of it to show the changes it has made, so you can judge for yourself.

There is a new Simple plan, with just enough permissions for small sole traders and landlords to comply with Making Tax Digital for Income Tax when that starts in April 2026. It’s competitively priced at £7pcm plus VAT. However, it can’t be used if you are VAT registered and quotes and invoices are limited to 10 per month.

In our opinion Xero remains the best online accounting software. It’s much easier to use than the others. So if you can afford to pay their prices, it’s usually worth it due to the time it will save you.

The Xero Price Increase

Xero’s prices will increase from 1 September 2025, technically 11 days less than 1 year since the last one. Also, the previous year’s changes to the plans are still being phased in. These changes mean you could have to upgrade your plan. Here are the Xero Price increases for 2025 and the past few years for their main plans.

The Xero Plans

Ledger: A very basic version of Xero without bank feeds. You can import or manually add bank transactions, then categorise them. That’s about it.

Simple: Sole traders and landlords only. Create quotes and 10 invoices per month. Payroll, Pay Bills, Multi-currency, Expenses, Projects and Analytics Plus not available.

Ignite (Starter): Create 20 quotes and invoices, and 10 bills per month. Payroll is £1.50pcm per person. Multi-currency, Expenses, Projects and Analytics Plus not available.

Grow (Standard): Unlimited quotes, invoices and bills. Expenses for 1 plus £2.50pcm per extra person. Payroll for 1 plus £1.50pcm per extra person. Pay directly from Xero for up to 5 bills per month plus £0.20 per additional bill payment. Multi-currency, Projects and Analytics Plus not available.

Comprehensive (Premium): Expenses for 5 plus £2.50pcm per extra person. Payroll for 5 plus £1.50pcm per extra person. Pay directly from Xero for up to 10 bills per month. Multi-currency and Analytics Plus included. Projects not available.

Ultimate: Expenses for 10 plus £2.50pcm per extra person. Payroll for 10 plus £1.50pcm per extra person. Projects for 10 plus £5.00pcm per extra person. Pay directly from Xero for up to 15 bills per month. Multi-currency and Analytics Plus included.

Alternatives to the Xero Price Increase

Use CloudBook Online Accountants

With CloudBook Online Accountants, unlike other accountants, you can use whichever software you prefer. We don’t make you use Xero’s accounting or payroll software, so you don’t have to pay their high prices. As well as that, you’ll probably save on accountancy fees too, with our low fixed monthly fees.

Downgrade Xero Plan

To avoid the price increase, could you downgrade your Xero plan? Simple could be all you need as a sole trader or landlord. The Ignite plan now has unlimited bank transactions and allows up to 20 sales invoices and 10 bills per month. Instead of using bills you could just attach them to the bank transaction. The Grow plan is mostly only missing multi-currency which is only essential if you have foreign bank accounts. If you have few foreign currency transactions you could convert them manually.

Use Move My Books

Move My Books is a free service that helps you move your accounting data to Xero, QuickBooks or Sage Accounting. This could be useful if you are thinking of moving from Xero to QuickBooks or Sage.

Pandle

Pandle is unlimited and comes with multi-currency and bank feeds for £5pcm. We can get it for £2.50pcm. It’s relatively new, sometimes slow, and takes a while to get used to. However, it should cope with most things you use Xero for.

QuickBooks

QuickBooks is our next most popular software after Xero. It does most things that Xero can do and is quite easy to use once you get used to it. Their Self-Employed package is £12pcm, Simple is £16pcm, Essentials is £33pcm, Plus is £47pcm. We may be able to arrange a discount if enough clients ask for it.

FreeAgent

FreeAgent is geared towards small business and freelancers. Natwest, RBS and Mettle bank customers can get it for free. We can get it for our clients for £23pcm. Or it costs £33pcm or less if you pay annually.

Kashflow

Kashflow is less popular than it used to be and we no longer have any clients using it. However, if you have straightforward accounting transactions, it can work well for you. Starter is £11.50pcm, Business is £23.50pcm or with payroll is £31.50pcm.

QuickFile

Quickfile is used by a few of our clients. It’s less easy to use but it can be free if you have less than 1000 entries per year, otherwise it’s just £60pa pls VAT. If you want automated bank feeds, that’s an extra £15pa.

MyT

MyT accounting is a new software with a built-in receipt reader using AI to categorise your costs automatically. The Standard subscription is £10pcm, Plus is £20pcm and Pro is £30pcm.

Sage Accounting

From our experience Sage have struggled to keep up with their online competition. As such, we still don’t have any clients using Sage at the time of writing but we’d be happy to help you use it. However, it’s not much cheaper than Xero. The Start price is £18pcm. Standard is £39pcm and Plus is £59pcm.

Spreadsheets

If you’re not VAT registered, you could use a spreadsheet (e.g. Excel, Google Sheets, Numbers) to do your accounting. While we prefer online accounting software, if your accounting transactions are straightforward, a tidy spreadsheet would be ok. All transactions need to be categorised. Read more on our bookkeeping using a spreadsheet page.

Other Online Accounting Software

There are many other online accounting software platforms available. We’ll consider doing your accounts etc using any online accounting software. Look out for ones that can link to UK bank accounts and are MTD compliant.

The current tax year will end on 5th April 2025, so now is a good time for you to check that you’re not going to pay more tax than necessary this tax year and during the next tax year.

HIGHLIGHTS – FROM 6TH APRIL 2025:

• No changes to income tax rates, allowances and thresholds.
• No changes to corporation tax rates, allowances and thresholds.
• No changes to Employee and self-employed NIC, allowances and thresholds.
• Employer NIC starting threshold reduces from £9,100 to £5,000.
• Employer NIC rate increases from 13.8% to 15%.
• Employment Allowance increases from £5,000 to £10,500pa
• Directors should take a salary of between £5,000 (was £9,100) and £12,570, plus dividends.
• Business asset disposal relief rates increase from 10% to 14%
• In case you missed it: main capital gains tax rates increased in October 2024 to 18% (basic) or 24% (higher)
• Double Cab Pick Up vehicle purchases will be taxed as cars – purchase now or sell by 2029

Below are some suggestions to consider first for directors/shareholders only, then for everyone.

DIRECTORS/SHAREHOLDERS ONLY

Background information

A Recap

It’s important to remember that your company is a completely separate entity from you and is taxed differently. A company pays corporation tax on its profits and National Insurance Contributions (NIC) on salaries. You personally pay income tax and NIC on salaries received as a director or employee, and income tax on dividends received as a shareholder (owner) of a company. However, the way you take money from your company may affect the company’s tax, so it’s important to consider all taxes when you decide how to pay yourself. A company usually pays salaries to directors, and has the option of paying dividends (if there is any profit) to its shareholders. Your company’s taxable profit includes a deduction for salaries and most expenses but not for dividends. So salaries will reduce corporation tax but dividends don’t affect it.

Corporation Tax Rates

Your company will pay corporation tax on the profit it makes in its accounting year, which is usually different to the tax year. The corporation tax rate is 19% for companies with annual taxable profits that are less than a lower threshold. Companies with annual taxable profits of over an upper threshold will pay tax at 25%. Companies between these thresholds will pay a tapered rate of between 19% and 25%. The lower and upper thresholds are £50,000 and £250,000, however these thresholds are divided by the number of associated companies plus one. A company is associated with another company if they are both owned 50% or more by the same person or the same group of people, or if there is a commercial relationship and adding close relatives’ shares means there is common control. Click on the links for more information on the new corporation tax rates and what is an associated company?

Tax on what you take from your company

You will pay income tax on your total income in the tax year, including any salary and dividends taken from your company, but not on expenses or loans. See below for the various tax bands and rates.

Small salary plus dividends

Even if your corporation tax rate increases to 25%, the most tax-efficient way to take money from your company is still with a small salary and then dividends. That’s because the income tax (20% then 40%), employee NIC (8% then 2%), employer NIC (15%) minus corporation tax relief (19-25%) is still more than the tax on dividends (8.75% then 33.75%). Even in the higher rate band when the employee NIC drops to 2%, it’s not enough to claw back the savings made in the basic rate band.

What to do this month

Check that you’ve received trivial benefits from the company of up to £50, up to 6 times per tax year for directors. Trivial benefits can be gifts or vouchers but not cash. The cost of each trivial benefit must not exceed £50.

On or before 5th April 2025 make sure you’ve used up your tax-free personal allowance of £12,570 with salary/earnings/dividends.

Last year we advised a salary of between £9,100 and £12,570, depending on whether your company is profitable and whether you would benefit from the Employment Allowance. If you have sufficient profit reserves in the company, you should also pay yourself dividends covering:

1. Any remaining personal allowance after your salary (£12,570 minus your salary);
2. Your tax-free dividend allowance of £500, then;
3. Your remaining basic rate band of up to £37,200, taxed at 8.75% (above this dividends are taxed at 33.75% or more).

It’s best to have a similar amount of total income from year to year, rather than not using up your basic rate band one year, then going into your higher rate band in the following year. You will save tax of about £9k by declaring total dividends of £35k this year and £35k next year, instead of none this year and £70k next year.

Any extra salary and dividends don’t have to be paid. They can be credited to your directors loan account to draw out tax-free at a later date, or to repay what you’ve already taken out.

The company must have net profit reserves remaining after any dividends are declared. You must approve the dividend and pay or credit the dividend by 5th April for it to be taxed in the current tax year. As always, you must also prepare the meeting minutes and dividend voucher to support the dividend.

Double Cab Pick Up

If your business relies on the use of a Double-Cab Pick Up (DCPU) vehicle consider replacing it before 1st April 2025. DCPUs purchased after this date will be taxed as if it a car rather than a van, which means significantly less capital allowances and significantly more benefit in kind tax. The current tax treatment will apply to contracts entered into before 1st April 2025 and completed before 1st October 2025.

A DCPU purchased before 1st April 2025 will be taxed as a van until either: it is disposed, the lease expires, or April 2029 (whichever happens first). If you have a company owned Double-Cab Pick Up vehicle, consider selling it before then because it (and the fuel) will be taxed as if it is a car rather than a van. You could replace it with an actual van, a tax-efficient electric car, or use a personal car and claim 45p (or 25p) per business mile for up to 10,000 miles (or more) per tax year.

The Changes

The main changes on 6th April 2025 are:

• Employer NIC rate increases from 13.8% to 15%.
• Salary threshold at which you potentially start paying Employer NIC reduces from £9,100 to £5,000 (per year per employee).
• Employment Allowance, which is the amount of Employer NIC that doesn’t have to be paid each year, increases from £5,000 to £10,500.

So paying an employee £10,000pa could potentially cost an employer £625 more per year, however, the smallest employers won’t need to pay any Employer NIC due to the Employment Allowance of £10,500. So an employer with 14 employees each receiving £10,000pa wouldn’t pay any NIC. If employees are paid £20,000pa you’ll start paying NIC if you have 5 employees. The Employment Allowance is not available to an employer whose only employee earning over £5,000pa is a director. The Employment Allowance is shared between connected companies.

Even if you do have to pay Employer NIC, you will still pay less tax overall by taking a small salary plus dividends. With company profits of £50,000 (per director/shareholder) the saving from paying all of the profit out as salary and dividends instead of just salary is just under £5,000 if the corporation tax rate is 19%, or just under £3,000 if the corporation tax rate is 25%.

What to do from next month

Our general advice on extracting funds from your own company is set out below. However, due to the numerous scenarios which could also change during the year, we may advise you differently on an individual basis.

From 6th April 2025 our advice is that each director/shareholder should take money from the company in the following order:

1. If the company is not profitable yet or you have another job:
   • Salary of £5,000pa or £416pcm, tax-free and NIC-free
2. If the company is profitable or you don’t have to pay employer NIC on your salary because of the Employment Allowance:
   • Additional salary of £7,570pa (total salary £12,570pa or £1,047.50pcm)
3. If the company has sufficient profit reserves:
   1. Dividends of £500, tax-free (all dividends are NIC-free)
   2. Dividends of £37,200, taxed at 8.75% (total income up to £50,270)
   3. Dividends of £49,730, taxed at 33.75% (total income up to £100,000)
   4. The next £25,140 of dividends are taxed at 60% (see ‘Avoid’ sections below)
   5. The remaining dividends are taxed at 39.35%

This assumes you have no other income (excluding point 1) and there are sufficient profit reserves in the company to take dividends. Profit reserves are the net profits/losses since the company started, less dividends since the company started. The relevant amounts can be found on the company’s balance sheet within the capital and reserves section.

EVERYONE

Use up Income Tax allowances

A Recap
Everyone receives a tax-free personal allowance of £12,570. Income above that is taxed at different rates depending on the type of income it is and which tax band that income falls into, and whether you live in Scotland or the rest of the UK. Earned income, such as a salary or self-employed profit, use up your tax bands before investment income, such as interest and dividends. For example, if you have a £50,270 salary and £40,000 dividends all in one tax year, all of the salary uses up your basic rate band, so will all be taxed at the basic rate of income tax (except the first £12,570 which is tax-free). Consequently, all of the dividends fall into your higher rate band so will all be taxed at the higher tax rate for dividends (except the first £500 which is tax-free).

Tax Bands

Unused personal allowances and tax bands are not available to be carried forward, so it is important to check that you are using them efficiently each year. If it’s possible to increase or decrease your income, it’s best to use up the lower rate bands and avoid the higher rate bands. Some tax planning can achieve this, such as changing ownership of assets (e.g. transferring shares of a company and therefore the amount of dividends paid out), or changing employment income or dividends. The bands and rates for Scottish residents are here and for Welsh residents are here, and for everyone else in the UK are currently as follows:

• £0 – £12,570 Personal allowance
• £12,571 – £50,270 Basic rate band
• £50,271 – £125,140 Higher rate band
• Over £125,140 Additional rate

Other allowances and bands to consider:

• £500 tax-free dividend allowance per person per tax year. This still counts as income so also uses up your tax bands.
• £60,000 – £80,000: child benefit repaid – see Avoid over £50k below.
• £100,000 – £125,140: personal allowance withdrawn – see Avoid over £100k below.

The different tax rates for Income and Dividends are as follows:

Employers beware

Please refer to The Changes section above for details of changes to Employer NIC rates and thresholds that affect you too.

Use up National Insurance allowances

National Insurance (NI) is payable by employers, employees, and the self-employed. Each of whom have different bands and rates to consider. As with income tax above, it’s best to use up lower bands and avoid higher bands. You need to have a salary or self-employed profits that exceed the lower earnings limit for the tax year, or voluntarily pay sufficient NI in the tax year, for it to be a qualifying year for your state pension. You need 35 qualifying years for a full state pension. If self-employed profits are below the lower earnings limit you need to voluntarily pay class 2 NIC to make it a qualifying year for your state pension. Class 2 NI is £179.40pa for 2024/25 and £182.00pa for 2025/26.

Below are the national insurance thresholds and rates for the 2024/25 and 2025/26 tax years. 

Check your National Insurance history now

As mentioned above, for a full state pension you need 35 qualifying years of employment or credits. You can check how many qualifying years you have on your personal HMRC online account. If it looks like you will fall short before your statutory retirement age, you may be able to make voluntary NI contributions to add missing years, if they are recent enough. From 6th April 2025 the rules are restricted so you can only top up any missing years from just the previous 6 years. See here for more details.

Avoid earning over £50k

You pay higher tax rates on income over £50,270 (£43,663 in Scotland). So if your total income is around this level and you are able to control it, try to avoid going over this threshold. For example, your lower tax rate paying spouse could receive some dividends instead of those dividends taking you into the higher tax rates.

The High Income Child Benefit Charge (HICBC) means that any child benefit received needs to be partly paid back if a parent’s income exceeds a lower HICBC threshold which is now £60,000. Child benefit needs to be fully repaid if a parent’s income exceeds a higher HICBC threshold which is now £80,000. So if one parent or the other receives child benefit, and if one parent or the other has an income over the lower HICBC threshold, the higher earner will need to repay at least some of the child benefit. A proportion of it is repaid if his/her income is between the thresholds. This can result in high marginal tax rates e.g. 50% for 2 children and over 60% for 4 children (i.e. your tax bill increases by 50p or 60p for every £1 your income increases between the thresholds). If the repayment can’t be avoided, consider stopping the child benefit, as this may spare any need to file a tax return. To calculate the amount of child benefit to be repaid, your income is adjusted down for any personal pension contributions and charity contributions. So you could pay more of these contributions to reduce your adjusted income within the thresholds in order to save tax at 50% or more. The plan is to base the HICBC on total family income from 2026 to make it fairer.

Avoid earning over £100k

When your total income exceeds £100,000 the tax-free personal allowance is gradually removed until you receive no personal allowance when your income reaches £125,140 or more. In this band of total income, you have a marginal tax rate of 60% on earned income or 53.75% on dividend income (i.e. your tax bill increases by 60p or 54p for every £1 your total income increases between £100k and £125k). Also, more benefits are removed such as tax-free childcare. As with the child benefit above, you could pay personal pension or charitable contributions to reduce your adjusted total income within the £100k – £125k band and save tax at 60%.

Claim Marriage Allowance

A spouse or civil partner who does not pay income tax above the basic rate for a tax year, can transfer £1,260 of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer does not pay income tax above the basic rate. This can potentially mean a reduction in tax liability of £252. 

Transfer assets to a spouse

If a spouse or civil partner pays tax at a different rate, consider transferring income-producing assets (e.g. savings, company shares, investment property) to give the income to the person paying at the lower rate. Ideally, both you and your spouse should aim to have a total income of £50,270 or less.

Check your bank

If you have large sums of cash in ordinary accounts paying very little interest, consider moving cash to other accounts earning a higher interest rate. An Individual Savings Account (ISA) is tax free so make sure that ISA allowances have been fully utilised for all the family, where applicable.

Claim Tax-Free Childcare

Eligible parents can claim tax-free childcare by paying into a TFC account up to £8,000pa per child up to age 11 (£16,000pa per disabled child up to age 16). The government then adds 25% of what you pay in (i.e. up to £2,000pa or £4,000pa). That account can only be used to pay for approved childcare. You and your partner must be working at least 16 hours per week and must not earn over £100k.

Pay into savings

Savings allowances

£5,000pa of taxable interest received is tax-free if your total other income is £12,570pa or less. The £5,000pa is gradually reduced to £0 as your other income increases from £12,570pa to £17,570pa. There is also a personal savings allowance which means you don’t pay tax on taxable interest of £1,000pa for basic rate taxpayers, £500pa for higher rate taxpayers, and £0 for additional rate taxpayers.

ISAs
The ISA maximum investment limit is currently £20,000, which can be split across the different types of ISAs. These are: Cash, Stocks and Shares, Innovative Finance, and Lifetime ISAs. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under the age of 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until the age of 50) and savers will receive a 25% bonus from the government on this money. Broadly, money invested in this type of account can be saved until the investor reaches the age of 60 and used as retirement income, or it can be withdrawn to help buy a first home.

Junior ISAs
Junior ISAs are available to UK resident children (under-18s). Junior ISAs are tax-relieved and have many features in common with existing ISA products. The maximum annual subscription is currently £9,000. Investments may be made in any combination of qualifying cash or stocks and shares investments. Withdrawals are not permitted until the named child has reached the age of 18, except in cases of terminal illness. It’s possible to transfer Child Trust Funds (CTFs) to Junior ISAs.

Other Savings
Regular sums can be invested in National Savings (some products offer a tax-free return, which is particularly attractive to 40% and 45% taxpayers), banks and building societies. Those willing to accept the possibility of greater risk (perhaps equaling greater reward) might consider the stock market, stock market-linked investments or buy-to-let property.

Pay into pensions

Paying personal pension contributions can currently give tax relief at the individual’s highest income tax rate. Personal pension contributions are limited to your earnings. Employer pension contributions are not limited to earnings but give tax relief to the employer not the employee. Pension contributions are taxable if the total contributions from all sources into all of your pension schemes exceed an annual limit of £60,000 (or less if your total income exceeds £200,000). Unused allowances from the previous 3 years (at £60k, £60k and £40k) can be brought forward and used in the current year if you exceed your annual limit, which could give a total allowance of £220,000 in 2025/26.

Consider paying into pensions for family members. The introduction of stakeholder pensions allows contributions to be made for all UK residents, even children, as there is no requirement to have any earnings. Consider making payments of up to £3,600 for family members, as the fund will grow in a tax-free environment. The net cost is only £2,880.

Sell a business – tax rates are increasing

The capital gains tax rate when selling most small businesses is increasing from 10% to 14% on 6th April 2025. These lower rates are available if you qualify for Business Asset Disposal Relief (formerly Entrepreneurs Relief). If you are in the process of selling a business or can sell one quickly, doing so before 6th April 2025 could save you 4% tax on the gain.

Sell some assets – tax rates have increased

The capital gains tax rates were increased immediately following the budget in October 2024 from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. So you can save even more tax by selling some assets each year rather than waiting to sell them all at once. Everyone has an annual capital gains exemption of £3,000 and you are only taxed on total capital gains that exceed that annual allowance. Taxpayers should therefore consider selling taxable assets to make a capital gain up to this figure. Gifts between spouses and civil partners are tax free, so it is possible to double the yearly exemptions available by giving shares or other investments to a spouse or civil partner.

Realise losses

If you have shares standing at a loss, you should consider selling them so that the loss can be set against any gains made over and above the capital gains annual exemption. If you want to retain the investment, it could be bought back by the spouse or partner, within an ISA. It will not be tax effective for them to buy back the investment within 30 days of you selling it. In addition, care must be taken not to fall foul of anti-avoidance legislation which prevents loss relief being claimed where certain arrangements exist, the main purpose, or one of the main purposes, of which is to secure a tax advantage.

Capital gains tax may be deferred through the use of an Enterprise Investment Scheme investment.

Give to charity

Making charitable donations via the Gift Aid scheme is an effective way to reduce taxable income but only if you pay any income tax. If donations have been made and you pay income tax, tick the Gift Aid box so that the charity can benefit from the basic rate tax relief. Higher rate taxpayers should make the necessary claim on their tax return for further relief. If future donations are planned, you may wish to bring these forward to on or before 5th April to ensure the tax relief is obtained at an earlier date.

Check your PAYE code

Employees should check that their PAYE tax code is correct and contact HMRC if it needs to be amended. The standard PAYE tax code is 1257L which means you are receiving the full personal allowance of £12,570. If your PAYE tax code is different, you should receive a notice from HMRC to explain why.

Gift early or small to avoid Inheritance Tax

Inheritance tax is charged at 40% on the value of an estate exceeding the nil-rate band. Lifetime gifts are taxed at 20% if the donor dies within 7 years of the gift. Lifetime gifts can be tax-free if the donor lives at least 7 years after the gift. Small gifts can also be tax-free because each person also has an annual exemption on gifts which is £3,000. So gifts totalling up to £3,000 per year (plus any allowance not used in the previous year) will not be treated as a lifetime gift. In addition each person can give as many gifts as they like of up to £250 per person each tax year without it affecting their annual exemption or lifetime gifts. Birthday and Christmas gifts out of normal income are exempt.

Get married to avoid £200k Inheritance Tax

Each person has a nil-rate band of £325,000 plus a further £175,000 on home, which means there’s no inheritance tax (IHT) to pay if that person’s estate is worth £500,000 or less. However, any assets left to a spouse/civil partner are exempt from IHT. Also, any unused nil-rate band is passed onto a surviving spouse/civil partner. So a couple with an estate of £1m can leave £0 IHT to be paid if they were married, or if they were not married IHT of £200,000 would be payable (£1m estate minus £0.5m nil-rate band at 40%).

Don’t get fined!

There are penalties and surcharges for submitting your tax returns late and for paying any tax due late. These penalties increase substantially over time so if you’re already late for the previous tax year, further delays will cost you more – see here.

Your tax return for the year ending 5th April 2025 can usually be submitted from early in May 2025, and must be submitted by 31st January 2026. Look out for our Tax Return Due emails which will be sent by the end of April 2025. The amount of tax owed for the year ending 5th April 2025 (minus any payments on account and PAYE) will be due by 31st January 2026. If applicable, 50% of the amount of tax owed is payable as a payment on account which is also due by 31st January 2026. The other 50% payment on account will be due by 31st July 2026.

Feedback

As always, we welcome any feedback about this email or anything else. Did you find this email useful? Is there anything that could be made clearer? Do you think we could add anything useful? Thanks for your time reading it.

We have increased all of our prices by 9% (see our pricing tables). Any software recharges are unaffected by this change.

Our previous increase

Our current fees were effective from April 2023 and that was our first price increase since we started the business 10 years earlier. Our prices were increased by 10% in April 2023 which was the annual inflation rate at the time.

The past 2 years

Inflation has averaged at an annual rate of 5.1% between January 2023 and December 2024, which is 10.2% since our last price increase. Interest rates have also increased from 3.5% to 5.25% during that time and have only reduced to 4.75% recently. Also, the cost of employment is increasing in April 2025 due to the increase in the employer national insurance rate to 15% and the reduction of the threshold at which employers start paying it to £5,000pa. If we tried to grow our business enough to cover these additional costs, it would be detrimental to our quality of service. As such, we need to increase our fees to keep our business model sustainable. 

The increase

We’ve taken the difficult decision to increase all of our fees by 9%. Our new pricing table can be viewed here. Any software recharged will only increase if your supplier increases their price, so the overall increase to our bills may be less than 9%.

An example

New clients

If you are a new client, you will pay the current fees for your first 12 months with us, or for your first set of accounts if you pay annually, then you’ll move onto our new fees.

Your options

We understand that these are challenging times for everyone and any increase to your costs can be difficult to deal with. So please get in touch if you’d like to discuss what options you may have to reduce your costs, such as changing your accountancy package or software supplier.

In arrears

Some of you are paying for our services in arrears. For example, if you started paying us the monthly accounts fee X months after the start of your accounting year, our invoice will state that the accounts fee is for the month of trading X months ago. If so, you are welcome to pay off the arrears (X months times by the monthly fee) at the current fee by 31st March 2025. Otherwise the new fee applies to all payments from 1st April 2025.

Annual invoicing

Some of you are paying for our services annually. If you provide us with your accounting records by 31st March 2025, this will be invoiced at the current fee. Any annual records provided after this date, will be invoiced at the new fee rates unless this is the first set of accounts we have done for you.

Get in touch

We hope that you find this change acceptable and necessary to maintain our quality of service. Please get in touch if you have any concerns, questions or suggestions.

The details of the 2024 Xero Price Increase are below. If you’re looking for details of the following year’s increase details please click here.

How would you like a 180% price increase for using Xero? That’s what some users will have to pay to continue using Xero due to changes to the plans as well prices. Most plans will either be ceased or will have restricted add-ons which could force an upgrade.

Other users that can stay on the same plan will see a 6-12% price increase in 2024. Here we explain the 2024 Xero Price Increase. How much Xero’s Prices are increasing. Why Xero’s prices are increasing. What changes are being made to the Xero plans. Also, the alternatives to Xero. With CloudBook Online Accountants, you can choose whichever software suits you the best.

Why are Xero’s Prices Increasing Again?

Xero are launching newly named and streamlined plans with easier access to tools and more key features included. However, some of those additions are minor and some significant add-ons are being removed. We haven’t noticed any other recent changes or improvements. So we guess the other main reason for the price increase is inflation.

The Xero Price Increase

Xero’s prices will increase from 12 September 2024. Also, changes to the plans (see below) will start to be phased in from this date. These changes mean you could have to upgrade your plan. Here are the Xero Price increases for 2024 and the past few years for their main plans.

180% Xero Price Increase?

In addition to the main plan increases above, changes to the plans mean that you may have to upgrade your plan to get the same services.

The VAT Cashbook plan that was £11pcm is being ceased. So VAT registered Cashbook users will need to upgrade to the Ignite plan at £16 which is a 45% price increase. The VAT Cashbook, Non-VAT Cashbook (still £7pcm), and Ledger (still £2.50pcm) plans are basic versions of Xero available through Xero Partners only (e.g. accountants).

Add-ons are being removed from all except the Ultimate plan (see below). Upgrading from Starter/Ignite to Standard/Grow is a 120% price increase! Upgrading from Standard/Grow to Premium/Comprehensive is a 57% increase. Upgrading from Premium/Comprehensive to Ultimate is a 40% increase.

It could be even worse. A business on the Starter plan with Payroll for 6 employees is currently paying £21pcm. To have payroll for more than 5 employees they will need to upgrade to Ultimate for £59. A 180% price increase!

What’s changing with the Xero Plans

Apart from new names, there are changes to each plan, as follows:

Starter/Ignite: Create 10 bills per month instead of 5. Add-ons no longer available: Expenses, Payroll, Projects and Analytics Plus.

Standard/Grow: Process Expenses for 1 and Payroll for 1. Pay directly from Xero for up to 5 bills per month. Projects and Analytics Plus no longer available. Payroll is included but limited to 1.

Premium/Comprehensive: Process Expenses for 5 and Payroll for 5. Pay directly from Xero for up to 10 bills per month. Analytics Plus included. Projects no longer available. Payroll is included but limited to 5.

Ultimate: Process Expenses for 10 (was 5). Use Projects for 10 (was 5). Pay directly from Xero for up to 15 bills per month. Use Analytics Plus. Payroll is included for 10 and can be increased.

Has Xero improved?

Xero is certainly improving all of the time, however those changes are small. For example the automatic matching of bank transactions to invoices and bills has improved. Where the changes are not small, they usually come at an extra cost, such as the Expenses or Projects add-ons. Even though you now get 1 or 5 Expenses and Payroll users on some plans, the core platform has not improved much . Certainly not enough to justify up to a 60% increase in the Xero price since 2020. Having said that, it is still the best online accounting software for small businesses. So if you can afford to continue using it, you should.

Alternatives to the Xero Price Increase

Use CloudBook Online Accountants

With CloudBook Online Accountants, unlike other accountants, you can use whichever software you prefer. We don’t make you use Xero’s accounting or payroll software, so you don’t have to pay their high prices. As well as that, you’ll probably save on accountancy fees too, with our low fixed monthly fees.

Downgrade Xero Plan

To avoid the price increase, could you downgrade your Xero plan? The Starter/Ignite plan now has unlimited bank transactions and allows up to 20 sales invoices and 5/10 bills per month. Instead of using bills you could just attach them to the bank transaction. The Standard/Grow plan is only missing multi-currency which is only essential if you have foreign bank accounts. If you have few foreign currency transactions you could convert them manually.

Use Move My Books

Move My Books is a free service that helps you move your accounting data to Xero, QuickBooks or Sage Accounting. This could be useful if you are thinking of moving from Xero to QuickBooks or Sage.

Pandle

Pandle is unlimited and comes with multi-currency and bank feeds for £5pcm. We can get it for £2.50pcm. It’s relatively new, sometimes slow, and takes a while to get used to. However, it should cope with most things you use Xero for.

QuickBooks

QuickBooks is our next most popular software after Xero. It does most things that Xero can do and is quite easy to use. Their Self-Employed package is £10pcm, Simple is £14pcm, Essentials is £28pcm, Plus is £38pcm.

FreeAgent

FreeAgent is geared towards small business and freelancers. Natwest, RBS and Mettle bank customers can get it for free. We can get it for our clients for £23pcm. Or it costs £33pcm

Kashflow

Kashflow is less popular than it used to be. However, if you have straightforward accounting transactions, it can work well for you. Starter is £11.50pcm, Business is £23.50pcm or with payroll is £31.50pcm.

QuickFile

Quickfile is used by a few of our clients. It’s less easy to use but it can be free if you have less than 1000 entries per year, otherwise it’s just £60pa. If you want automated bank feeds, that’s an extra £15pa.

MyT

MyT accounting is a new software with a built-in receipt reader using AI to categorise your costs automatically. The Standard subscription is £10pcm, Plus is £20pcm and Pro is £30pcm.

Sage Accounting

From our experience Sage have struggled to keep up with their online competition. As such, we still don’t have any clients using Sage at the time of writing but we’d be happy to help you use it. However, it’s not much cheaper than Xero. The Start price is £15pcm. Standard is £30pcm and Plus is £39pcm.

Spreadsheets

If you’re not VAT registered, you could use a spreadsheet (e.g. Excel, Google Sheets, Numbers) to do your accounting. While we prefer online accounting software, if your accounting transactions are straightforward, a tidy spreadsheet would be ok. All transactions need to be categorised. Read more on our bookkeeping using a spreadsheet page.

Our Own Software

We have our own free software which very basically allows you to list your sales and expenditure. It can also submit MTD VAT returns.

Other Online Accounting Software

There are many other online accounting software platforms available. We’ll consider doing your accounts etc using any online accounting software. Look out for ones that can link to UK bank accounts and are MTD compliant.