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Stay compliant with HMRC’s latest Making Tax Digital for ITSA rules.
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Simplifying CIS compliance for contractors and subcontractors, saving you time and stress.
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The latest articles and resources from Navigate Accountancy.
One of the first big decisions for any business owner is choosing the right structure. Do you continue as a sole trader, or is it time to set up as a limited company? It’s a choice that shapes your tax position, your responsibilities, and even how clients and suppliers see you. For small and medium-sized businesses, the decision can be particularly significant – so it’s worth weighing up the pros and cons carefully. Why you might choose to become a limited company Protecting your personal finances A limited company is a separate legal entity. This means that if the business runs into financial difficulty, your personal finances are generally protected. Your risk is usually limited to the money you’ve invested, unless you’ve given personal guarantees. Tax planning flexibility Running through a company can sometimes be more tax-efficient. Using a combination of salary, dividends, and allowances allows you to plan how you pay yourself, and you don’t always need to withdraw all profits straight away. This can make a big difference if you want to leave funds in the business for reinvestment. Stronger business image Having “Ltd” after your business name can boost credibility with clients, suppliers, and lenders. Larger organisations in particular may prefer working with incorporated businesses, especially on longer-term contracts. Protecting your business name Once registered, your company name is legally protected through Companies House. That gives you added security if you’ve invested time and money into building your brand. Future growth and investment If you plan to bring in partners or attract outside investment, a limited company provides a framework that makes this easier. Shares and ownership can be structured clearly, which helps if you’re planning for growth. The downsides of incorporation Public records Limited companies must file details such as accounts, directors, and shareholders at Companies House. While sensitive details can be protected, a certain amount of information is publicly available. Extra admin and costs Compared with being a sole trader, a limited company brings more paperwork and compliance – annual accounts, Corporation Tax returns, and a Confirmation Statement. Many business owners need ongoing accountancy support to keep everything in order. Taking money out is less flexible Withdrawing profits isn’t as straightforward as it is for sole traders. Funds must be taken as salary, dividends, or loans, each with their own tax rules. Cash flow planning becomes more important. Special tax rules For some businesses – particularly where you’re working through a limited company for a single client – the IR35 rules can reduce the tax benefits. Professional advice is essential if you think this might apply to you. Which option is right for you? If your business is small, your profits are modest, and you want to keep things as simple as possible, staying as a sole trader is often best. It avoids additional admin and gives you flexibility in how you take money out. If you want to protect your personal assets, plan to reinvest profits, or are looking to work with larger clients or attract investment, then incorporation may be the stronger choice. It really comes down to your goals, how much you earn, and how you see the business developing in the years ahead. Making the move If you decide incorporation is right, the steps are: Choose a company name that meets Companies House rules. Appoint at least one director and one shareholder (these can be the same person). Register the company with Companies House – usually completed within 24 hours. Register for Corporation Tax with HMRC within three months of trading. Set up a separate business bank account. Stay on top of annual filings, returns, and tax deadlines. Can you switch later? Yes. Many businesses start out as sole traders and incorporate once they grow. Moving back to sole trader status is possible but more complicated and may have tax consequences, so it’s important to get advice first. How we can help At Navigate, we specialise in supporting small and medium-sized businesses across a wide range of industries. So if you’re considering whether to become a limited company, we can talk you through the options, explain the tax implications, and help you choose the structure that works best for you. Give us a call on 01709 589 439 or book a discovery call with Frances .
Getting a letter or call from HMRC about a VAT inspection can be a worrying moment for any business owner – especially if it’s your first time dealing with one. But knowing what to expect and how to prepare can make the whole process much smoother. In this article, we’ll explain what a VAT inspection involves, how likely it is, how long it takes, and what you can do to get ready – plus how to reduce the risk of future problems. What is a VAT inspection? A VAT inspection (or compliance check) is when HMRC reviews your VAT returns and records to make sure you’ve been reporting everything accurately. It might be a routine check, or triggered by something in your VAT returns that’s raised a red flag. Inspections can take a few different forms: Desk-based – HMRC asks you to send information online or by post. In-person – An officer visits your premises (usually with notice, though not always). Remote – Increasingly done over the phone or video, especially for smaller businesses. How likely is a VAT inspection? HMRC doesn’t inspect everyone – they usually focus on businesses they see as higher risk. Triggers can include: Late or missing VAT returns or payments Large or unusual VAT reclaims Sudden changes in your turnover or VAT liability Mismatches between your VAT return and other tax filings (e.g. your corporation tax return or CIS) Operating in industries where errors are more common (e.g. construction, hospitality, retail) How long does a VAT inspection take? It varies. A basic check might be over in a few days or weeks. More complex cases can take months, especially if there are follow-up queries or multiple VAT periods involved. If HMRC visits your premises, the visit itself might last a few hours or a full day, depending on what they’re reviewing. What can HMRC inspect? They’ll want to see all records that support your VAT returns, such as: Invoices (sales and purchases) VAT return calculations Bank statements Bookkeeping records (e.g. from Xero, QuickBooks or Sage) Till receipts, stock records, and delivery notes (if relevant) Contracts and agreements with clients and suppliers If you use cloud accounting software, HMRC may request access to digital reports. What are the possible outcomes? After the inspection, HMRC will either confirm that they’re satisfied or issue a VAT assessment. That could involve: Paying additional VAT – if you’ve underpaid. Interest – currently 7.75% (as of August 2025). Penalties – ranging from 0% to 100% of the VAT due, depending on whether the error was careless, deliberate, or concealed. Example: A business accidentally reclaims VAT on insurance costs (which are exempt). HMRC finds the same mistake repeated over four quarters and issues an assessment for £2,400, plus interest and a 10% penalty. How to prepare for a VAT inspection If you’ve been contacted by HMRC, here are some steps to take: Organise your records – Make sure your VAT returns match your bookkeeping. Have clear documentation for all income and expenses. Review recent returns – Check for any inconsistencies, such as duplicated invoices, incorrect VAT codes, or items where VAT shouldn’t have been claimed. Contact your accountant – Let us know straight away. We can help you prepare, review your records, and even speak to HMRC on your behalf. Be open and cooperative – Being transparent helps. Trying to delay or obscure things often results in tougher penalties. How to reduce your chances of future inspections Keep VAT records up to date and accurate File VAT returns and payments on time Use proper VAT codes in your software Be careful with zero-rated, exempt, or reverse charge transactions Speak to your accountant if anything seems unclear Need help? If you’ve had a letter from HMRC about a VAT inspection – or just want peace of mind that your VAT records are in good shape – we’re here to help. At Navigate Accountancy, we work with small and medium-sized businesses across a wide range of industries. We’ll review your VAT returns, help you get organised, and handle HMRC communications on your behalf so you can stay focused on running your business. Book a call at www.navigateaccountancy.com/book-a-call or phone us on 01709 589 439.
For individuals earning more than £50,000 per year, effective pension tax planning can offer considerable benefits. With income potentially taxed at 40%, 45%, or even an effective rate of 60%, pension contributions can be a key tool for reducing tax exposure and improving long-term financial security. Understanding tax relief on pension contributions Contributions to a registered pension scheme receive tax relief by extending both the basic and higher rate tax bands. For instance, a net payment of £800 into a pension increases those bands by £1,000. HMRC contributes the remaining £200 directly to the pension provider. For those with income over £100,000, pension contributions can restore some or all of the lost personal allowance. At this income level, tax relief can reach up to 60%, making contributions particularly efficient. The annual allowance and carry forward rules The annual pension input limit is £60,000 for 2025/26. Unused allowances from the previous three tax years can also be used, provided the individual was a member of a registered scheme during those years. Once the current year’s allowance is fully used, earlier allowances are applied on a first in, first out basis. Contributions are capped at 100% of an individual’s relevant earnings each year for tax relief purposes. Relevant earnings include: Salary and taxable benefits Profits from self-employment or partnerships Royalty income from patents A flat contribution of £3,600 gross per annum is allowed even for those without earnings. Notably, employer contributions are not subject to the relevant earnings restriction. Tapered annual allowance for high earners Those with threshold income over £200,000 and adjusted income over £260,000 are subject to a tapered annual allowance. For every £2 of adjusted income above £260,000, the allowance reduces by £1 – down to a minimum of £10,000. Contributions exceeding the available allowance attract an Income Tax charge at the individual’s marginal rate. For some, limiting contributions to the tapered amount may be more tax-efficient. Definitions: Threshold income – total net income less gross personal pension contributions made under relief at source. Adjusted income – net income plus any employer pension contributions and salary sacrifice pension contributions. Tax charges on excess contributions Where contributions (including those made by an employer) exceed the available annual allowance, an Income Tax charge applies. Despite this, employer contributions still represent a valuable benefit – even when they incur a tax charge – as the net gain to the pension fund may remain significant. Professional advice is recommended to assess the true value of employer contributions and to manage the risk of triggering a pension savings tax charge. Changes to the lifetime allowance and inheritance tax The lifetime allowance charge was abolished from 6 April 2023 and no longer applies. However, from 6 April 2027, defined contribution pension pots left unspent at death will become subject to Inheritance Tax (IHT). Currently outside the taxable estate, these funds will soon be included and taxed at 40% if the estate exceeds the nil-rate band. Responsibility for paying IHT will lie with pension providers. Those with sizeable pension savings should review their estate planning in light of these changes. Planning opportunities for high earners There are several effective strategies for optimising pension planning: Salary sacrifice – Reducing income via salary sacrifice can preserve personal allowance (if income exceeds £100,000) and avoid 45%/60% tax rates. Both employee and employer benefit from NIC savings, which employers may redirect to the pension. Carry forward unused allowances – Up to £180,000 of additional contributions may be made using unused allowances from the past three years, assuming scheme membership existed during those periods. Inheritance planning – Drawing pension funds and transferring to ISAs, AIM shares, or trusts may reduce IHT exposure. Withdrawn funds may also be gifted under the seven-year rule or annual exemptions. Additional planning considerations Pension contributions can help reduce exposure to the loss of personal allowance for incomes above £100,000. Salary sacrifice not only offers Income Tax savings but also reduces NIC liabilities for both employee and employer. Contributions can be made to another individual’s pension – such as a spouse or family member – which may offer further planning opportunities, though advice should be sought due to the complexity involved. Illustrative examples A £60,000 salary typically results in almost £10,000 taxed at 40%. A pension contribution can eliminate this higher-rate liability and secure tax relief of approximately £1,946. An individual earning £125,000 loses nearly all their personal allowance. A £20,000 net pension contribution restores the allowance and offers £8,000 in additional tax relief. Final thoughts Pension contributions offer high earners the dual benefit of reducing tax today and building retirement wealth. For those earning over £200,000, proper planning is essential to avoid unnecessary tax charges and make the most of allowances. If you’re a high earner looking to make the most of your pension contributions – or want to ensure you’re not missing out on valuable tax relief – our team is here to help. At Navigate, we provide straightforward, expert advice to help you manage your finances efficiently and stay compliant with changing tax rules. Contact us on 01709 589 439 or book a call with our team .
