Common Accounting Questions for UK Small Businesses
Running a business comes with plenty of financial responsibilities and just as many questions. Whether you’re a sole trader, limited company, or freelancer, understanding the basics of business accounting is key to staying compliant, efficient, and profitable.
In this post, we’ll answer some of the most common accounting questions asked by UK small business owners in 2025/26, covering tax, expenses, bookkeeping, and everything in between.
1. Do I Need an Accountant for My Small Business?
Technically, no – having an accountant isn’t a legal requirement for UK small businesses. Many sole traders and small business owners handle their own accounts, especially in the early days.
However, hiring a qualified accountant can make a big difference as your business grows. A good accountant can:
- Help you avoid costly mistakes and penalties – ensuring your tax returns, accounts, and filings are accurate and on time.
- Save you time by handling routine tasks like self-assessment tax returns, VAT returns, and payroll
- Offer expert advice on allowable expenses, tax reliefs, and choosing the most tax-efficient business structure (sole trader, partnership, or limited company).
- Ensure compliance with HMRC and Companies House
Key point: For many small businesses particularly limited companies or VAT-registered businesses an accountant is best seen as an investment, not just another expense. Good advice and proper accounting can often pay for itself by saving you more than it costs.
2. What Records Do I Need to Keep for HMRC?
Keeping accurate and complete financial records isn’t just good practice it’s a legal requirement. HMRC expects businesses to keep records for at least six years, or sometimes longer if:
- They show a transaction that covers more than one accounting period.
- HMRC is conducting a compliance check.
- You file your tax return late.
Key business records you must keep include:
- Invoices – for both sales you make and purchases you incur.
- Bank statements and business account records — to reconcile income and expenses.
- Receipts – to back up expense claims and deductions.
- VAT records – if your business is VAT registered.
- Payroll records – if you employ staff or pay yourself through PAYE.
- Mileage logs – if you claim business vehicle expenses.
Tip: Using reliable cloud accounting software – like FreeAgent, Xero, or your own The Balance App can make record-keeping simpler, reduce errors, and help you comply with Making Tax Digital (MTD) requirements.
For detailed rules, check the GOV.UK – Record Keeping
3. What Are Allowable Business Expenses?
Allowable expenses are costs that are wholly and exclusively for business purposes. You can deduct these from your income to work out your taxable profit helping you reduce the amount of tax you owe to HMRC.
- Common examples of allowable expenses include:
- Office rent and utilities costs for premises you use for your business.
- Software subscriptions like accounting tools, CRM systems, or design software.
- Business insurance such as professional indemnity or public liability cover.
- Staff wages and subcontractor payments salaries, employer NICs, and fees paid to freelancers or contractors.
- Travel and mileage travel costs for business trips (not commuting to a regular workplace).
- Phone and internet the business portion of your mobile or broadband bills.
- Home office costs if you work from home, you can claim a proportion of household costs based on actual use or a flat rate.
Tip: Knowing what counts as an allowable expense can make a big difference to your tax bill. It’s worth getting advice from an accountant to make sure you claim everything you’re entitled to and keep proper records to back it up.
For a detailed list, check HMRC’s guide to business expenses or read our article on Top Tax Deductions for Small Businesses.
- Guide to Limited Company Expenses you can claim
- Guide To Sole Trader Expenses
- Work From Home Expenses
4. When Do I Need to Register for VAT?
You must register for VAT if your business’s taxable turnover exceeds the £90,000 tax threshold in any rolling 12-month period (2025/26 tax threshold). This is a legal obligation HMRC can impose penalties if you register late.
You can also register for VAT voluntarily if your turnover is below the threshold. Doing so can have advantages, such as:
- Allowing you to reclaim input VAT on eligible business purchases and expenses.
- Making your business appear more credible to B2B clients, especially if you work with larger companies who expect to deal with VAT-registered suppliers.
Once you’re registered for VAT, you’ll need to:
- Charge VAT on your sales (where applicable).
- Keep detailed VAT records.
- Submit VAT returns, usually quarterly, using Making Tax Digital (MTD)-compliant software like FreeAgent, Xero, or The Balance App.
Tip: Even if you’re under the threshold, voluntary registration can sometimes save you money but it can also add admin. Get advice to decide what’s best for your situation.
