Good small business finance is less about clever tricks and more about simple habits done every week. I run a small manufacturing business myself, so these are the money tips I wish someone had handed me on day one. They work whether you are a sole trader or a small limited company.
Small business finance basics: open a separate bank account
First, keep business money and personal money apart. A limited company is a separate legal entity, so it needs its own account. Sole traders are not legally required to have one, but HMRC says you need to check with your bank which type of account you can use for business transactions.
In practice, a separate account makes everything easier. Your records are cleaner and your tax return is quicker to prepare.
How to pay yourself: small business finance for owners
Sole trader drawings
As a sole trader, you simply take money out of the business account. These withdrawals are called drawings. You are taxed on your profit, not on what you draw, so drawing less does not lower your tax bill.
Director salary and dividends
Limited company directors usually take a mix of salary and dividends. A salary runs through payroll, so the company must register as an employer and deduct Income Tax and National Insurance. Dividends can only be paid from available profits, and each one needs a board minute and a dividend voucher.
The best mix depends on your own numbers, so it is worth getting advice. My post on how to pay less tax in the UK legally explains the allowances that come into play.
Small business finance tip: set money aside for tax
Step 1: Estimate your tax bill on profit
Start by working out your rough profit for the year. Then estimate the tax and National Insurance due on it. A take home pay calculator gives you a sensible starting point.
Step 2: Move a set share of every payment into a tax pot
Next, open a savings account just for tax. Each time a customer pays you, move your chosen percentage across straight away.
Step 3: Plan for payments on account
Finally, remember that Self Assessment can ask for tax in advance. If your last bill was £1,000 or more, you usually make two payments on account, each worth half of last year’s tax.
Self Assessment deadlines sole traders need to know
Missing a deadline means penalties, so put these in your calendar now. For the 2025 to 2026 tax year, the key dates are:
- 31 October 2026: paper tax returns must reach HMRC.
- 31 January 2027: online returns due, plus any balancing payment and your first payment on account.
- 31 July 2027: second payment on account.
Making Tax Digital for Income Tax: who needs it and when
Making Tax Digital is now live for many sole traders and landlords. It means keeping digital records and sending quarterly updates to HMRC using compatible software. Your start date depends on your qualifying income:
| Qualifying income | Based on tax year | Must start from |
|---|---|---|
| Over £50,000 | 2024 to 2025 | 6 April 2026 |
| Over £30,000 | 2025 to 2026 | 6 April 2027 |
| Over £20,000 | 2026 to 2027 | 6 April 2028 |
You can check if you need to use Making Tax Digital on GOV.UK. Qualifying income is your combined self employment and property income before expenses.
Small business finance and tax: VAT and Corporation Tax
When you must register for VAT
You must register for VAT if your taxable turnover for the last 12 months goes over £90,000. You also need to register if you expect to go over £90,000 in the next 30 days alone. The VAT registration rules on GOV.UK explain the deadlines.
Corporation Tax rates for limited companies
Companies pay 19% on profits of £50,000 or less. The main rate of 25% applies to profits over £250,000. Between £50,000 and £250,000, Marginal Relief gives a gradual increase in the effective rate.
However, these thresholds are reduced for short accounting periods and for associated companies.
Cash flow forecasting for small business finance
In small business finance, profit and cash are not the same thing. You can be profitable on paper and still struggle if customers pay late.
So, build a simple spreadsheet showing money in and money out for the next 12 weeks. Update it every week and plan around the tax dates above. A cash buffer helps too, and my guide to building an emergency fund works for businesses as well as households.
How to chase late invoices and use your late payment rights
Clear payment terms on every invoice are your first defence. If no date was agreed, the law treats a business payment as late 30 days after the customer receives the invoice or you deliver, whichever is later.
After that, you can claim statutory interest of 8% plus the Bank of England base rate. You can also add fixed recovery costs of £40, £70 or £100 depending on the debt size. GOV.UK sets out your late payment rights in full.
How long to keep business records for HMRC
Sole traders must keep records for at least 5 years after the 31 January submission deadline for that tax year. Limited companies must usually keep records for 6 years from the end of the financial year they relate to.
Meanwhile, keeping your records in accounting software saves a lot of time. It also puts you ahead when Making Tax Digital applies to you.
Pension planning as part of small business finance
Without an employer pension, it is easy to put retirement off. Sole traders can pay into a personal pension or a SIPP and get tax relief on contributions up to 100% of their earnings.
Directors have another option. A company pension contribution is generally an allowable business expense. Both routes count towards the annual allowance, which is £60,000 this tax year.
When to get an accountant for small business finance
Plenty of sole traders manage their own books at first. Even so, a good accountant often pays for themselves once you add payroll, VAT or a limited company.
Look for a qualified accountant who knows your sector and works with Making Tax Digital software. For more, read my UK small business guide.
For more on this, read Sole Director Christmas Party and Traits of Successful Entrepreneurs.
Small business finance FAQs
Do sole traders need a business bank account?
No, it is not a legal requirement. Still, a separate account keeps your records clean and makes tax returns much simpler.
How much should I save for tax as a sole trader?
It depends on your profit and your other income. Estimate your bill, then move that share of every payment into a separate tax pot.
When is the Self Assessment deadline?
Online returns and payment for the 2025 to 2026 tax year are due by 31 January 2027. The second payment on account is due by 31 July 2027.
What is the VAT threshold in the UK?
The VAT registration threshold is £90,000 of taxable turnover over the last 12 months.
This article is for general information only and is not financial or tax advice. Rules change, so check GOV.UK or speak to a qualified accountant about your own situation.
Disclaimer: This article is for general information only and is not financial advice. I'm not a regulated financial adviser. Rules, rates and allowances can change, so check the latest details and speak to a qualified professional before making any decisions.
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