Frequently Asked Questions

Profit and cash are measured differently. Your accounts can show a profit while the cash is tied up or already spent. Common reasons are customers who haven’t paid invoices you’ve already counted as income, loan repayments (which aren’t an expense in your profit figure), money you’ve taken out, tax payments (which often relate to an earlier year or are paid in advance), and equipment you’ve bought. If there’s never anything left at the end of the month, it’s usually because profit is treated as whatever remains, rather than being set aside first. That’s the problem Profit First is designed to fix.

Profit is what your accounts say you earned over a period: income minus expenses. Cash flow is the actual money moving in and out of your bank account, and when it moves. A business can be profitable and still run out of cash if customers pay late or money goes out before it comes in. It can also have a healthy bank balance while making a loss, for example after taking out a loan. You need both to run a business with confidence.

Sales aren’t what you keep. Every sale has costs attached: materials, subcontractors, software, staff time, VAT and tax. If prices don’t leave enough margin, more sales can simply mean more work for the same result. Spending also tends to rise to match income, so a bigger turnover gets absorbed by bigger costs. The fix is to know what each sale actually leaves you, and to set money aside for profit, tax and your own pay before the rest gets spent.

There’s no single right figure. It depends on your industry, size and plans. For most service businesses, a useful starting question is whether the profit is enough to pay you properly, cover the tax, build a cash reserve and fund growth. If it isn’t, the business is under-rewarding you, however busy it is. Profit First sets target percentages based on the size of the business, but the right starting point is where you are now, improved step by step.

Enough to reward you for the work you do, paid regularly, at a level the business can sustain. A good test is what you’d have to pay someone else to do your job. How you pay yourself also matters. Sole traders take drawings, but they’re taxed on the business’s profit whatever they draw. Many limited company directors take a salary and dividends. Dividends can only be paid from profits the company has available, and the right mix depends on your circumstances. If you’re paying yourself irregularly or last, that’s usually a sign the business needs a clearer system for owner pay.

There’s no single right figure. The reserve a business needs depends on how predictable its income is, how high its fixed costs are, how much it relies on a few customers, what loan repayments it has, how long customers take to pay, whether sales are seasonal, and how quickly it could cut costs if it had to. Keep money for tax and VAT separate. It isn’t a reserve, because it’s already committed to bills that are coming. Build the reserve gradually by setting aside a small, regular percentage of income, rather than waiting for a surplus. We can help you work out a sensible target for your business.

Turnover alone won’t tell you. Look at whether you’re paid properly and regularly, whether tax bills are covered without panic, whether there’s a cash reserve, and whether your profit margin is steady or improving. If the business is growing but those things aren’t improving, growth may be hiding a problem. Checking a few key numbers every month, not just at year end, gives you a much clearer picture.

Because they measure different things. If your accounts are prepared on the accruals basis, as all limited companies’ are, your profit includes income you’ve invoiced but not yet been paid for. Either way, profit ignores money you’ve borrowed, loan repayments and money you’ve taken out of the business. Your bank balance also includes money that isn’t yours to spend, such as VAT and tax due. That’s why making decisions from your bank balance alone can be misleading.

Profit First is a cash management method created by Mike Michalowicz. Instead of paying every bill and hoping something is left, you set aside a percentage of every payment you receive for profit, your own pay and tax first, then run the business on the rest. It uses a small number of separate bank accounts so you can see at a glance what money is for. At Sunnyside, Jess Weston is a Certified Profit First Professional and uses the method with UK business owners.

Profit First sets money aside for specific purposes, such as profit, your pay, tax and running costs, before anything is spent, using separate bank accounts. Money is moved on a regular routine rather than whenever there’s a spare moment, and everyday bills are paid from the running-costs account. Because profit and your pay are taken first, the business has to work within what’s left, which quickly shows up overspending and underpricing. The right percentages and routine depend on your business, and they’re what we set up with you.

The traditional formula is Sales − Expenses = Profit, which treats profit as whatever happens to be left. Profit First turns it around: Sales − Profit = Expenses. You take profit first and run the business on what remains. It’s a small change on paper, but it changes behaviour, because expenses have to fit the money available rather than the other way round.

Yes. The method is about how you allocate cash, which works the same in any country. The UK-specific parts are tax and legal structure: setting aside the right amount for Income Tax, Corporation Tax and VAT, and paying yourself correctly from a limited company. That’s why Sunnyside sets Profit First up alongside the practical accounting and tax work we do for UK businesses.

It often helps owners pay themselves more regularly and more sustainably, because owner pay is set aside before other spending. Whether you can pay yourself more depends on the business’s profitability. If the business can’t currently support the pay you want, the process makes that visible and shows what needs to change, whether that’s price, costs or how your time is spent. We can’t promise a particular result.

Not directly. Profit First is a cash management method, not a tax-saving scheme. What it does is make sure money for tax is set aside as you go, so the bill doesn’t arrive as an emergency. Your tax bill is based on your taxable profit under UK tax rules. Legitimate tax planning is separate, and something we can look at with you alongside Profit First.

No. You still need accurate bookkeeping, annual accounts and tax returns. Profit First sits alongside them. Your accounts record what happened, and Profit First helps you control what happens next. Good bookkeeping also makes Profit First easier, because you can see your real numbers each month.

Not legally, but most business owners find one worth having. You can file your own tax return or company accounts, but it takes time and mistakes can be costly. An accountant makes sure you meet deadlines, claim what you’re entitled to and don’t overpay tax. A good one also helps you understand your numbers and make better decisions, which is where much of the value lies.

At a minimum, an accountant prepares your year-end accounts and tax returns and makes sure they’re filed on time. Many also handle bookkeeping, VAT, payroll and Companies House filings. The more useful part is advice: how to pay yourself, how much to set aside for tax, whether your pricing works and what your numbers are telling you. At Sunnyside, that advisory side is a big part of what we do.

A good one can. Accountants see the numbers behind your business, so they can spot thin margins, rising costs, underpricing and cash problems. Traditional accounts only look backwards, though. At Sunnyside, we use Profit First to help owners plan what happens next: setting aside profit, tax and owner pay, and improving the business step by step.

More than once a year if you want to make decisions rather than just react to them. At least, check in before your year end and before big decisions like hiring or buying equipment. Many owners find a regular monthly or quarterly review much more useful, because it means tax bills, cash pressure and growth can be planned for rather than discovered.

A Profit Assessment looks at how money is currently moving through your business and compares it with where it needs to be for a business of your size. Jess reviews your figures personally, highlights the biggest gaps and sets out what to focus on first. It gives us the starting point for building a Profit First system around your actual numbers, and there’s no obligation to continue.

No. You can keep your current accountant for your accounts and tax returns and work with us on Profit First coaching. Many owners like having both under one roof, so if you’d prefer us to handle everything, we can. Either way, we’ll need access to up-to-date bookkeeping so the work is based on your real numbers.

Our main focus is UK service-based businesses: consultants, agencies, creative businesses, coaches, therapists, professional services and similar owner-led firms. They typically have healthy turnover but want more control over cash and owner pay. We also provide accounting, bookkeeping, payroll and tax services for a wider range of sole traders and limited companies.

We’re likely to be a good fit if you want more than year-end compliance, and want someone who helps you understand your numbers, plan for tax and pay yourself properly. We’re probably not the right choice if you’re only looking for the cheapest possible tax return. The easiest way to find out is a free discovery call, where we can talk through your business and what you need.

It’s simpler than most people expect. Once you’ve chosen your new accountant, they’ll contact your old one to arrange a handover of the information they need. You’ll need to sign a new engagement letter and authorise the new firm with HMRC. It’s easiest to switch after a year end or once a return has been filed, but it can be done at any time.

Ideally before you need one urgently. Common points are when you start trading, when you’re thinking of setting up a limited company, when you’re approaching the VAT threshold, when you take on staff, or when your tax bills start to feel unpredictable. It’s also worth talking to one if the business is busy but you’re not sure where the money is going.

It depends on your profit, your plans and how much admin you want. Sole trading is simpler and cheaper to run, and you pay Income Tax and National Insurance on your profits. A limited company is a separate legal entity, which can offer limited liability and, at some profit levels, tax advantages, but it comes with more paperwork and responsibilities. The tax comparison depends on how much profit you make, how much you take out, whether you have other income and the extra running costs. Limited liability also has limits: banks and landlords often ask directors for personal guarantees, and directors have legal duties. It’s worth running the numbers for your situation before deciding.

You usually need to register for Self Assessment if your self-employment income is more than £1,000 in a tax year (before expenses). The deadline to register is 5 October after the end of the tax year you started trading. For example, if you started in the 2026/27 tax year, you need to register by 5 October 2027. You can register on GOV.UK.

Register with HMRC as self-employed, or set up your limited company at Companies House and tell HMRC within three months of starting to trade. Then open a separate business bank account, and choose accounting software to record income and expenses from day one. Keep receipts and start setting aside money for tax from every payment. It’s also worth deciding early how much you’ll pay yourself, so good habits start before the money gets complicated.

Limited companies should always have one, because the company’s money is legally separate from yours and needs to be kept apart. Sole traders aren’t legally required to, but it’s strongly recommended. It keeps your records clean, makes your tax return easier and shows you clearly how the business is actually doing. Mixing business and personal money is one of the most common reasons owners lose track of their profit.

Self Assessment is how HMRC collects Income Tax from people whose tax isn’t fully taken through PAYE. That includes sole traders, partners, landlords, many company directors and people with other untaxed income. You report your income for the tax year (6 April to 5 April) on a tax return, and HMRC works out what you owe. From April 2026, some sole traders and landlords also have to send quarterly updates under Making Tax Digital.

For online returns, the deadline is 31 January after the end of the tax year. For the 2025/26 tax year, that’s 31 January 2027. Paper returns are due earlier, by 31 October. Any tax you owe is also due by 31 January, along with your first payment on account if one applies. Filing early doesn’t mean paying early, but it gives you time to plan.

Because you often pay for more than one year at once. On 31 January, you pay the tax owed for the year just ended, plus your first payment on account towards the current year, which is usually half of the previous year’s bill. So your first bill can be roughly one and a half times your tax for the year. (This doesn’t happen if last year’s bill was under £1,000 or most of your tax was collected at source.) Knowing this in advance and setting money aside helps avoid the shock.

Payments on account are advance payments towards your next tax bill. Each one is normally half of the previous year’s bill, paid on 31 January and 31 July. They’re based on your Income Tax and National Insurance, not Capital Gains Tax or student loan repayments. If you’ve paid too much, you get a refund or credit. If you owe more, you pay the difference the following January. You don’t usually have to make them if last year’s bill was less than £1,000, or if more than 80% of your tax was collected at source.

It depends on your profit, your other income and whether payments on account apply. As a very rough guide for 2026/27, a sole trader in England, Wales or Northern Ireland with no other income pays Income Tax and National Insurance of up to about 20% of profit up to £50,000 (much less at lower profits), 20–30% between £50,000 and £100,000, and over 30% above that. Scottish rates are different. In your first year of payments on account, the January bill can be up to half as much again. Student loan repayments, other income and Child Benefit can all add to it. These are percentages of profit, not turnover. Keep the money in a separate account and ask your accountant to estimate your actual bill during the year, because a rule of thumb won’t cover every situation.

The main ones are Corporation Tax on the company’s profits, VAT if the company is registered, and employer National Insurance and PAYE if it runs a payroll, including for directors. Directors then pay personal tax on what they take out, such as Income Tax on salary and dividend tax on dividends. Knowing which taxes apply and when they’re due helps you set enough aside.

For companies with profits of £50,000 or less, the rate is 19%. For profits over £250,000, it’s 25%. Between those figures, companies pay the main rate reduced by marginal relief, so the effective rate sits between 19% and 25%. The limits are reduced if the company has associated companies or a short accounting period.

A private limited company’s annual accounts are usually due at Companies House nine months after the end of its financial year. A company’s first accounts are usually due 21 months after it was incorporated. Late filing brings automatic penalties that rise the later the accounts are, and double if you’re late two years running.

Not freely. The company’s money belongs to the company, not to you. Personal spending from the company account is usually recorded in your director’s loan account, and if it isn’t repaid or treated as salary or dividends, it can create extra tax for the company and for you. It’s also one of the quickest ways to lose sight of your real profit. Paying yourself properly avoids most of the problems.

Many directors take a small salary and dividends, but it isn’t automatically the most tax-efficient route. Dividends don’t carry National Insurance, but they’re paid out of profit after Corporation Tax and are taxed personally. Salary is a cost for the company but can bring employer National Insurance. The right mix depends on your company’s profit and available reserves, whether it can claim the Employment Allowance, pension contributions, your other income and your plans. It also needs to be regular and affordable. Deciding your pay in advance, rather than taking money whenever it’s there, makes both tax and cash flow far easier to manage.

Salary is paid to you as an employee of the company through payroll. It’s an allowable expense for the company and is subject to Income Tax and National Insurance. Dividends are paid to you as a shareholder, out of profits after Corporation Tax. They aren’t a company expense and carry no National Insurance, but you pay dividend tax on them personally.

Yes, above the £500 dividend allowance. For the 2026/27 tax year, dividends are taxed at 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% in the additional-rate band. The basic and higher rates rose by two percentage points from April 2026. Dividends are added on top of your other income to work out which band applies, and the tax is usually paid through Self Assessment.

You must register if your VAT-taxable turnover over the last 12 months goes above £90,000, or if you expect it to go above £90,000 in the next 30 days alone. The 12-month test is a rolling one, not your tax year. Once you go over, you have 30 days from the end of that month to register. Registering late can mean paying VAT you didn’t charge your customers.

Turnover, not profit. It’s the total value of your VAT-taxable sales, before any expenses are taken off. This catches many service businesses out, because a business with modest profit can still pass the threshold if its sales are high. Keep an eye on your rolling 12-month total, not just your annual figures.

Not if you can add VAT to your prices. VAT-registered business customers can usually reclaim it, and you can reclaim VAT on most business costs. Where it can hurt is when you sell mainly to the public and can’t raise prices: then the VAT comes out of your margin, about a sixth of what the customer pays. Although VAT isn’t legally your customers’ money, it’s safest to treat the VAT you charge as money you’ll be passing to HMRC. The main risk for most businesses is spending it before the return is due.

Treat it as money you’ll be passing on. Move the VAT element of every payment you receive into a separate account as soon as it arrives, and only use that account to pay HMRC. If you account for VAT on invoices rather than payments, or you’re on the Flat Rate Scheme, the amount you owe won’t match exactly, so check the balance against your VAT return each quarter. Keeping a separate VAT account is a common way UK businesses adapt Profit First, and it removes one of the most common cash-flow shocks.

A bookkeeper records your day-to-day transactions: sales, purchases, bank payments and receipts. An accountant uses those records to prepare accounts and tax returns, and to give advice. Good bookkeeping makes an accountant’s job quicker and your numbers more reliable. Some firms, including Sunnyside, offer both.

Increasingly, yes. VAT-registered businesses must already keep digital records and file through compatible software, and since April 2026, sole traders and landlords with qualifying income over £50,000 must do the same under Making Tax Digital for Income Tax, with the limit falling to £30,000 in April 2027 and £20,000 in April 2028. Even where it isn’t required, software saves time, reduces mistakes and gives you an up-to-date view of how your business is doing.

The most popular options for UK small businesses are Xero, QuickBooks and FreeAgent. All three connect to your bank, handle invoicing and support Making Tax Digital. The best choice depends on the size of your business, whether you need payroll, and what your accountant works with. We can recommend one based on how your business runs, and help you set it up.

It applies to sole traders and landlords whose qualifying income is over the threshold. Qualifying income is your combined self-employment and property income before expenses. Your share of partnership profits, a salary and dividends don’t count. From April 2026 you’re in if it was over £50,000 on your 2024/25 return. From April 2027 the limit is over £30,000 (based on 2025/26), and from April 2028 over £20,000 (based on 2026/27). Some people are exempt, and limited companies aren’t included.

It started on 6 April 2026 for sole traders and landlords with qualifying income over £50,000. It extends to those over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028. If you’re in the April 2027 group, your 2025/26 income is what counts, so now is a good time to check where you stand and get software in place.

You’ll need to register as an employer with HMRC, set up payroll to report pay and deductions each time you pay staff, check they have the right to work in the UK, give them a written statement of their terms, take out employer’s liability insurance, and assess them for a workplace pension. Before you hire, work out the full cost, not just the salary, so the role is affordable.

More than their salary. On top of pay, you’ll usually have employer National Insurance (15% on earnings above £5,000 a year in 2026/27), workplace pension contributions, holiday pay, insurance, equipment and training. Eligible small employers can claim the Employment Allowance to reduce their National Insurance bill, but it isn’t available if the only person on the payroll is a company director. Employer National Insurance is lower for employees under 21 and apprentices under 25. Statutory Sick Pay is now payable from the first day of illness. A realistic cost helps you decide whether the business can afford to hire, and what the new person needs to bring in.

Often, yes, by making sure you claim all allowable expenses and reliefs, choose the right business structure and pay yourself tax-efficiently. That’s legitimate tax planning within the rules, not avoidance schemes. An accountant can also help you avoid penalties and interest by keeping you on top of deadlines. Knowing what you’ll owe in advance is often as valuable as reducing it.

You can claim costs incurred wholly and exclusively for your business. Common examples are office costs, stationery, software, phone and internet, business travel, stock and materials, insurance, advertising, professional fees, training related to your current work, and bank charges. You can’t claim personal costs. Where something is used for both, you usually claim only the business portion.