Accounting for Your First Year in Business, Set Up and Handled for You

You started a business. Congratulations, genuinely. You also, somewhere in the same week, got a quiet knot in your stomach about the bit nobody prepares you for: the accounting and the tax. What do you actually have to do now? Who do you tell? What counts as an expense? When is your first tax return, and how on earth do you fill it in? It is the part of being your own boss that you did not sign up for, and the fear of getting it wrong, of an unexpected HMRC letter or a penalty, sits in the background while you try to do the work you actually started the business to do.

Here is the reassuring truth: in your first year there are only a handful of things you genuinely have to get right, and none of them require you to understand accounting. You need to tell the right authority you have started, keep evidence of what you earn and spend, keep your business money apart from your personal money, and file your first return on time. That is the whole job. Everything else is detail that software can handle for you in the background.

This guide walks through your entire first year in plain English: choosing whether to be a sole trader or a limited company, how and when to register, what records to keep from day one, what you can claim, the deadlines nobody warns you about (including the January double bill that surprises almost every first-time filer), the common mistakes, and what is changing with Making Tax Digital in April 2026. Throughout, you will see exactly how AccountsOS, the AI-native accounting platform, takes each piece off your plate. The short version: it sets you up, captures everything as it happens, answers your questions any time, and prepares your first return so filing is a review and a click, not a weekend of dread.

I just started a business: what do I actually do about tax?

When you first start trading, four obligations begin from the moment you take your first pound of income. You do not have to do them all at once, and most have a generous window, but it helps to know they exist from day one so nothing creeps up on you.

One, tell the authorities you have started. If you are a sole trader, that means registering for Self Assessment with HMRC. If you set up a limited company, you register at Companies House and then with HMRC for Corporation Tax. We cover the exact timing below, but the key point is that simply starting to trade triggers a registration clock.

Two, keep records. From your very first transaction, keep evidence of money in and money out. This is the single most valuable habit you can build in year one, because the records you keep now are the foundation of the return you file later. Lose them and you either over-pay tax or scramble in January.

Three, separate business from personal money. You are not legally required to have a separate business bank account as a sole trader, but it makes everything afterwards far easier. For a limited company it is essential, because the company's money is legally not yours.

Four, file and pay on time. Once a year (or quarterly under Making Tax Digital, see below) you report your income and expenses, the tax is calculated, and you pay it. HMRC charges an automatic penalty the moment a deadline is missed, so the dates matter.

That is the entire shape of your first year. AccountsOS exists so that none of these four become the thing that keeps you up at night. It guides your setup, captures your records as you go, separates your money, tracks your deadlines, and prepares your filing. Let us take each piece in turn.

Should I register as a sole trader or set up a limited company?

This is the very first decision, and it is the one most new owners agonise over. The good news is that for the vast majority of people starting out, being a sole trader is the simpler and perfectly sensible choice. You can always incorporate later as you grow. A limited company is worth it when your profits are higher or you specifically want to limit your personal liability, but it brings more admin from the outset. Here is the comparison for a first-year business, side by side.

A practical rule of thumb for your first year: if you are testing an idea, side-hustling, or expect modest profits, start as a sole trader. The admin is light, the cost is nil, and you keep your life simple while you find your feet. If you already know you will be turning over six figures, taking on significant liability, or raising money, a limited company makes sense from the start. You are not locked in either way. Ask Finn to model both for your expected numbers, and whichever you choose, AccountsOS handles it. We cover each in depth on our accounting for sole traders and accounting for limited companies guides. If you go limited, the salary and dividend calculator shows you the most tax-efficient way to pay yourself.

How and when do I register with HMRC or Companies House?

Registration is the step that worries people most and is, in practice, the easiest. What you do depends on the structure you chose.

If you are a sole trader, you register for Self Assessment with HMRC. The deadline is 5 October following the end of the tax year in which you started trading. The UK tax year runs 6 April to 5 April, so if you began trading at any point during the 2025/26 tax year, you must register by 5 October 2026. Registration gives you a Unique Taxpayer Reference (UTR), which is the number HMRC uses to identify you, and enrols you for Self Assessment. There is no cost to register as a sole trader.

If you set up a limited company, the order is reversed. You first incorporate the company at Companies House, which you can usually do online in a day for a small fee. That gives you a company registration number and makes the company a legal entity. You then register the company for Corporation Tax with HMRC within three months of starting to trade. If you pay yourself a salary you will also need to register as an employer for PAYE. It sounds like a lot the first time, which is exactly why having it laid out and prompted, rather than discovered piecemeal, makes the difference.

AccountsOS guides you through which registrations apply to you based on your structure and country, and tracks the deadlines so you do not miss a registration window. If you are unsure whether you have crossed the line into trading, or which registration you need, ask Finn and you get a straight answer with the reasoning, not a forum thread to wade through.

What records should I keep from day one?

The records you keep in your first weeks become the return you file at year end. Get into the habit now and the rest of the year takes care of itself. Get behind, and January becomes a reconstruction project. Here is what to keep, why, and how AccountsOS makes it effortless.

How long to keep them. A sole trader must keep records for at least five years after the 31 January Self Assessment deadline for the relevant tax year. A limited company must keep records for at least six years from the end of the financial year they relate to. In both cases the records can be digital, which is just as well, because from April 2026 keeping them digitally becomes mandatory for many under Making Tax Digital. AccountsOS stores everything securely so you are never digging through a shoebox, and the originals are captured the moment you receive them rather than reconstructed months later from a faded slip.

Do I need a separate business bank account?

If you set up a limited company, yes: the company is a separate legal entity and its money is not your personal money, so it must have its own account. If you are a sole trader, you are not legally required to have one, but it is strongly recommended, and here is why it matters so much in year one. When a client payment and your weekly food shop land in the same account, working out your real business profit becomes guesswork, and guesswork at tax time is where mistakes and overpayments happen.

AccountsOS connects to your bank feed and uses AI to separate business activity from personal spending, flagging anything that looks private for you to confirm rather than silently mis-categorising it. So even if you have not opened a separate account yet, the platform helps untangle the two. That said, opening a dedicated business account early is one of the simplest, highest-value moves you can make in your first year, and most challenger banks let you do it in minutes.

What expenses can I claim when I have just started?

New business owners consistently leave money on the table by under-claiming, usually because they do not realise a cost is allowable, or they lose the receipt. The rule is that an expense must be incurred wholly and exclusively for the business. If a cost is part business and part personal, you claim the business proportion. Here are the categories that matter most when you are setting up.

The pre-trading rule is a gift many people miss. Costs you incurred to get the business off the ground, up to seven years before you actually started trading, can usually be claimed as if you spent them on your first day. The domain you bought last year, the research, the samples, the equipment you purchased before your first sale: all potentially allowable. Most new owners never claim these simply because they do not know the rule exists.

A worked example. Imagine you started a small consultancy in 2025/26 with £30,000 of income. You spent £1,200 on a laptop, £456 on software, £1,350 on mileage, £140 on insurance, £800 on a website and launch ads, and claimed the £120 home-office flat rate. That is £4,066 of allowable expenses. At the 20% basic rate plus 6% Class 4 National Insurance, claiming those expenses rather than nothing saves you roughly £1,057 in tax and NI. That is money that quietly disappears if you do not capture the receipts and do not know what counts. The fix is to snap each receipt as you get it and ask Finn whenever you are unsure. There is much more in our full business expenses guide.

When do I have to register for VAT?

Most brand-new businesses do not need to worry about VAT immediately, but you should know where the line is so it does not catch you out as you grow. You must register for VAT when your VAT-taxable turnover goes over £90,000 in any rolling 12-month period, or if you expect to cross that threshold within the next 30 days. Note the word turnover, not profit, and the word rolling, not tax-year: it is your total sales measured over any 12 consecutive months, which is why fast-growing first-year businesses can hit it sooner than they expect.

You can also register voluntarily below the threshold, which sometimes makes sense if your customers are themselves VAT-registered and you want to reclaim the VAT on your own purchases. Once registered, you charge VAT on your sales, reclaim it on eligible costs, and file VAT returns under Making Tax Digital for VAT. AccountsOS watches your rolling turnover and warns you as you approach the threshold, then calculates and submits your MTD VAT returns directly to HMRC, so crossing £90,000 does not mean you suddenly need to hire an accountant.

When is my first tax return due, and what are the deadlines nobody warned me about?

The deadlines are where new owners get caught, partly because the dates are spread out and partly because the first time you meet some of them, they hit harder than you expect. Here is a clean first-year timeline for a sole trader who started in the 2025/26 tax year, alongside the equivalent milestones for a limited company.

The January double bill is the one nobody warns you about. As a sole trader, if your first tax bill is more than £1,000, HMRC asks you to pay towards next year's bill in advance, in two instalments called payments on account. Each instalment is half of your current bill. So if you owed £4,000 for your first year, on 31 January 2027 you would pay that £4,000 plus a £2,000 payment on account: £6,000 in one go. Then another £2,000 follows on 31 July. The first time it happens it genuinely feels like you have been billed one and a half times, because you have. Knowing it is coming, and setting the money aside through the year, is the entire defence. AccountsOS keeps a running estimate of your tax all year and flags payments on account ahead of time, so the January number is never a shock and you are never scrambling to find it.

For a limited company, the dates work differently: Corporation Tax is due nine months and one day after your accounting year end, and the Company Tax Return plus annual accounts follow within twelve months. The dates are specific to your company, which is exactly why having them tracked for you matters. AccountsOS syncs your Companies House dates and reminds you well ahead of each one.

The most common first-year mistakes, and how AccountsOS prevents each

Almost every first-year mistake comes down to the same root cause: doing the books in one dreaded session months after the fact, when the context and the receipts are gone. Here is what tends to go wrong, and how the platform stops it happening.

What is Making Tax Digital, and does it affect me in my first year?

If you are starting out now, it is worth knowing about the biggest change coming to self-employment. Making Tax Digital for Income Tax (MTD for ITSA) starts on 6 April 2026 for sole traders and landlords whose qualifying income (turnover before expenses) is over £50,000. From April 2027 it extends to those with income over £30,000, with a £20,000 threshold planned to follow. If your first-year income is below those levels you are not affected yet, but you may be as you grow, so building a digital habit now means you are ready.

When MTD applies to you, two things change. You must keep your records digitally in HMRC-recognised software, which ends spreadsheet-only and paper bookkeeping. And instead of one annual return you send HMRC a quarterly update of your income and expenses, plus a final declaration after the year end. The quarterly deadlines are fixed at 7 August, 7 November, 7 February, and 7 May.

For a new business already capturing everything digitally, this is barely any extra work: a quarterly update becomes a quick review and a submission, not a fresh round of data entry. AccountsOS is MTD-ready from day one, so starting with us means you never have to migrate off a spreadsheet later. There is a full walkthrough in our Making Tax Digital guide.

How AccountsOS sets up and runs your first year

The whole point is that the accounting happens in the background, in the moments you already have, rather than in one dreaded session at year end. From the day you sign up, here is the flow.

How much does accounting software cost for a new business?

AccountsOS is £20 a month, with a 14-day free trial and no card required to start. Everything you need in your first year is included: guided setup, receipt capture, automatic expense and mileage tracking, bank feeds, deadline reminders, VAT when you need it, your first tax return or first company accounts, and unlimited questions to Finn by chat or voice. There are no per-feature add-ons and no per-document charges.

For context, a traditional accountant for a new business typically charges between £100 and £300 a month, often with a slow reply time and an annual scramble to send them your paperwork. A single hour of an accountant's time can cost more than several months of AccountsOS. When you are just starting out and watching every pound, that difference matters, and you are not buying forms, you are buying the work done.