As a new business owner, one of the biggest obstacles that you are going to face is accounting. It can cause a lot of headaches for new businesses, especially if you have very little experience in startup accounting.
Accurately managing your accounts is even more important in 2026, with recent regulatory changes and challenging economic conditions. Having a higher degree of financial clarity and a proactive management style is essential.
There are some tax essentials that new UK businesses should be aware of, and at Tax Driven Accountants, we have seen the consequences of businesses not understanding these tax obligations.
In this guide, we will cover all the accounting essentials that all new businesses should know in 2026 so that you’re prepared for the next financial year.
Essential Accounting Foundations for New UK Businesses
Before you start the financial year, it is important that you put the foundations in place to ensure that your business’s finances run smoothly. Some tasks that should be on your checklist include:
Dedicated Business Account
A huge mistake that many often make as their business grows is neglecting to separate their business and personal finances. Many business owners don’t believe that it matters until the business starts making substantial profits, but it should be something that you set up early on.
By having separate business bank accounts for your business’s finances, you can instantly start deducting any tax payments and ensure that your business expenses and financial reports are not getting confused with your own. Look for a business checking account that offers features tailored to startups, such as low fees and integration with accounting software.
Start Tracking Immediately
Again, a lot of new business owners don’t believe that they have to start tracking their finances until they start to make substantial profit, but that couldn’t be further from the truth. It is true that businesses don’t have to start paying tax until they have reached a certain threshold, but this depends on a number of factors, such as the formation of your business.
For example, Sole Traders are expected to start paying Income Tax and National Insurance once profits exceed £12,570, while Limited Companies pay Corporation Tax from the moment they start making a profit.
Tracking your finances early helps ensure tax compliance throughout the year and prevents you from having to backtrack later. Start by monitoring key metrics like monthly recurring revenue, profit margin, customer acquisition cost, and unit economics to get a clear picture of your business’s financial health so you can make more informed decisions going forward.
Implement User-Friendly Accounting Software
Gone are the days of keeping pen-and-paper accounts of your business’s finances; businesses should now ensure they implement accounting software early on. Using accounting software enables better decision-making and significant time saving.
Early adoption of user-friendly accounting software helps you maintain control and avoid costly migrations later. Popular options for bookkeeping for startups include QuickBooks Online, Zoho Books, and FreshBooks. These platforms offer features like automated bookkeeping, expense categorisation, and integration with your business bank accounts, streamlining your accounting processes.
At Tax Driven Accountants, we can help you with choosing the right software and managing your tax accounts.
Work With an Experienced Accountant
Accountants are crucial for all new businesses, providing essential financial guidance, legal compliance advice, and growth strategies. Accountants are useful for more than just filing your tax returns; they’re a must-have for any business wanting to get the most out of its finances.
Accounting services work with you to increase the likelihood of your business’s survival and success, helping you ensure you’re operating with the right business structure from day one. Accountants also ensure compliance, meaning that you won’t be surprised with unexpected bills that haven’t been accounted for. Consider outsourcing accounting or hiring a fractional CFO to gain expert financial insights without the cost of a full-time executive.
Accounting for Startups UK: A Step-by-Step Guide
Though we always recommend that you set up your accounting system with the help of an accountant, some key steps that you must ensure are covered as a new business include:
Step 1: Choose Your Accounting Software
Select HMRC-recognised software that suits your business size and Making Tax Digital (MTD) requirements. Most offer free trials, so test before committing and communicate with an accountant who can help you pick the right software and set up. Consider options like QuickBooks Online or Zoho Books, which offer robust features for startup accounting.
Step 2: Register with HMRC
Set up your business with HMRC and obtain your Unique Taxpayer Reference (UTR). Register for relevant taxes: VAT (if turnover exceeds £90,000), PAYE (if employing staff), and Corporation Tax (for limited companies within 3 months of starting to trade). Familiarise yourself with UK tax regimes to ensure compliance.
Step 3: Open a Business Bank Account
Keep personal and business finances separate. Most UK banks offer dedicated business accounts with varying fees and features. This separation is essential for limited companies and makes bookkeeping significantly easier. Look for accounts that offer electronic payments and integration with your chosen accounting software.
Step 4: Set Up Your Chart of Accounts
Organise your finances into categories that match UK accounting standards. Your software will have a default template, but customise it to reflect your specific income streams, expense types, and asset categories. This forms the basis of your general ledger.
Step 5: Establish Your Invoicing System
Create professional invoice templates that include all legal requirements: your company name and address, registration number (for limited companies), VAT number (if registered), payment terms, and unique invoice numbers. Set up automatic reminders for overdue payments to improve your accounts.
Step 6: Implement Expense Tracking
Decide how you’ll capture receipts and expenses. Use your accounting software’s mobile app to photograph receipts on the go, or integrate with your business banking to automatically import transactions. Categorise expenses correctly for tax relief claims, including home office deductions if applicable.
Step 7: Set Up Payroll (If Applicable)
If employing staff, register as an employer with HMRC and set up PAYE. Use payroll software to calculate wages, National Insurance, and tax deductions. Submit Real Time Information (RTI) reports to HMRC on or before each payday. Ensure you’re compliant with payroll taxes to avoid penalties.
Step 8: Plan Your VAT Accounting
If VAT-registered, decide whether to use standard, cash, or flat rate accounting. Set calendar reminders for quarterly VAT return deadlines. Ensure your software is MTD (Making Tax Digital) -compliant for digital submissions. Learn more about VAT services and how we can help with compliance.
Step 9: Create a Monthly Reconciliation Routine
Schedule time each month to reconcile bank accounts, review outstanding invoices, and check expense categorisation. Regular reconciliation catches errors early and keeps your records accurate. This is a crucial part of your monthly bookkeeping process.
Step 10: Prepare for Year-End
Set up folders for annual tasks: corporation tax returns, confirmation statements, and year-end accounts. It’s recommended to work with an accountant for year-end compliance, even if you manage day-to-day bookkeeping yourself. They can help with complex tasks like revenue recognition and preparing financial projections.
Managing Cash Flow: The Lifeline of New Business
Managing cash flow is something that all businesses should be focused on, and the best way to manage your cash flow is with the support of an accountant. They will provide you with cash flow forecasting techniques that you can use, as well as work with you to develop strategies for maintaining a healthy cash reserve.
Managing your cash flow may be overwhelming, especially when you are working with suppliers or offering credit to customers. An accountant will work with you to understand invoices and payment collections, ensuring that you are receiving payment as and when you should. They can help you analyse your cash flow statement and gross margin to identify areas for improvement.
DIY Accounting vs. Professional Services
When starting a new business, you will encounter the dilemma of using professional accounting services or simply doing it alone. At Tax Driven Accountants, we have worked with businesses that have attempted DIY before and had to backtrack and correct mistakes.
Of course, we strongly believe that working with an accountant is the best choice for all businesses, but we do acknowledge that there are circumstances where handling their own finances would be beneficial for a business.
When to Handle Accounting (and Cash Accounting) Yourself
If you are someone with experience in numbers and tax rules, and your business finances are simple, and you have the time to dedicate yourself to your accountancy, you could likely handle the financial side of a new business, especially if your business has a low volume of transactions.
Handling your accounting yourself is also a lot more straightforward if you have no employees and can be done, but we do still recommend that you work with an accountant, especially if you have plans for future expansion. If you choose to do it yourself, make sure to follow bookkeeping best practices and use accounting automation tools to streamline your processes.
When to Bring in Professional Help
Though we would always recommend bringing an accountant onboard as soon as possible, if you are looking to save money or test your own accountancy skills, you could wait until your business has experienced growth or your finances are becoming complex.
If you expand and decide to hire staff for your business, you should work with an accountant to set up a PAYE system, as this will ensure that you remain compliant with your responsibilities as an employer.
It is recommended that you bring in an accountant early, as this will lessen the risk of mistakes occurring and ensure that everything is in order from the start. They can help with complex tasks like inventory tracking, cap tables management, and navigating UK tax regimes.
New Tax Updates in 2026 That Businesses Should Know
Last year, the UK government announced substantial tax changes, and if you are looking to open a business, it is important that you are aware of them.
Capital Gains Tax on Business Assets
This tax applies to profits from selling qualifying assets, which are assets that have increased in value. You are expected to pay tax on any profit from the sale, and specific exemptions and reliefs are available for some businesses.
For example, purchasing a commercial property for £250,000 and selling it later for £350,000 means you only pay Capital Gains Tax on the £100,000 profit, not the entire sale price.
Updates in the UK include a rate increase for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) to 18%, and the taxation of carried interest gains as income rather than capital gains.
These updates are essential for businesses to understand, as they will face significantly higher bills when selling qualifying assets. Business owners are advised to seek advice before making the sale.
Making Tax Digital
This new government initiative by HMRC now requires businesses to keep digital records and report tax information using compatible software, phasing out paper-based systems.
This aims to make filing your tax information more efficient, but for anyone unfamiliar with accounting software, it is a new hurdle. Ensure your chosen software, whether it’s QuickBooks Online, Zoho Books, or another platform, is MTD-compliant.
Writing Tax Down Allowances
Writing Down Allowances are UK tax reliefs that allow businesses to deduct a percentage of the value of certain long-term assets (such as plant, machinery, or vehicles) from their taxable profits over several years, rather than the full cost upfront.
In 2026, we experienced a change in these allowances, with a reduction in the main rate from 18% to 14% and the introduction of a new 40% First-Year Allowance for qualifying assets.
This is particularly significant for unincorporated businesses and businesses that lease assets, as these were previously excluded from the more generous 100% full-expensing relief.
Writing Tax Down Allowances has many intricacies and exemptions that businesses should know, which is why it is essential for businesses to work with an accountant to stay up to date.
New First-Year Allowance
This year, the UK has introduced a new 40% First Year Allowance for qualifying plant and machinery expenditures. This scheme has been designed to boost business investment and allows businesses to deduct 40% of the cost of new main-rate plant and machinery from their taxable profits in the first year.
It is important to know your rights as a business and ensure that you are making the most of tax reliefs where possible, which is where an accountant can offer support.
Dividend Tax
Starting April 6th, dividend tax rates will rise by 2%, with the basic rate rising from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%, with tax-free dividends staying at £500.
The UK Dividend Tax increase in April 2026 will mainly impact small business owners by raising the tax on profit extraction. This change makes dividends less appealing than salaries, making owners rethink their payment strategies.
Tax Driven: Accounting Services for Startups
Through this guide, you should have a better understanding of your tax responsibilities as a new business in the UK. We will always recommend working with an accountant to ensure you can accurately track your finances and remain compliant with your tax responsibilities.
If you’re a business start-up looking for expert support, or need help with bookkeeping services, self assessment tax returns, or business accounts and taxation, we’re here to help. Our services include setting up efficient invoicing workflows, implementing document retention systems, and providing real-time spend visibility to help you make informed financial decisions.
Need help with your business’s finances? Contact us today to find out how we can help, or find your local Tax Driven Accountants office across the UK. We can assist with everything from basic bookkeeping to complex financial projections, ensuring your startup accounting is set up for success from day one.
