Author: PaperRocket

We’re delighted to have been shortlisted at the Contracting Awards 2026 in the Best Contractor Accountancy – Under 500 Clients category.

It’s a real honour to be recognised alongside some fantastic firms, particularly in an industry that continues to evolve so quickly.

A huge thank you goes to our incredible clients for trusting us with your businesses, and to our brilliant team for the hard work and care they put into supporting our clients every day.

We’re looking forward to celebrating with everyone at the awards in September.

Thank you to everyone who has supported PaperRocket over the years, we’re incredibly grateful.

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PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners. 

We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.

Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.

To find out how we can help you please get in touch now.

When the sun finally decides to make an appearance in the UK, it’s not uncommon for business owners to start wondering whether some of their summer-related costs can be paid for by their limited company.

Unfortunately, there are plenty of myths floating around online, and what sounds reasonable isn’t always allowed by HMRC.

Let’s look at some common summer expenses and separate fact from fiction.

Myth 1: My Company Can Pay for My Family’s Summer Holiday

False

A holiday taken primarily for personal enjoyment is not a business expense, even if you answer a few emails while you’re away.

For a cost to be deductible, it must be incurred wholly and exclusively for business purposes. A family holiday won’t meet that test.

Business travel, conferences and genuine work-related trips can be different, but the business purpose needs to be clear and well documented.

Myth 2: My Company Can Buy a Fan for My Office

Usually True

If the fan is purchased for use in a business premises or a dedicated home office used for work, it is generally an allowable business expense.

The key question is whether the purchase is made for business use rather than personal comfort around the home.

A desk fan in your office is very different from a fan bought for the family lounge.

Myth 3: Ice Creams for Clients Are Tax Deductible

Usually False

Taking a client for lunch, buying drinks or treating them to refreshments generally falls under business entertaining.

Business entertaining is not normally deductible for corporation tax purposes, even if there is a genuine business discussion taking place.

Many business owners are surprised by this one.

Myth 4: My Company Can Pay for Unlimited Cold Drinks for Staff

True

Providing employees with tea, coffee, water and other refreshments in the workplace is generally fine.

During a heatwave, stocking the fridge with cold drinks for employees would normally be an allowable business expense.

This is different from entertaining clients.

Myth 5: My Company Can Install Air Conditioning in My Home

Not Usually

This is where things become more complicated.

If you work from home, HMRC will generally view air conditioning installed in your house as having a significant personal benefit.

That makes it difficult to justify as a company expense.

A dedicated office in commercial premises is a different situation, where air conditioning would normally be a legitimate business cost.

Myth 6: A Summer BBQ for Staff Is Never Allowed

False

An annual staff event may qualify for the annual function exemption.

Provided the event is available to all employees and the cost remains within the relevant limits, there may be no tax charge on employees and the company can usually obtain tax relief.

This can apply even if your company only has a small number of employees.

Myth 7: My Company Can Pay for Garden Furniture Because I Work From Home

Almost Certainly False

Garden furniture, outdoor dining sets and similar items are generally personal expenses.

Even if you occasionally work outside on sunny days, it would be extremely difficult to demonstrate that these costs were incurred wholly and exclusively for business purposes.

The Golden Rule

Whenever you’re unsure whether an expense can be paid for by your limited company, ask yourself one simple question:

“Would I still be buying this if I wasn’t running the business?”

If the answer is yes, there’s a good chance HMRC may view it as a personal expense.

Summer brings plenty of opportunities to enjoy the sunshine, but it doesn’t change the underlying tax rules. Taking a few minutes to check before putting an expense through your company can save a lot of hassle later.

If you’re unsure whether a particular expense is allowable, get in touch with your accountant before making the purchase. It is always easier to get the answer right from the start than to fix it later.

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PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners. 

We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.

Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.

To find out how we can help you please get in touch now.

One of the most common questions we hear from clients is:

“I’ve got money building up in my company account. Should I leave it there or take it out?”

Unfortunately, there isn’t a one-size-fits-all answer. The right choice depends on your personal circumstances, future plans and tax position.

Here’s what you should consider before moving large amounts of money from your company to your personal account.

First Things First: Remember It’s Not Personal Money Yet

A common misconception is that because the company has cash in the bank, the money automatically belongs to the director.

If you operate through a limited company, the money belongs to the company until it is paid to you as:

• Salary
• Dividends
• Pension contributions
• Loan repayments (if you’ve lent money to the company)

Each option has different tax implications.

Reasons To Leave Cash In The Company

In many cases, retaining profits can be a sensible strategy.

Building a Safety Net

Contracting income can fluctuate.

Keeping a reserve within the company can help cover:

• Quiet periods between contracts
• Unexpected business expenses
• Tax liabilities
• Future investment opportunities

Many contractors learned the value of having a cash buffer during the pandemic and periods of economic uncertainty.

Planning for Future Tax Efficiency

Just because you can take money out now doesn’t always mean you should.

If taking additional dividends would push you into a higher tax band, it may be worth leaving some profits in the company until a future tax year.

Spreading income across multiple years can sometimes reduce the overall tax paid.

Funding a Future Pension Strategy

Money retained within the company can later be used to make employer pension contributions.

For many directors, pension contributions remain one of the most tax-efficient ways of extracting profits from a limited company.

Investing in the Business

Retained profits can also be used for:

• New equipment
• Training and development
• Marketing
• Hiring staff
• Expanding services

Sometimes the best return comes from reinvesting back into the business itself.

Reasons To Take Cash Personally

There are also plenty of situations where withdrawing funds makes sense.

Saving Towards Personal Goals

You might be building up savings for:

• A house purchase
• Home improvements
• School fees
• Family holidays
• Paying down a mortgage

In these cases, keeping all of the money trapped inside the company may not help you achieve your personal objectives.

Reducing Risk

Although company funds are generally protected from personal liabilities, some directors simply prefer having a portion of their wealth held personally.

Having personal savings can provide additional flexibility and peace of mind.

Mortgage Applications

Mortgage lenders often look at:

• Salary
• Dividends
• Company profits

The exact approach varies between lenders.

If you’re planning a mortgage application, it’s worth speaking to a specialist mortgage broker before making large withdrawals, as taking more income isn’t always necessary.

The Tax Question

This is usually the biggest factor.

Taking additional dividends may:

• Increase your dividend tax bill
• Push you into a higher tax band
• Affect your entitlement to certain allowances

Leaving money in the company avoids personal tax for now, but corporation tax will already have been paid on the profits.

The key is looking at the combined tax position rather than focusing on a single tax.

Don’t Forget About Pensions

Many directors overlook one of the most tax-efficient options available.

Employer pension contributions are usually:

• Deductible for corporation tax purposes
• Free from income tax
• Free from National Insurance

While pensions won’t suit everyone, they can be an excellent way of extracting profits if you’re comfortable locking the money away until retirement.

So Which Option Is Best?

The answer depends on what you’re trying to achieve.

Leaving money in the company may make sense if you:

✓ Want a larger business cash reserve
✓ Expect profits to fluctuate
✓ Are planning future pension contributions
✓ Want flexibility over when income is taken

Taking money personally may make sense if you:

✓ Need funds for personal goals
✓ Are building personal savings
✓ Want to reduce debt or a mortgage
✓ Need the money in the short term

The most tax-efficient option isn’t always the best option. Sometimes achieving your personal goals is worth paying a little more tax.

Final Thoughts

There’s often a temptation to focus purely on minimising tax, but good financial planning is about much more than that.

Before taking large dividends or leaving substantial sums within your company, consider your future plans, cash flow requirements and long-term objectives.

What works for one person may be completely wrong for another.

If you’re unsure which approach is right for you, speak to your accountant before making any significant withdrawals. A quick conversation today could help you avoid an expensive tax surprise later.

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PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners. 

We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.

Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.

To find out how we can help you please get in touch now.

After more than 15 years without a change, the government’s approved mileage rate for cars and vans has finally increased.

The Chancellor announced that the rate for the first 10,000 business miles will rise from 45p to 55p per mile, with the change applying retrospectively from 6th April 2026. This is welcome news for anyone who uses their own vehicle for business journeys and has been feeling the impact of rising fuel, insurance and maintenance costs.

What has changed?

For the 2026/27 tax year, the approved mileage rates are now:

Vehicle Type	First 10,000 Business Miles	Over 10,000 Business Miles
Cars and Vans	55p per mile	25p per mile
Motorcycles	24p per mile	24p per mile
Bicycles	20p per mile	20p per mile

Only the rate for cars and vans has changed. The rates for motorcycles, bicycles and mileage above 10,000 miles remain unchanged.

The increase has been backdated to 6th April 2026, meaning businesses should review any mileage claims already submitted during the current tax year.

Who can claim?

The increase applies to:

• Employees using their own car or van for business journeys
• Company directors using their personal vehicle for business travel
• Sole traders using their own vehicle for work
• Business partners travelling for business purposes

It does not apply to normal commuting between home and a permanent workplace. To qualify, the journey must be wholly and exclusively for business purposes, such as visiting clients, attending meetings or travelling between work locations.

How much difference does it make?

The increase is worth an extra 10p per mile on the first 10,000 business miles travelled during the tax year.

For example:

Annual Business Mileage	Old Rate	New Rate	Additional Claim
2,000 miles	£900	£1,100	£200
5,000 miles	£2,250	£2,750	£500
10,000 miles	£4,500	£5,500	£1,000

For many contractors, consultants and small business owners, this could significantly increase the amount that can be claimed as a business expense.

Why has the rate increased?

The approved mileage allowance had remained unchanged since 2011 despite substantial increases in fuel, servicing, insurance and vehicle running costs.

This is the first increase to the headline mileage rate in over 15 years and reflects the reality that the cost of operating a vehicle has risen considerably during that period. For many business owners, the previous 45p rate had become increasingly outdated.

Limited company directors – what should you do?

If you run a limited company and use your personal vehicle for business journeys, it’s worth checking any mileage claims you’ve already submitted since 6th April 2026.

Where appropriate, these may now qualify for the higher 55p rate.

Remember that when you use the approved mileage method, the mileage allowance is intended to cover all vehicle running costs, including fuel, servicing, repairs, insurance and depreciation. Those costs cannot normally be claimed separately through the company.

FreeAgent users – important information

FreeAgent has already updated its mileage calculations to reflect the new rates.

For most users, no action is required. Mileage claims created from 6th April 2026 onwards will automatically use the new 55p rate, including existing claims that:

• Have not been re-billed to a customer, and
• Are not within a locked accounting period

If you’ve already re-billed mileage to a customer

FreeAgent will not automatically amend mileage claims that have already been re-billed on an invoice.

In this situation, you have three options:

1. Leave everything as it is.
2. Increase the mileage claim for tax purposes but keep the customer invoice unchanged.
3. Increase both the mileage claim and the invoice value.

If you choose option two, FreeAgent allows you to update the mileage claim to the new 55p rate while keeping the customer invoice at the original value. This maximises the tax relief available without changing what you have charged your client.

If the mileage is in a locked accounting period

If your accounts have already been finalised and the period is locked, FreeAgent will not automatically update the mileage claims.

In this situation you can:

• Leave the figures unchanged.
• Post a journal entry for the additional amount that could have been claimed.
• Unlock the period, amend the mileage claims and refile any affected accounts or tax returns if necessary.

For accountants and bookkeepers using FreeAgent, the suggested journal entry is:

Debit: 249 Mileage
Credit: 905 Expense Account (for the relevant user)

This records the additional mileage claim in the current open accounting period without reopening previously filed periods.

Our thoughts

This change is long overdue and will be welcomed by many contractors, freelancers and small business owners who regularly travel for work.

While a 10p increase may not sound significant at first glance, it can add up quickly over the course of a year. Someone travelling 10,000 business miles will now be able to claim an additional £1,000 compared to the previous rate.

If you’ve already submitted mileage claims since 6th April 2026, now is a good time to review them and ensure you’re receiving the full relief available.

If you’re a PaperRocket client and would like us to review how this affects your company accounts, mileage claims or FreeAgent records, feel free to get in touch.

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PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners. 

We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.

Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.

To find out how we can help you please get in touch now.