Funding options for start-ups range from asking friends and family for help to securing the support of venture capitalists or taking out a business loan. 

With so many options, finding the right funding is one of the most important and challenging steps in building a start-up. Whether you’re looking for a small injection of cash to cover early costs or significant investment to scale, there are more choices available to UK founders than many realise. 

The right funding source depends on your business model, your stage of growth, and how much control you’re willing to give up. The funding options available to UK start-ups range from equity-based investment to loans, grants, and competition prizes, and understanding the differences between them and what they involve is the first step to making the right choice for your business. 

Key takeaways

• UK start-ups have a range of funding options available, including loans, grants, crowdfunding, angel investment, venture capital, and accelerator programmes.
• The right funding choice depends on your business stage, capital requirements, and willingness to give up equity.Debt funding (such as start-up loans, peer-to-peer lending, and asset finance) allows founders to retain ownership but requires repayment.
• Equity funding (including angel investors, venture capital, and equity crowdfunding) provides growth capital in exchange for a stake in the business.
• Government-backed schemes and grants can provide funding and support without giving up ownership, although competition can be high.
• Most successful start-ups use a mix of funding sources over time as their business grows and funding needs change.
• Preparation is essential, with lenders and investors typically looking for a strong business plan, realistic financial forecasts, and evidence of market demand.

Here’s what we’ll cover:

1. Crowdfunding

 Crowdfunding is a way of raising money by collecting small contributions from a large number of people, typically through an online platform. In return, backers usually receive equity in your business, a reward, or early access to your product, depending on the type of crowdfunding you choose. 

There are three main types of crowdfunding available to UK start-ups: 

• Equity crowdfunding: investors receive shares in your business in exchange for their contribution. Platforms like Crowdcube and Republic Europe (formerly Seedrs) are among the most established in the UK for this model. 
• Reward crowdfunding: backers receive a non-financial reward (typically your product or a related perk) in exchange for their pledge. Kickstarter and Indiegogo are the most widely used platforms globally. 
• Debt crowdfunding: also known as peer-to-peer lending, this model relies on backers who lend money to your business and receive repayments with interest.  

Crowdfunding works best for businesses with a compelling story, a consumer-facing product, and an existing audience or community to rally behind the campaign. A successful crowdfunding campaign can also generate significant press coverage and validate your idea before you’ve spent a penny on production. 

2. Peer-to-peer lending

Peer-to-Peer (P2P) lending allows businesses to borrow money directly from individual investors through an online platform, bypassing traditional banks. Unlike with equity crowdfunding, you retain full ownership of your business, but you’ll need to repay the loan with interest. 

P2P lending is typically faster to access than a traditional bank loan, with more flexible eligibility criteria and a largely online application process. Interest rates vary depending on your credit profile and the platform you use but are often competitive with high street bank rates, particularly for businesses that don’t qualify for mainstream lending. 

P2P lending works best for businesses that have been trading for at least a year, have a clear repayment plan, and need a straightforward cash injection rather than equity backing or strategic investment. 

3. Angel investment

Angel investors are high-net-worth individuals who invest their own money into early-stage businesses in exchange for equity. Beyond the capital, many angels bring valuable industry experience, networks, and mentorship to the businesses they back. 

Angel investment is typically sought by start-ups that have moved beyond the idea stage, have some early traction, and are looking for their first significant round of external funding. Investment amounts vary widely (from tens of thousands to several hundred thousand pounds), and angels often invest as part of a syndicate to spread their risk. 

The UK Business Angels Association (UKBAA) represents and connects angel investors across the UK and is a good starting point for founders looking to find and approach potential investors. Many angels also operate through networks and accelerator programmes. 

4. Venture capital

Venture Capital (VC) is investment provided by specialist firms in exchange for an equity stake in high-growth businesses. In return for capital (typically ranging from hundreds of thousands to millions of pounds), VC firms take an ownership share and often an active role in the business’s strategic direction. 

VC funding is not suitable for every start-up. Investors are looking for businesses with the potential for significant, scalable growth and a clear path to a substantial return on their investment, typically through an exit such as an acquisition or an Initial Public Offering (IPO). If your business model doesn’t fit that profile, other funding options are likely a better fit. 

For start-ups that do qualify, VC funding can be transformative. Beyond the capital, investors bring expertise, networks, and credibility that can accelerate growth significantly. UK Private Capital (formerly British Private Equity and Venture Capital Association, or BVCA) is a useful resource for founders looking to understand the VC landscape and find potential investors in the UK.

5. Start-up loans

The Start Up Loans scheme, delivered by the British Business Bank, offers government-backed personal loans of up to £25,000 to individuals looking to start or grow a business in the UK. Unlike with equity funding, you retain full ownership of your business, and every successful applicant also receives 12 months of free mentoring and business support. 

The scheme is designed for early-stage founders who may not qualify for traditional bank lending. Loans carry a fixed interest rate of 6% per annum and are repayable over one to five years. To apply, you’ll need to submit a business plan and cash flow forecast, which your assigned mentor can help you prepare. 

Start Up Loans are available to UK residents ages 18 or older whose business has been trading for fewer than 36 months, making this one of the most accessible funding options for start-ups in the early stages. 

6. Small business grants

Small business grants are non-repayable funds awarded to businesses that meet specific criteria. Unlike loans, you don’t pay them back—but competition is high and eligibility requirements vary significantly between schemes. 

Grants for UK start-ups typically fall into three categories:  

• Government grants: delivered at a national level through organisations such as Innovate UK, typically supporting innovation, research, and business growth. 
• Local grants: administered by local councils, combined authorities, and regional growth funds for businesses within specific geographic areas. 
• Sector-specific grants: designed for businesses in particular industries, such as technology, sustainability, or creative work. 

Finding the right grant requires research. The UK government’s business finance and support finder is the most reliable starting point, allowing you to filter opportunities by location, sector, and business stage. Grants are often time-limited and oversubscribed, so it’s worth checking regularly and applying as soon as a relevant scheme opens.

7. Friends and family

Borrowing from friends and family is one of the most common ways to fund a start-up in its earliest stages. It’s typically the most accessible source of capital available to a new founder—but without clear terms in place, it can put personal relationships under significant strain. 

The informality that makes friends and family funding easy to access is also its biggest risk. Misunderstandings about whether money is a loan or a gift, when repayment is expected, and what happens if the business fails can cause lasting damage to relationships. The best way to protect both parties is to treat it like any other funding arrangement by putting the terms in writing, agreeing to a repayment schedule, and being honest about the risks involved. 

8. Asset finance 

Asset finance allows businesses to spread the cost of purchasing equipment, vehicles, or machinery over time rather than paying upfront. Instead of tying up capital in physical assets, you preserve cash flow for day-to-day operations, making it a practical option for start-ups with significant equipment needs. 

The two most common forms are hire purchase, where you pay in instalments and own the asset outright at the end of the agreement, and leasing, where you use the asset for a fixed period and return it at the end. Both options are widely available through specialist asset finance providers and some high street banks. 

For start-ups that are generating revenue but struggling with cash flow, invoice finance is a related option worth considering. It allows you to release cash tied up in unpaid invoices, typically receiving a percentage of the invoice value upfront from a finance provider, who then collects payment from your customer directly. 

9. Accelerators and incubators

Accelerators and incubators support early-stage start-ups with funding, workspace, mentorship, and access to investor networks, typically in exchange for a small equity stake or a programme fee. 

While the terms “accelerator” and “incubator” are often used interchangeably, there’s a distinction. Incubators tend to support very early-stage businesses over a longer, more flexible timeframe. Accelerators are typically fixed-term, intensive programmes that culminate in a demo day where founders pitch to investors. 

Well-known UK programmes include Seedcamp, Entrepreneurs First, and Wayra. Many are sector-specific, so it’s worth researching which programmes have a track record in your industry before applying. 

10. Business competitions and awards

Business competitions and awards offer start-ups the chance to win funding, resources, and profile, often without giving up equity. Beyond the prize, a well-known award can add significant credibility to your business. 

Competitions range from local enterprise challenges to national programmes like the King’s Awards for Enterprise. Many are sector-specific, so researching competitions relevant to your industry is the most effective approach. The Entrepreneur Handbook maintains a regularly updated list of UK start-up competitions worth bookmarking.

How do you choose the right funding option for your start-up?

The right funding option depends on your business stage, how much capital you need, and how much ownership you’re willing to give up.  

Most start-ups use a combination of sources rather than relying on a single option. 

To make the right choice, start by asking yourself three questions: 

• How much do you need and what for? Smaller, short-term needs are better served by loans, grants, or friends and family. Larger growth capital typically requires equity investment. 
• How much control are you willing to give up? Equity funding means sharing ownership and, in some cases, decision-making. Debt funding preserves your ownership but comes with repayment obligations. 
• What stage is your business at? Some options, like venture capital or accelerators, require traction and proof of concept. Others, like start-up loans or crowdfunding, are accessible from day one. 

Whichever route you pursue, lenders and investors will want to see: 

• A credible business plan. 
• Realistic financial projections. 
• Evidence that you understand your market. 

The more prepared you are before you approach funders, the stronger your position will be.

Back yourself—and find the funding to match

Starting a business takes courage, and the funding landscape for UK founders has never been more varied. From government-backed loans and grants to angel investors and venture capital, there are funding options that fit every stage and ambition. 

The key is preparation. Know your numbers, understand what funders are looking for, and don’t be discouraged by early rejections—most successful founders hear “no” several times before they hear “yes.” 

Stay on top of your start-up’s finances in real time with Sage accounting software and you’ll always be investor-ready when the right opportunity comes along. 

Frequently asked questions

What is the most common funding option for UK start-ups? 

The most common early-stage funding sources for UK start-ups are friends and family, start-up loans, and crowdfunding.  

As businesses grow and demonstrate traction, angel investment and venture capital become more accessible. Most start-ups use a combination of sources in different stages of growth rather than relying on a single option.

Do I have to give up equity to get start-up funding? 

Not always. Loans, grants, start-up loan schemes, peer-to-peer lending, and asset finance all allow you to raise money without giving up ownership of your business.  

Equity funding through angel investors, venture capitalists, or equity crowdfunding does require you to give up a share of your business in exchange for investment.

How do I know if my start-up is ready for investment? 

Investors typically look for a credible business plan, realistic financial projections, evidence of market demand, and a founder who understands their numbers, so you’ll need to have all of those things to be ready to attract investment.  

Early-stage investors like angels and accelerators may back a strong idea and team before significant revenue exists, while venture capitalists generally expect clear traction and a scalable business model. 

Are there grants available for start-ups in the UK? 

Yes. Grants are available through national bodies like Innovate UK, local councils, regional growth funds, and sector-specific programmes.  

Unlike loans, grants are non-repayable, but competition is high and eligibility criteria vary significantly between schemes.  

Browse more topics from this article

Entrepreneurs are people with big ideas. They have passion, determination, and creativity. But accounting knowledge doesn’t always come with the territory, and even when it does, there’s usually room to sharpen it. 

A sound understanding of accounting for startups can accelerate growth, strengthen your financial position, and improve your chances of securing funding. Whether you’re pre-revenue or already scaling, getting your finances right from the start makes every stage easier. To begin, lean what startup accounting involves, why it matters for entrepreneurs, the key metrics to track, and how to choose the right accounting support for your business. 

Key takeaways

• Startup accounting goes beyond bookkeeping, helping entrepreneurs manage cash flow, stay compliant, make informed decisions, and prepare for growth.
• The foundations of good startup accounting include accurate recordkeeping, tax compliance, cash flow management, budgeting, forecasting, and investor readiness.
• Strong financial management improves business resilience by helping founders avoid cash flow issues, make better strategic decisions, and maintain investor confidence.
• Tracking key KPIs is essential, including revenue, profit margins, cash flow, debtor days, customer acquisition cost (CAC), and conversion rates.
• Good accounting can improve funding prospects by providing accurate financial statements, reliable forecasts, and smoother due diligence processes.
• Startups have several support options available, including DIY accounting, outsourced bookkeeping, specialist startup accountants, and cloud accounting software.
• Getting financial systems in place early creates a stronger foundation for growth and makes it easier to scale, secure funding, and meet regulatory obligations.

Here’s what we cover:

What is startup accounting? 

Startup accounting is the process of recording, organising, and reporting your business’s financial activity, which covers everything from bookkeeping and cash flow management to tax compliance, budgeting, and financial reporting.  

For entrepreneurs, getting this right from the start creates the financial clarity needed to make informed decisions and attract investment. 

Unlike accounting for established businesses, startup accounting often needs to move fast, adapt to rapid change, and satisfy the expectations of investors and lenders as well as His Majesty’s Revenue and Customs (HMRC). That means clean, accurate records aren’t just good practice but a competitive advantage. 

A skilled startup accountant does far more than file tax returns. They can help you set up the right systems, track the metrics that matter, prepare for funding rounds, and make sure your finances are always investor-ready. 

What are the key areas of accounting for startups? 

Startup accounting covers several interconnected areas, from bookkeeping and tax compliance to cash flow management, budgeting, and investor readiness.  

Getting each of these right from the start gives your business the financial foundation it needs to grow.

Bookkeeping and recordkeeping 

Maintaining accurate, up-to-date financial records can give you a clear picture of where money is coming from and going to. Without clean books, everything else, such as tax returns, financial statements, and investor reports, becomes significantly harder to produce. 

Tax compliance 

Ensure you meet your obligations with HMRC, claim every eligible relief, and avoid penalties that can strain an already tight budget. This includes corporation tax, VAT, PAYE, and self-assessment where applicable. 

Cash flow management  

Effective cash flow management anticipates future cash needs before they become urgent, so you can plan ahead rather than react. Even profitable startups can fail if they run out of cash at the wrong moment. 

Budgeting and forecasting 

Build financial models and projections that inform hiring decisions, investment timing, and growth planning. Comparing actuals against your budget monthly brings discipline and accountability to your finances. 

Investor readiness 

Prepare financial statements and projections that give investors and lenders the confidence to back your business. Organised books can significantly speed up due diligence and improve the outcome of funding conversations. 

Due diligence support 

Solid accounting can assist with the financial aspects of funding rounds and acquisitions, where clean, accurate records can make or break a deal. 

Why does startup accounting matter? 

Good startup accounting gives you the financial clarity to make confident decisions, the credibility to attract investors, and the compliance framework you need to avoid costly penalties.  

For early-stage businesses, it’s one of the highest-return investments you can make. 

Poor financial management is one of the leading causes of startup failure. Cash flow problems in particular can derail even the most promising businesses, which is why having accurate, up-to-date accounts is essential for the survival and growth of your business. 

Here’s why it matters at every stage: 

• Investor confidence: well-prepared financial statements demonstrate that your business is run with transparency and financial discipline. Investors are far more likely to back a startup with clean, organised books and reliable projections. 
• Cash flow control: accurate forecasting helps you anticipate cash needs before they become urgent, giving you time to act rather than react. 
• Tax efficiency: identifying eligible reliefs and credits early reduces your tax burden while you’re still establishing the business, which is something good financial planning can surface from the outset. 
• Faster funding rounds: organised financial records streamline due diligence, which can significantly speed up the process of closing a funding round. 
• Strategic decision-making: when you understand your numbers, you can make better decisions about when to hire, invest, or expand. 

Having strong financial foundations in place early gives you a professional advantage when approaching lenders or investors. Funders take greater confidence from businesses that can demonstrate financial discipline and accurate, well-organised records. 

What are the key performance indicators for startups? 

The Key Performance Indicators (KPIs) for startups include revenue, gross profit margin, net profit margin, cash flow, debtor days, conversion rate, customer acquisition cost, and net promoter score.  

Tracking these monthly gives you the financial visibility to make confident decisions and demonstrate progress to investors. 

KPIs are the financial metrics that tell you whether your startup is growing, stalling, or heading for trouble. The most engaged entrepreneurs review them monthly, using reports and dashboards in cloud accounting software to stay on top of performance and course-correct quickly. Understanding what these figures are telling you (and acting on them) is what separates startups that grow from those that stall. 

Profitability metrics 

Profitability KPIs tell you whether your business is generating more than it spends and how efficiently it’s doing so. These are the figures investors look at first when evaluating a startup’s financial health. 

• Revenue: total income from customer purchases, minus returns or undelivered services—the fundamental measure of whether your business is generating demand. 
• Gross profit: revenue minus direct costs, showing how efficiently your business produces its product or service. 
• Gross profit margin: gross profit divided by revenue, expressed as a percentage. This reveals how well individual products or services are performing across the business.
• Net profit: gross profit minus overheads, loan interest, and taxes—the amount your business has actually made after all costs. 
• Net profit margin: net profit divided by revenue, expressed as a percentage, showing what proportion of revenue translates into actual profit. 

Cash flow and working capital metrics 

Cash flow KPIs show whether your business has enough liquidity to meet its obligations day to day. Even profitable startups can run into serious difficulty if cash flow isn’t managed carefully. 

• Debtor days: the average number of days customers take to pay. A high figure can damage cash flow even when sales are strong, so businesses that regularly exceed agreed terms present a real risk. 
• Creditor days: the average number of days your business takes to pay suppliers. Managing this carefully is a key lever for maintaining healthy day-to-day liquidity. 

Growth and marketing metrics 

Growth KPIs help you understand how effectively your business is acquiring and retaining customers and whether your marketing spend is generating a meaningful return. 

• Conversion rate: the percentage of prospective customers that become actual customers, showing how effectively your sales and marketing activity generates revenue. 
• Customer Acquisition Cost (CAC): the total cost of a marketing campaign divided by the number of new customers it attracted, revealing whether your marketing budget is working efficiently. 
• Net Promoter Score (NPS): a measure of how likely customers are to recommend your business. Customers are asked to score the business on a scale from one to ten, and the results are aggregated. Scores of nine or 10 indicate active advocates and are a strong signal of product-market fit. 

How does accounting help startups raise funding? 

Good accounting strengthens your position when raising funding by giving investors and lenders the financial transparency they need to back your business with confidence.  

Clean, well-organised books can accelerate due diligence, improve your valuation, and reduce the risk of a funding round falling through. 

Specifically, strong startup accounting supports fundraising in three ways: 

Investor-ready financial statements 

Clear, accurate financial reports like profit and loss statements, balance sheets, and cash flow statements give investors the information they need to assess your business quickly and confidently. 

Reliable financial projections 

Data-driven forecasts show investors where your business is headed and demonstrate that you understand your own numbers. Projections grounded in accurate historical data are significantly more credible than those built on assumptions alone. 

Smoother due diligence 

Disorganised or inaccurate books are one of the most common reasons funding rounds slow down or fall apart. Having your records in order before you approach investors removes a major source of friction and signals that your business is professionally run. 

What accounting support options are available to startups? 

The right accounting for startup support depends on your stage, budget, and financial complexity, but most early-stage businesses choose from four main options: DIY accounting, part-time or outsourced bookkeeping, a specialist startup accountant, or cloud accounting software. 

Each option has its place, and the right choice often changes as your business evolves. 

DIY accounting 

Many pre-revenue or very early-stage startups manage their own books initially, particularly if transactions are simple and volumes are low. This can work in the short term but becomes increasingly risky as revenue grows, employees join, or investors come on board. The time cost alone often outweighs the savings. 

Part-time or outsourced bookkeeping 

Engaging a part-time bookkeeper or outsourced accounting service is a cost-effective middle ground for startups not yet ready for a full-time hire. It keeps your records accurate and your compliance on track without the overhead of a permanent employee. The risk is continuity—if your bookkeeper moves on, their knowledge of your business goes with them. 

A specialist startup accountant 

For funded startups or those preparing to raise, a specialist accountant with experience in early-stage businesses is often the most valuable investment. They bring strategic financial guidance, an understanding of investor expectations, and the ability to support due diligence, things a general bookkeeper or DIY approach simply can’t provide. 

Cloud accounting software 

Modern cloud accounting software allows startups to manage bookkeeping, invoicing, financial reporting, and tax compliance in one place, with real-time visibility into their financial position. For many startups, software works best alongside professional accounting support rather than as a replacement for it. It handles the day-to-day efficiently, freeing up your accountant to focus on the strategic work that adds the most value. 

Take control of your startup’s finances from day one 

Whether you choose to work with a startup accountant, manage your books yourself, or use cloud accounting software, having the right tools in place makes everything easier. Sage accounting software helps startups stay on top of their finances in real time, from bookkeeping and invoicing to financial reporting and tax compliance. Explore how it can support your business from day one. 

Frequently asked questions 

Do startups need an accountant from day one? 

Not necessarily, but getting professional accounting support early is strongly recommended for most startups.  

Very early-stage businesses with minimal transactions may be able to manage basic bookkeeping themselves, but as soon as revenue, employees, or external investment enters the picture, working with a startup accountant or using dedicated accounting software significantly reduces risk and improves financial decision-making. 

What is the difference between cash and accrual accounting for startups? 

Cash accounting records income and expenses only when money changes hands, while accrual accounting records them when they are earned or incurred, regardless of when payment is made.  

Most startups benefit from accrual accounting, as it gives a more accurate picture of financial performance over time and is what investors and lenders typically expect to see when evaluating a business. 

What financial records should a startup keep? 

Startups should keep records of all income and expenses, bank statements, invoices, payroll records, tax filings, and any contracts or agreements with customers, suppliers, or investors.  

HMRC requires businesses to keep records for at least six years. Keeping these organised and up to date from the start makes tax compliance, financial reporting, and due diligence significantly easier as the business grows.

When should a startup consider outsourcing its accounting? 

Most startups benefit from outsourcing their accounting earlier than they expect to.  

The cost of professional support is typically far lower than the cost of errors, missed reliefs, or compliance failures. As financial complexity increases, particularly around payroll, VAT, and investor reporting, outsourcing becomes even more valuable until the business reaches a size where bringing finance in-house makes commercial sense. 

What accounting method do investors expect startups to use? 

Investors typically expect to see accounts prepared on an accrual basis, in line with generally accepted accounting principles.  

Clean, accurate financial statements prepared this way make due diligence significantly smoother and give investors greater confidence in the reliability of your financial data. Startups planning to raise funding should ensure their books meet this standard well in advance of approaching investors. 

Browse more topics from this article

From The Apprentice to Dragons’ Den, we’ve all seen TV shows where would-be entrepreneurs pitch for funding to start a small business (or scale a company later down the line). 

While these shows make for great entertainment, they can make the idea of getting investment seem rather scary. 

In the real world, there are several ways to get funding to start a business in the UK, and you won’t get shouted at by leaders of industry in the process. 

Whether you need a small amount to cover early setup costs or a larger investment to buy equipment or rent premises, understanding your funding options can help you choose the right route from the start. 

Key takeaways

• There are several ways to get funding to start a business, including bank loans, government startup loans, grants, crowdfunding, peer-to-peer lending, and private investment. 
• The best funding option depends on how much money you need, what you need it for, your repayment ability, and how much control you want to keep. 
• Loans can help cover startup costs without giving away equity, but they add repayment pressure and may require a strong credit history, business plan, or collateral. 
• Grants and crowdfunding may help you raise money without traditional borrowing, but they can be competitive, time-consuming, and dependent on a strong application or pitch. 
• Before applying for funding, prepare a clear business plan, realistic financial forecasts, and evidence that you can manage the money responsibly. 

Here’s what we’ll cover: 

How to get funding to start a business

You can get funding to start a business through personal savings, loans from family and friends, bank finance, government-backed startup loans, grants, crowdfunding, peer-to-peer lending, or private equity investment. 

Technology companies, manufacturing firms, and retail businesses almost always need external investment to get going, so if you’ve decided to seek third-party funding, know you’re in good company. 

If you don’t have your own personal savings to invest in financing your startup, the following methods could help:

Family and friends 

Getting a loan from friends or family is one of the oldest ways of financing a startup business. 

Your relatives or acquaintances may either lend you the money until you start making a profit or ask for a share in your company. 

The benefit of turning to friends and family is that they may lend you the money for nothing (or at very reasonable rates of interest). 

But, of course, if things go wrong with your business and you can’t repay the loan, this could affect your personal relationships. 

Banks 

Banks are another traditional place to seek funding to start a small business. You approach the bank and apply for a business loan, then repay the amount borrowed with interest over an agreed period. 

A bank loan can be useful if you want a clear repayment structure and don’t want to give away equity in your company. Some banks also offer other forms of business finance, such as overdrafts, credit cards, or asset finance, which may be more suitable if you only need short-term cash flow support or want to spread the cost of equipment. 

However, banks will usually want to see that your business idea is viable before they lend to you. This means you may need to provide a detailed business plan, realistic financial forecasts, and evidence that you can afford the repayments.

Unless you have a strong credit history or collateral to back the loan up, such as property or other assets, it may be difficult to get money in this way.

UK government start-up loans 

The UK government’s Start Up Loan scheme can lend between £500 and £25,000 to small businesses with an annual interest rate of 6%. The loans must be repaid within five years. 

These government-backed loans do come with relatively strict eligibility criteria, though. 

You must be 18 or over, be a UK resident, and provide evidence that you couldn’t raise funding through other avenues. 

Grants 

Grants are a way of getting free money to start a small business. 

These sums are made available through a variety of government grant programmes, regional governments, universities, and major institutions (such as museums, professional membership bodies, or cultural funds). 

Business grants are normally awarded to startups on a very specific basis, normally to solve certain problems. 

For example, if a local council was looking to regenerate its manufacturing sector, it might provide grants to manufacturing companies to encourage more employment in their town. 

Grants often come with strings attached and require a long application process. But if you can prove that you meet the requirements, this can be a great way of accessing capital. 

You can find listings of new grants at the following websites: 

Crowdfunding 

Crowdfunding is a relatively new way to find funding to start a business. 

There are various crowdfunding websites where you create a page describing what your business will do and how much money you are looking for. People on the website may then decide to provide you with small sums of money. 

There are a few different kinds of crowdfunding: 

• Donation: people give you money because they like the idea behind your business, with no expectation of anything in return. 

• Equity: investors will ask for a share of your business in return for their investment. They effectively become your shareholders, and you’ll have to pay out dividends to them in future if the business is a success. 

• Debt: with this kind of crowdfunding, people who lend you money will expect it back with interest in an agreed time frame. 

Crowdfunding is especially popular for unusual or interesting startups that might struggle to access funding from other sources. 

Your ability to raise funds relies on how well you can pitch and promote your idea on these websites. 

FundingCircle and Kickstarter are some of the most popular sites for crowdfunding to start a business. 

Peer-to-Peer (P2P) funding  

Peer-to-Peer (P2P) funding is a way for businesses to borrow money from individual investors through an online lending platform rather than resorting to a traditional bank. 

You apply through the platform, which reviews your business, checks affordability, and assesses the risk of lending to you. If approved, your loan may then be funded by individual investors or by a pool of lenders using the platform. 

P2P funding can be useful if you want a structured loan but are struggling to access finance through a bank. The application process may also be quicker than a traditional loan, although rates and fees can vary depending on your credit profile, your business performance, and the platform you use. 

As with any form of borrowing, make sure you understand the repayment terms before applying. Missing payments could affect your credit rating and put extra pressure on your business cash flow. 

Private equity investment 

Getting investors on board with your idea is another potential way of finding capital to start a business. 

An investor will normally provide a large amount of money, which you can use to grow the company. Investors will expect equity in the business and may insist on being involved in decision-making. 

There are a couple of kinds of investment: 

• Angel investment: a wealthy individual provides equity finance to your business. Angel investors often get involved right from the beginning of the company’s journey. The UK Business Angels Association is a good place to start here. 

• Venture capital: there are various large venture capital funds. They typically invest in startups that have already got a couple of years under their belt, but they may occasionally invest in promising new businesses. Try UK Private Capital to begin. 

It can be challenging to find an investor who will provide the funds that will help you start a business, and you may have to hand over a certain amount of control to them. 

That said, they’re normally very experienced running companies and can provide advice and guidance. 

Which is the best funding option for a small business

The best funding option is the one that gives you enough money to launch without creating repayment pressure, unnecessary risk, or a loss of control you’re uncomfortable with. 

Start by looking at what the money is for. If you need equipment, stock, or premises, a structured loan might make sense because you can match repayments against expected income. If your business supports a specific local, social, cultural, or innovation goal, it may be worth researching grants before taking on debt. 

You should also think about how predictable your future income is. If you’re not sure when money will start coming in, borrowing can put pressure on your cash flow. In that case, you may want to consider options that don’t require immediate repayments, such as grants, crowdfunding, or equity investment. 

Finally, decide how much control you want to keep. Loans usually let you retain ownership, but you’ll need to repay them whether or not the business succeeds. Equity investment can bring in experience and support as well as money, but it normally means giving investors a say in the future of the company. 

What documentation to provide when applying for funding

As part of the application process, you’ll usually need to provide a clear business plan, realistic financial forecasts, and evidence that shows lenders or investors you can manage the money responsibly. 

If you’ve found a potential source of funding for your business, make sure you read the requirements of the lender or investor in detail. They normally ask for very specific information on your application. 

When you’re applying to finance a small business startup, you will, at a minimum, need to provide: 

• A business plan, which explains what the business is and how you expect to grow it. 
• Financial projections, which show (realistically) how you will generate income and reach break-even. 
• Information about your professional and educational background. 
• Details about your personal finances, including your savings, debts, and if you’ve ever filed for bankruptcy. 

Why get financing to start a business?

You might seek financing for your business if you need help covering upfront costs, protecting cash flow, or investing in the equipment, premises, and people required to launch properly. 

While UK startups generally resort to a mix of funding options, research from 2025 showed that 91% of them rely heavily on self-funding, and 22% turn to family or friends for financial help. So it might be easier than you think to start a business without borrowing money. 

However, there are several reasons why you might want to seek external financing to start your business: 

• Equipment costs: computers, vehicles, tools, or machinery. 
• Premises costs: renting an office, workshop, or factory space.
• Staff: if your business needs staff so it can run effectively, you might need help to pay their salaries. 

That explains why, in the same study, 12% of founders secured debt funding through a bank loan, 12% accessed UK or local government grants, and 13% attracted angel investment. 

Learning how to finance a business is just one piece of the puzzle

Whether or not you decide to get funding to start a business, being an entrepreneur requires more than just startup capital. 

You’ll also need to consider the administrative side of running a company and think about your mindset, too. 

And that’s where our business readiness quiz helps. It takes just a couple of minutes to complete and will give you personalised guidance about what you need to do to get ready to launch and boss your business.

Dreaming of bossing your own business? Take our quiz to see how ready you are to take the plunge

Frequently asked questions on business funding

Browse more topics from this article

Your customers want to manage their finances in one place. In this article, we look at how Sage Embedded Services lets product teams embed accounting, tax, and payroll behind flows customers already use and trust.

Here’s what we discuss:

The pressure to unlock new revenue

Platforms that serve start-ups, small, and growing businesses are under increasing pressure to deepen engagement, increase retention, and unlock new revenue by enabling customers to do more with their finances in one place. For product leaders in banks, fintechs, and SaaS platforms, that pressure is turning operational features such as accounting, tax, and payroll into core parts of the customer experience.

Your customers now expect more from their primary financial platform, such as support for maintaining accurate digital records and avoiding unexpected tax liabilities when deadlines approach. If your product doesn’t support this, customers will look for a platform that can.

That is why embedding key financial workflows, such as accounting, is gaining traction with banks, fintechs, and vertical SaaS platforms. Instead of sending customers out to a separate tool, product teams at major players are pulling tax, accounting, and other features into the flows users already trust. Platforms that do this well are becoming the natural home for day-to-day finances for their small business customers. Those that fail to enable their small and medium-sized businesses to do more in one place risk losing customers who build deeper relationships elsewhere.

After reading this article, you’ll understand how Sage Embedded Services is designed for product and engineering leaders who recognise this shift and want a practical way to respond, without rebuilding their stack, pausing their roadmap, or taking on the risk of building these capabilities from scratch.

The challenges with traditional integration

Connecting directly to tax and other authorities requires more than standing up an API feed. Product teams need a tax engine that remains current, a compliant digital record-keeping model, and secure handling of customer data from transaction to submission. Doing this alone often means pulling scarce engineers into unfamiliar territory and building an internal team of specialists to interpret every regulatory update.

Customer experience is the next pressure point. Many small and growing businesses already feel stretched by admin. Sending them to a separate product or an unbranded portal risks a drop in usage and an increase in support tickets.

Then there is the roadmap cost. Once a team commits to building these capabilities in-house, they also commit to owning them indefinitely. Every new regulatory requirement lands in the backlog. Features that differentiate the product in the market are constrained by non-negotiable compliance work.

For many product leaders, these challenges create a familiar pattern. While the business case for meeting growing customer demands is clear, the missing piece is a way to deliver these capabilities without taking on the risk and complexity of building and maintaining them.

The solution: Sage Embedded Services

Sage Embedded Services offers product teams a way to fully embed capabilities within their existing user experience. Instead of setting up a separate tool, you place Sage’s reputable services behind the flows your customers already use and trust.

Your app remains the primary destination for your customers. Customers still log in, but now they can do more from one place. Behind the scenes, Sage handles key workflows, whether that’s digital record-keeping, financial reporting, tax filing, payroll, or expense management.

For product and engineering leaders, Sage Embedded Services offers simplicity and fast time-to-market. You choose the services your customers need and embed them fully into your platform. Customers see more value in the app they already know and use.

With Sage Embedded Services, your teams retain ownership of the UX with your brand remaining front and centre with Sage powering the accounting accuracy, security, and tax and payroll compliance. This solution meets all current requirements and future-proofs your product offer, ensuring that you can continue to deliver value to your customers as the regulatory landscape evolves.

How Sage Embedded Services works

Sage Embedded Services is built as a set of composable, headless APIs that sit behind your existing product. Each service handles a specific task, such as digital record-keeping, tax calculation, or general ledger posting. You and your team decide which services to use and where they sit within the customer journey.

From an engineering perspective, you work with a consistent set of well-documented APIs. Your platform sends structured data, including transactions, invoices, and income streams. Sage processes that data using established accounting rules, then returns outputs like categorised transactions and complete financial records that your front end can use immediately. You stay in control of the interface and workflow whilst Sage manages the complex logic and compliance rails that power each workflow.

Security and compliance are built into the architecture. Strict controls govern access and are centrally monitored, with auditability and regulatory alignment embedded into each service. The same control framework underpins Sage products already used by millions of businesses, providing your risk and compliance teams with a familiar standard for evaluation.

What to expect when partnering with Sage

Sage Embedded Services is designed to feel familiar to product and engineering teams who already ship complex features on tight deadlines. Our partners can move from the discovery session to production in a fraction of the time it would take to build technology.

The partnership begins with a discovery session in which your product, engineering, and compliance leads meet with Sage specialists. The goals of the first session are to agree on:

• The customer challenges you want to solve
• The segments you want to serve first
• Which Sage services map cleanly to those outcomes

By the end, you’ll have a defined scope, a clear set of user flows, and an agreed technical approach that fits your architecture.

From there, your engineers work in a dedicated sandbox, connecting your existing data sources to Sage endpoints. Sage provides implementation support, reference patterns, and guidance for cases like multiple income streams or complex expense profiles, so your team spends less time interpreting tax rules and more time refining the experience.

Next is the testing phase, which focuses on real scenarios. Sage partners run through common workflows that mirror how customers use the product today, creating the opportunity to resolve any gaps that surface early with Sage support.

When you’re ready to move into production, Sage helps you plan a controlled release starting with your specified customer segment. You track adoption, completion rates, and support tickets, while Sage monitors performance and compliance signals on its end. You can widen availability and add new capabilities as Sage Embedded Services proves its value. The pattern is repeatable for partners who want embedded MTD-ready accounting quickly and confidently.

Why Sage Embedded Services is different from others

Sage provides a unique combination of deep accounting expertise, proven compliance, and a partner model designed for engineering teams.

Experience

Sage has spent decades designing accounting software for small businesses, accountants, and finance teams, and that proven technology foundation powers Sage Embedded Services.

Your platform will inherit robust digital record-keeping and calculation logic from a brand trusted by over two million customers and 80,000 accountants worldwide versus a first-generation solution that may lack credibility with regulators and advisers.

Architecture

The architecture with Sage Embedded Services is built for partnership. You get composable, headless services that power the workflows behind your UX, enabling you to build a unified user experience tailored to your market. Your team stays in control of the customer journey, commercial model, and branding, while Sage handles accuracy, security, and compliance at scale.

Support

Sage knows partners need a team that understands product roadmaps and regulatory timelines. Partners receive guidance on scope, comparable design patterns, and market dynamics that can help you launch and scale your product offering.

Moving forward to future-readiness

These features are moving from nice-to-have to a strategic requirement for platforms serving small and growing businesses. Product leaders who act early can turn customer expectations into loyalty. Product leaders who wait risk becoming the background option while customers build deeper relationships elsewhere.

Now is the time to decide how your platform will meet evolving customer needs. The Sage Embedded Services team can walk you through the processes to map a realistic launch path within your roadmap.

Browse more topics from this article

If you are a sole trader or landlord affected by MTD for Income Tax, understanding how these penalties work can help you avoid unnecessary costs and stay compliant with your tax obligations. 

Key takeaways 

• MTD for Income Tax includes separate penalties for late submissions and late payments. 

• Late submission penalties use a points-based system. Once you reach the threshold, a £200 penalty applies. 

• MTD for Income Tax penalty points are separate from VAT penalty points. 

• Taxpayers mandated into MTD for Income Tax from April 2026 benefit from a soft-landing period covering the first four quarterly updates. 

• From April 2027, the reformed penalty regime will also apply to most Self Assessment taxpayers who are not yet required to follow MTD for Income Tax. 

This article explains when the new penalties apply, how the points-based system works, what the soft landing period covers, and what practical steps you can take to prepare. 

Here’s what we’ll cover: 

Quick answer: what are MTD for Income Tax penalties? 

MTD for Income Tax penalties are HMRC penalties for missing filing deadlines or paying tax late under the Making Tax Digital regime. Late submissions can lead to penalty points and financial penalties, while late payments can result in percentage-based penalties and interest charges. 

When do the new MTD penalty systems apply?

The new penalty systems apply from the tax year you start using MTD for Income Tax. 

The rollout is happening in phases: 

• From April 2026: sole traders and landlords with qualifying income over £50,000. 
• From April 2027: sole traders and landlords with qualifying income over £30,000. 
• From April 2028: sole traders and landlords with qualifying income over £20,000. 

From April 2027, the reformed penalty regime will also apply to most Self Assessment taxpayers who are not already mandated for MTD for Income Tax. 

Although these systems were developed alongside Making Tax Digital, they are gradually becoming the standard approach for Income Tax compliance. Many taxpayers are likely to encounter them first through MTD for Income Tax. 

Similar penalties have already applied to MTD for VAT since January 2023. 

What is the new MTD late submission penalty system? 

The MTD late submission penalty system is designed to encourage taxpayers to meet regular filing deadlines. Rather than applying an immediate financial penalty for every missed deadline, HMRC uses a points-based system. 

In simple terms, every time you miss a regular submission deadline, you receive a penalty point. Once you reach the relevant threshold, a financial penalty applies. 

For MTD for Income Tax, regular submission obligations include: 

• Quarterly updates. 
• End-of-year declarations. 

The system does not generally apply to one-off submissions. Existing penalty rules continue to apply for issues such as inaccurate tax calculations or paying the wrong amount of tax.

How does the new MTD late submission penalty system work?

The system works in a similar way to penalty points on a driving licence. Every missed submission deadline can result in a penalty point. HMRC will normally notify you when a point is added. 

A £200 financial penalty is triggered once the points threshold is reached. 

Penalty point thresholds 

Submission frequency	Points threshold
Monthly	Five points
Quarterly	Four points
Annual	Two points

Quarterly updates under MTD for Income Tax fall within the quarterly threshold. 

Each tax has its own separate points tally. For example, MTD for Income Tax points do not combine with MTD for VAT points. 

Examples 

If you have three sole trader businesses and miss all three MTD for Income Tax quarterly update deadlines in the same period, this would generally result in one penalty point because HMRC treats them as the same submission obligation. 

However, if you miss two different types of submission obligation during the same period, separate points may be applied. his would attract two points. This is because these are not the same kind of submissions.

Do MTD penalty points expire?

Yes, penalty points can expire, but the rules depend on whether you have reached the threshold. 

If you are below the threshold 

Points expire after two years, counted from the month after the month in which you received the point. 

If you are at the threshold 

Points do not automatically expire. To reset your position, you must: 

• Meet all submission deadlines during a defined period. 
• Submit everything that was due during the previous 24 months. 

The required compliance period is: 

• Annual submissions: 24 months. 
• Quarterly submissions: 12 months. 
• Monthly submissions: six months. 

What are the new Making Tax Digital late payment penalties?

Alongside the late submission points regime, HMRC has introduced a separate late payment penalty system. 

Unlike late submission penalties, late payment penalties are not points-based. They depend on how late the payment is and how much tax remains outstanding. 

Penalties for the 2026/27 tax year 

Timing	Penalty
Up to 15 days late	No penalty
Day 15	3% of the outstanding amount
Day 30	Additional 3% charge
Day 31 onwards	10% annualised penalty charged daily

Changes from April 2027 

The government has announced that the day 15 and day 30 rates will increase from 3% to 4%. The 10% annual charge remains unchanged. 

First-year easement 

In your first year under the new late payment penalty regime, the day 15 penalty does not apply. You effectively have until day 30 before a late payment penalty can be charged. 

Interest charges

Late payment interest is charged separately from penalties. Interest can continue to accrue even if penalties stop increasing. 

Time to Pay arrangements 

If you cannot pay on time, arranging a Time to Pay agreement with HMRC can help stop additional late payment penalties from accruing, although interest may continue to apply.

What is the soft landing period for MTD for Income Tax? 

HMRC has confirmed a soft landing period for taxpayers mandated into MTD for Income Tax from April 2026. 

During this period, missing the first four quarterly update deadlines does not attract penalty points, provided the relevant conditions are met. 

The soft landing applies to quarterly updates due on: 

However, the soft landing does not apply to the end-of-year tax return for 2026/27, which remains due by 31 January 2028. Penalties can still apply if that deadline is missed. 

The soft landing should not be treated as extra preparation time. It is intended to help taxpayers adjust to quarterly reporting while still making a genuine effort to comply. 

Can I appeal against points or penalties for MTD? 

Yes. HMRC allows taxpayers to appeal penalty points and penalties where appropriate. 

You may wish to appeal if: 

• You believe a point or penalty was applied incorrectly. 
• You had a reasonable excuse for missing the deadline. 
• Special circumstances apply. 

The process normally begins with an HMRC review. If you remain dissatisfied, you can appeal to the First-tier Tax Tribunal. 

What this means for your business

If you are affected by MTD for Income Tax, avoiding penalties is likely to depend on having reliable processes in place rather than reacting at the last minute. 

Consider: 

• Keeping digital records throughout the year.
• Using compatible accounting software. 
• Setting reminders for quarterly update deadlines.
• Factoring tax payments into your cash flow planning.
• Seeking professional advice if your circumstances are complicated. 

The new regime is designed to encourage good compliance habits. Businesses that stay organised should find it easier to avoid points, penalties, and unnecessary interest charges.

Final thoughts

Other than understanding the rules, the most important preparation is ensuring your systems and processes are ready to support MTD for Income Tax reporting requirements. 

The soft landing period is helpful, but it should be viewed as an opportunity to establish good filing habits rather than as an extension to the deadlines themselves. 

MTD penalties: FAQs

For more information about how Sage can help sole traders manage their tax obligations, explore Sage Sole Trader. To learn more about the hidden admin burden on small businesses, visit our digital newsroom. If you have questions, please contact us.

Browse more topics from this article

All businesses registered for VAT now need to follow Making Tax Digital for VAT, even if they’re below the VAT registration threshold (currently £90,000). 

The MTD for VAT rules say you have to use compatible software for VAT accounting and keep VAT accounting records digitally. 

It’s a significant change. 

But it’s simply that the government wants to help businesses move into the digital age—with all the benefits. 

If you now need to follow MTD for VAT, it’s the perfect opportunity to take advantage of the latest cloud accounting software for your tax accounts. Doing so will make your business much more efficient.

Key takeaways 

• Making Tax Digital for VAT applies to VAT-registered businesses unless they are exempt or have applied for exemption. 

• The rules mean you need to keep VAT accounting records digitally and use compatible software to submit VAT Returns. 

• Using accounting software can reduce manual admin, improve record accuracy, and make VAT Return preparation easier. 

• MTD for VAT is also an opportunity to improve wider finance processes, including cash flow visibility, invoice tracking, and record keeping. 

What is Making Tax Digital for VAT?

Making Tax Digital for VAT is HMRC’s digital tax programme for VAT-registered businesses. 

It requires you to keep VAT records digitally and submit VAT Returns using compatible software, unless HMRC confirms you are exempt. 

For businesses that already use spreadsheets, paper records, or manual processes, MTD for VAT can feel like a significant change.  

But it can also make day-to-day finance admin easier by reducing duplicated work and keeping VAT information in one place. 

If you now need to follow MTD for VAT, it can be a useful moment to review how your business manages tax, bookkeeping, and accounting records. 

How can MTD for VAT reduce time spent on taxes? 

MTD for VAT can reduce the time you spend on tax admin because your VAT records, calculations, and submissions are managed through compatible software rather than separate manual processes. 

For example, there is less need to manually tally VAT input and output amounts by going through paperwork or searching for multiple spreadsheets. 

When you issue an invoice or create a purchase order, your accounting software can update your ledgers and keep the VAT record connected to the original transaction. 

When it is time to prepare for your quarterly or monthly VAT Return, the figures are already in your accounting system.  

You can review the return, make any required adjustments, reconcile the figures, and submit the VAT Return through software that connects to HMRC. 

This helps reduce duplicated effort. 

It also means your records are kept digitally for the required retention period, which is usually six years. 

What this means for your business 

• Your VAT information is easier to find when you need it. 
• Your records are less dependent on paper files or disconnected spreadsheets. 
• Your accountant or bookkeeper can review the figures more easily if they need to make adjustments. 
• Your VAT Return process becomes part of regular bookkeeping rather than a separate manual task. 

How can MTD for VAT improve accuracy?

MTD for VAT can improve accuracy by reducing manual data entry and helping you keep VAT information connected to the transactions it relates to. 

VAT can be complicated, and mistakes can happen when businesses calculate input tax, output tax, or VAT Return figures manually.  

Errors can lead to extra work later, and may increase the risk of HMRC penalties if returns are wrong or submitted late. 

Software does not remove the need to check your VAT records.  

It can only be as accurate as the information you enter.  

But because accounting software tracks payments, invoices, purchase orders, and VAT details through the accounting process, it can reduce the risk of figures being missed, copied incorrectly, or entered in the wrong place. 

The result is a more consistent VAT process, fewer manual touchpoints, and a clearer audit trail if you need to review how figures were calculated.

Important accuracy point 

MTD-compatible software can support accuracy, but you are still responsible for checking your records, applying the correct VAT treatment, and making sure your VAT Return is complete before submission. 

How can cloud accounting support mobile finance work?

Cloud accounting software can make VAT and finance tasks easier to manage because your records are stored securely online and can be accessed from different devices with an internet connection. 

That means you do not have to wait until you are at your desk to check whether an invoice has been paid, review a supplier bill, or look at your cash flow.  

You can keep on top of finance tasks throughout the week rather than saving them all for evenings, weekends, or tax deadlines. 

This can be especially useful for small business owners who manage finance around customer work, staff, suppliers, or day-to-day operations. 

Examples of mobile-friendly finance tasks 

• checking your cash flow position before making a business decision 
• reviewing unpaid invoices while you are away from the office 
• capturing receipt or invoice information when you receive it 
• keeping VAT information up to date before the return deadline. 

How can newer accounting technology help with MTD for VAT?

 If you are moving to digital records for MTD for VAT, it is worth looking at how your accounting software can support the wider finance work around VAT, expenses, invoices, and cash flow. 

Modern accounting software can support tasks such as bank reconciliation, automatic invoice recognition, and receipt capture.  

These features can reduce manual entry and help keep your records up to date. 

For example, bank reconciliation usually involves matching incoming payments against invoices so you can see what has been paid. 

Software can suggest matches based on the information in your bank feed and accounting records, helping you review and confirm them more quickly. 

Automatic data capture can also help.  

You may be able to photograph or scan receipts and invoices, then allow the software to extract details such as the amount, tax point date, VAT rate, and VAT amount. This helps reduce the risk of paperwork being lost or entered late.

Common mistakes to avoid with MTD for VAT

• Leaving VAT records to the end of the return period instead of updating them regularly. 
• Assuming software will fix incorrect VAT treatment automatically. 
• Keeping some VAT records digitally but relying on manual re-keying for the final return figures. 
• Not checking whether your software is compatible for MTD for VAT submissions. 
• Treating MTD as only a compliance task, rather than using it to improve bookkeeping and cash flow visibility. 

What should businesses do next?

If your business is VAT registered and needs to follow MTD for VAT, start by reviewing how you currently keep records, prepare VAT Return figures, and submit returns. 

1. Check whether your accounting software is compatible with MTD for VAT. 
2. Make sure your VAT accounting records are kept digitally. 
3. Review how invoices, expenses, receipts, and payments are recorded. 
4. Check whether any manual steps could create errors or duplicated work. 
5. Speak to your accountant or bookkeeper if you are unsure how the rules apply to your business. 

Final thoughts: efficiency is just the start 

ollowing MTD for VAT rules can feel like extra admin at first. But it can also be an opportunity to improve how your business manages records, tax, and everyday finance tasks. 

Using compatible software for MTD for VAT can help you reduce manual work, improve visibility over your numbers, and spend less time searching for information when a deadline approaches. 

The biggest benefit is not just submitting VAT Returns digitally.  

It is building a finance process that gives you more accurate, timely information, so you can make better decisions for your business.

MTD for VAT FAQs

Editor’s note: This article was first published in September 2021 and has been updated for relevance.

Browse more topics from this article

Key takeaways

• The organisational skills gap is a business capability issue: It is the difference between the skills your organisation needs and the skills currently available in your workforce.
• Skills gaps are increasing: 55% of HR leaders say skills gaps have increased in their organisation over the past 2 years.
• Hiring alone will not solve the problem: 66% of HR leaders say they already struggle to attract and retain talent with critical skills.
• Skills-first organisations are responding differently: 61% now recruit based on skills and capabilities, not just job titles.
• A practical skills plan starts with visibility: Businesses need to understand the skills they have, the skills they need, and where the biggest gaps are.

Many businesses are struggling to find people with the skills they need.

And in some cases, the gap between the skills available and the skills required is continuing to grow.

According to HR and Payroll Leaders’ Report, which surveyed 1,000 HR and people professionals across the UK, Ireland, and South Africa, 69% are concerned about workforce skills gaps, while 66% have difficulty attracting and retaining talent with critical skills.

UK HR leaders are increasingly concerned about workforce capability. Many say skills shortages are making it harder to build the workforce their organisations need for future growth.

This is not just a recruitment problem. It is an organisational capability challenge.

The skills gap affects how well a business can grow, adapt, and compete.

When teams do not have the right capabilities, it becomes harder to adopt new technology, improve productivity, deliver strategic projects, and respond to changing customer or market needs.

The good news is that businesses do not have to rely on recruitment alone.

In this article, you’ll learn what the organisational skills gap is, why it is growing, why hiring alone will not solve it, and how to take a more practical, skills-first approach.

Here’s what we’ll cover:

What is the organisational skills gap?

The organisational skills gap is the difference between the skills a business needs to operate and grow, and the skills currently available within its workforce.

This can include technical skills, such as data analysis, digital systems, payroll technology, or Artificial Intelligence (AI).

It can also include people and leadership skills, such as communication, coaching, adaptability, or strategic thinking.

A skills gap can show up in several ways.

For example, you may have roles that are difficult to fill.

 You may have teams struggling to use new systems.

You may have managers who need more support to lead people through change.

Or you may have business plans that depend on skills your workforce does not yet have at scale.

The skills a business needs today are not necessarily the skills it will need in 2 or 3 years’ time.

That is why the skills gap is not a one-off hiring challenge.

It is something organisations need to monitor, manage, and plan for continuously.

Why is the skills gap growing?

The skills gap is growing because the pace of change inside organisations is increasing.

Businesses are adopting new technology, reshaping roles, and asking teams to work in more data-led and digitally enabled ways.

At the same time, many organisations are competing for similar skills in a limited talent market.

The report shows the scale of the challenge:

• 69% of HR leaders are concerned about workforce skills gaps.
• 66% have difficulty attracting and retaining talent with critical skills.
• 55% say skills gaps have increased in their organisation over the past 2 years.
• 80% say technology and AI expertise is now essential for their organisation’s future success.

For many UK organisations, leadership capability is becoming just as important as technical expertise.

As businesses adapt to new technology, economic pressures, and changing employee expectations, managers are increasingly expected to guide teams through change while developing new skills themselves.

AI is a good example.

Many UK HR leaders see AI as an opportunity to reduce administration and spend more time supporting people and strategic decision-making.

“I wish I could build an AI employee management system that automates repetitive tasks, allowing more time to focus on people.”

Recruitment manager, technology sector, UK.

As more UK businesses explore AI and automation, they need people who can use these tools responsibly, interpret data, improve processes, and make better decisions.

This is creating demand for new skills across HR, finance, operations, and leadership teams.

But those capabilities are not always easy to find or develop quickly.

That creates a gap between business ambition and workforce readiness.

Over time, skills gaps can make it harder to adopt new technology, respond to change, and achieve business goals.

Why hiring alone will not solve the skills gap

Recruitment is still important. If your business needs capabilities it does not currently have, hiring may be part of the answer.

But hiring alone cannot close the organisational skills gap.

If recruitment is your only response, you may find it difficult to keep pace with changing business needs. There are 3 reasons for this.

1. Critical skills can be hard to find

The report shows that 66% of HR leaders struggle to attract and retain people with critical skills.

This suggests that many organisations are competing for the same limited pool of talent. If those skills are scarce externally, recruitment becomes slower, more expensive, and less reliable as a long-term solution.

2. Roles are changing faster than job titles

Many traditional job titles do not fully reflect the skills people now need.

For example, a finance role may increasingly require data analysis skills.

A line manager may need stronger coaching skills. An HR role may require confidence with AI, automation, and workforce analytics.

If businesses only hire against fixed job titles, they may miss people with transferable skills who could develop into the capability they need.

3. Existing employees may already have valuable skills

In many organisations, useful skills already exist within the workforce but have not been formally identified or developed.

An employee may have strong analytical skills, but no formal route into a data-led role.

A manager may be good at coaching but need structure and support to develop that strength.

A team member may already be experimenting with AI tools, but without wider training or governance.

This is why businesses need to look inside as well as outside the organisation.

Closing the skills gap means building internal capability, not just buying skills from the market.

For UK employers, that also means creating workplaces where people want to stay.

Developing skills internally can improve retention, create clearer career pathways, and reduce reliance on an increasingly competitive recruitment market.

What is a skills-first organisation?

A skills-first organisation hires, develops, and plans around capabilities rather than job titles alone.

This does not mean job titles become irrelevant. It means businesses look more closely at what people can do, what they could learn, and what skills the organisation will need next.

The report shows this shift is already happening:

• 61% now recruit based on skills and capabilities, not just job titles.
• 60% are upskilling or reskilling existing employees.
• 60% are investing in strategic workforce planning.
• 58% are regularly tracking and reporting skills gaps internally.
• 55% are using AI-powered personalised learning.
• 55% have integrated AI and analytics to identify emerging skills needs.

This approach moves the business away from reactive hiring and towards proactive capability building.

It also gives HR a more strategic role.

Instead of only filling vacancies, HR can help the business understand:

• which skills already exist
• which skills are missing
• which skills will become more important
• where training will have the biggest impact
• when recruitment is needed
• where internal mobility could help

That makes skills planning a business priority, not just an HR process.

How can businesses close the organisational skills gap?

There is no single way to close a skills gap. The right approach depends on your organisation’s size, structure, goals, and current workforce.

But the starting point is the same: understand which skills you have, which skills you need, and where the gaps are most urgent.

A useful way to approach this is through a skills triage plan: what you can do now, what to build next, and what to develop later.

Your skills triage plan

Now: build visibility of current skills

Start by understanding the skills already available in your organisation.

This does not need to be complicated.

You can begin with a simple skills inventory that looks at current roles, responsibilities, training records, performance data, and manager feedback.

The aim is to answer 3 questions:

• What skills do we already have?
• Where are the obvious gaps?
• Which gaps are affecting business performance now?

For example, a business that identifies a shortage of AI skills within its finance team might discover that some employees already have strong analytical skills.

With the right training, those employees may be able to support new AI-enabled finance processes without the business needing to recruit externally straight away.

Practical actions:

• Run a skills scan across priority teams.
• Use simple surveys to ask employees and managers where capability gaps exist.
• Centralise training records so you can see who has completed which development.
• Identify roles or teams where skills gaps are creating immediate pressure.

Next: create structured development plans

Once you understand the gap, turn that insight into action.

This means moving from general training to targeted development.

Focus on the skills that matter most to business goals, then connect those skills to learning pathways, manager support, and performance conversations.

Practical actions:

• Create basic skills profiles for key roles.
• Link development goals to business priorities.
• Use skills libraries or learning platforms to assign relevant training.
• Give managers guidance on how to discuss skills development with their teams.
• Review progress regularly so learning does not become a one-off activity.

Internal mobility can also strengthen employee engagement.

One UK HR leader described their goal as creating a workplace where employees feel genuinely valued, supported and motivated to grow.

If someone already has related skills, it may be more effective to develop them into a future role than to start an external recruitment process.

Later: move into workforce planning

The most mature approach is to use skills data to plan ahead.

This means looking beyond current gaps and asking what your organisation will need in 6, 12, or 24 months.

For example, workforce planning data may show that a specialist role has a high retirement risk over the next few years.

Succession planning can help the organisation prepare before that expertise is lost.

It may also show that demand for digital, data, or AI skills is increasing across multiple departments.

That allows the business to prioritise training before the gap becomes more difficult to manage.

Practical actions:

• Forecast future skills needs based on business plans.
• Identify roles that may be exposed to skills shortages.
• Use workforce data to spot capacity risks.
• Build internal talent pools for critical capabilities.
• Create succession plans for specialist or hard-to-fill roles.
• Review the skills plan regularly as business needs change.

How technology can help close the skills gap

Technology will not close the skills gap on its own. But it can make the process easier to manage.

The right HR and people systems can help businesses:

• keep training records in one place
• track skills across teams
• identify development needs
• support performance conversations
• assign relevant learning
• monitor progress over time

AI and analytics can also support workforce planning by helping businesses spot patterns in skills, capacity, and development needs.

The report shows that many HR teams are already using AI-powered learning and analytics to identify emerging skills needs.

For UK organisations, the challenge is increasingly about integrating these technologies into everyday workforce planning rather than treating them as standalone tools.

That matters because skills planning depends on visibility.

If you cannot see where your skills are, it is hard to know where to invest.

If you cannot see where gaps are emerging, it is harder to prepare early.

Technology gives HR and business leaders a clearer view of the workforce—but people still need to make the decisions.

The goal is not to replace human judgement. It is to give managers and HR teams better information so they can make more confident decisions about hiring, training, and workforce planning.

Final thoughts

The skills your organisation needs are not always found through external recruitment.

In many UK businesses, valuable capability already exists within the workforce but has not yet been fully identified, developed, or aligned with future business priorities.

That is why closing the organisational skills gap starts with visibility.

Understand what skills you have. Identify what skills you need.

Then build a practical plan to close the gap through training, internal mobility, workforce planning, wellbeing support, and targeted recruitment where needed.

Start with one priority team or one critical skill area.

Use the insights you gather to decide what to do next.

Ready to go deeper?

Download the closing the skills gap infographic for a practical roadmap you can share with your team.

Frequently asked questions on the organisational skills gap

Browse more topics from this article

Key takeaways

• MTD’s quarterly updates means you’re in the best position to know about your tax bill, thanks to HMRC’s estimate.
• MTD’s focus on better accounting and up-to-the-minute records could help you get finance such as loans or mortgages.
• MTD is your time to finally get on top of your accounting by making it digital—and reaping the benefits like automation and AI.
• MTD can improve the value you get from your accountant and improve your relationship.

Your first Making Tax Digital (MTD) for Income Tax quarterly update is due by 7 August 2026, and if you’ve read the many articles we’ve written here at Sage Advice, you’ll already know the what, when, and how.

But let’s pause a moment.

The quarterly update isn’t just a hurdle to jump over that keeps HMRC happy.

It comes bundled with a set of genuine business benefits—the kind that were previously reserved for bigger businesses with finance teams.

So, once compliance is in the bag, here’s what else you get. Some of it might surprise you.

Here’s what we discuss in this article:

MTD quarterly updates give you a real-time forecast of your tax bill

This is the fundamental one, but probably the most useful.

Every time you submit a quarterly update, HMRC sends back an estimate of the tax you owe so far, based on your figures. You’ll see it in your software or your HMRC online account.

That’s every time you submit an update. You could submit one now and get that estimate. In other words, it doesn’t just have to be a quarterly thing.  

If you’ve ever done the classic sole trader thing of setting aside “roughly a third” of everything and hoping for the best, you’ll appreciate what a difference this makes.

To be clear, what HMRC provides is not a 100% cast-iron guarantee of what you’ll owe. But it should be a reasonable ballpark figure that can cushion surprises—so, no more January heart attack when the real number lands via your accountant’s arcane calculations.

You know what’s building up, quarter by quarter, so you can put the right money aside as you go.

And don’t forget: four updates a year is the minimum, not the maximum. You can submit frequently—such as once a week—and each submission refreshes your estimate. If you want a near-live view of your tax position, it’s yours for the taking.

MTD quarterly updates are a free quarterly business health check

A quarterly update forces you to do something many small business owners hardly ever make time for:

Sit down with your actual numbers, four times a year, and make sense of them.

That rhythm is powerful in a quiet, actually-quite-useful way.

You’ll spot spending creep while it’s still a trickle. You’ll see seasonal patterns you’d only ever sensed before. You’ll know whether that price rise actually stuck, and whether the quiet months are quieter than last year.

Better still, because your income and expenses now live in software as digital records, you’ve got the raw material for proper reporting.

Most MTD-ready accounting software will turn those records into dashboards, profit reports, and cash flow views with a couple of taps.

That’s the kind of visibility that used to require a finance team. Now it’s a by-product of staying compliant, just by doing the minimum HMRC now requires of you.

MTD quarterly updates mean your accounting is finally, properly digital

Plenty of businesses have been getting by on a carrier bag of receipts, a spreadsheet of good intentions, and a heroic January.

It works, just about, by the skin of your teeth.

But the digital records requirement of MTD is the moment that era ends—and honestly, it’s surely about time, if you speak to those who’ve already made the leap to digital accounting.

Once your accounting lives in software, the tedious stuff starts doing itself.

Your bank feed pulls transactions in automatically. You snap a photo of a receipt and the details are read off for you. Categorisation gets suggested, recurring expenses handle themselves, and AI features increasingly do the heavy lifting in the background.

The admin that used to eat your evenings and weekends can shrink to minutes.

There’s a knock-on benefit too: connecting a bank feed makes mixing business and personal spending genuinely annoying, so this is the natural moment to open a dedicated business account. Once you do, everything—from bookkeeping to borrowing—gets simpler.

MTD quarterly updates mean you can have proof of income whenever you need it

Ask any sole trader who’s applied for a loan or a mortgage: proving your income when you’re self-employed has always been a faff.

Lenders want SA302s and tax year overviews, and by the time you hand them over, the figures can be the best part of two years out of date.

With quarterly updates and live digital records, you’re potentially in a much better position.

You’re able to evidence your income position at any point in the year, backed by data that’s already been submitted to HMRC. For a remortgage, a van on finance, or a business loan, that’s a genuinely stronger hand—especially when your current year is going better than your last tax return suggests (as we all hope it does!).

To be clear, it will ultimately depend on what kind of evidence the lender demands from you. Some might still require last year’s accounts because the banking system can be very slow to modernise—and MTD for Income Tax is brand new.

But as a fringe benefit almost nobody mentions, this kind of visibility for lending could matter more than any of the others the day you need it.

MTD quarterly updates mean you can do tax planning while it still counts

Here’s the difference between predicting your tax bill and actually reducing it. Under the old regime, most people only understood their year in the January after it ended, when it was far too late to do anything about it.

Quarterly updates change the timeline.

If you know by October that you’re having a strong year, you can act before 5 April: bring forward that equipment purchase and use your Annual Investment Allowance, top up your pension, or think carefully about the timing of big invoices.

None of this is exotic. It’s the ordinary, sensible planning that’s only possible when you know where you stand while the tax year is still live. And it’s the kind of thing that growing businesses do all the time. It’s just been hidden from you until now.

This is also exactly the conversation to have with your accountant in the autumn, rather than never.

Which brings us neatly to a final benefit.

MTD quarterly updates mean your accountant becomes an adviser, not a historian

Under annual Self Assessment, your accountant spends most of their time with you doing archaeology. They’re reconstructing a year that’s already over, receipt by receipt.

It’s necessary work, but it’s backward-looking, and it leaves little room for anything else.

You don’t drive by looking in the rear-view mirror. Why run your business that way, by looking at things that are behind you?

With shared, up-to-date digital records, the compliance grunt work can shrink.

That frees your accountant to talk about what’s ahead—your pricing, your profitability, that tax planning above—instead of what’s behind. Same relationship, much more value from it.

And there’s a lovely long-term payoff: by the time your first digital tax return is due on 31 January 2028, and if you’ve done things right, most of your data will already be sitting with HMRC, submitted quarter by quarter. The January cliff-edge just quietly dissolves.

Final thoughts

Get your first quarterly update in—early, ideally, and well before 7 August. But don’t stop there.

Check your tax estimate and set the money aside. Have a proper look at your quarterly numbers. Let the software automate the boring bits.

And book a forward-looking chat with your accountant while the year can still be shaped.

Frequently asked questions

A tax deadline that pays you back. Whoever thought we’d see the day?

Browse more topics from this article

If you’re a sole trader or landlord facing your Making Tax Digital (MTD) for Income Tax quarterly update, you might’ve figured out the basics: the first one is due by 7 August 2026, and you send it through your software.

But dig into the detail and MTD is full of quirks, easements and shortcuts that hardly anyone talks about—most of which make your life easier, not harder.

Here are 10 of the best—plus a few bonus entries that could save you headaches. At least one of them will save you time this quarter.

Here’s what we discuss:

1. You can file up to 10 days before the quarter ends

Here’s one almost nobody knows: HMRC lets you submit a quarterly update up to 10 days before the update period actually finishes—as long as you’re confident no more transactions will land in those final days.

Off on holiday? Wrapping up before a busy season? You could have filed your first update from 26 June and spent deadline week thinking about anything else. Worth remembering for the deadlines for quarters two, three and four.

2. Your digital records don’t have to be “live”

MTD requires you to keep your records digitally—but it doesn’t require you to keep them live in real time.

Sitting down before each quarterly deadline and entering everything in one batch is perfectly within the rules.

That said, little and often is the smarter habit.

Connect your bank feed, snap receipts as you go, and the quarterly update stops being a job at all—it can become a five-minute review.

But if life gets in the way one quarter, you’re not breaking any rules by catching up.

Bonus tip #1: There’s free MTD software (and that’s free, forever)

Sage Sole Trader lets you do everything you need to for MTD for Income Tax—and Sage Sole Trader Free is a permanently zero cost, Making Tax Digital (MTD)-ready accounting app designed for non-VAT registered sole traders.

It does everything you need. Yes, really.

Here’s all you need to do to submit a quarterly update, even if you’ve done absolutely nothing for MTD or your accounting to this point in the tax year:

1. Download Sage Sole Trader. There’s mobile apps, as well as desktop.
2. Create an account and sign-in.
3. Connect your business bank account, and then import your transactions.
4. Use the categorisation tool to categorise your transactions with just a swipe, if you’re using the app. The app will help auto-categorise, too!
5. If you’ve bought anything with cash, or if you’ve taken any payments in cash, create manual transactions for these using the data from receipts you’ve received, or invoices you’ve created.
6. Open your quarterly update, review it, and then tap to send it to HMRC.

That’s it. Job done. For free. Now you can get back to doing what you love most.

3. There are no late-filing penalties this first year

HMRC has confirmed a soft landing: no penalty points will be issued for late quarterly updates during the 2026/27 tax year for those mandated from April 2026.

Do not treat that as an invitation to skip updates! That would be bad.

They all still need to be submitted before you can finalise your year, and the points system starts properly from 2027/28.

But it does mean your first year is a genuine practice run.

4. There’s nothing to pay on 7 August

A quarterly update is a summary of your income and expenses.

It is not a tax bill, and it doesn’t change when you pay tax—your payment dates stay exactly where they’ve always been.

So, the deadline costs you a few minutes in your software, not a penny from your bank account. (Although if you’ve previously agreed with HMRC to pay on account by 31 July, that hasn’t changed.)

5. You can update your figures after you submit

Each update is cumulative: it covers everything from the start of the tax year up to the end of that quarter, not just the latest three months.

Spot a missed expense from May in September? It simply flows into your next update, and everything is finalised at year end.

Even better, penalties for mistakes like this don’t apply to quarterly updates. Ever.

The goal each quarter is complete and reasonable—not audit-perfect. Submit, move on, run your business.

(To be clear, HMRC requires you to take care to be as accurate and complete as possible in your updates. None of the above is a get-out-of-jail-free card. But it is good to know that accidental or unintentional errors can be fixed.)

6. Under £90,000? You only need two totals

If your turnover is below the £90,000 VAT registration threshold, you qualify for what’s known as “three-line accounts”.

Instead of splitting every expense into HMRC’s categories, your digital records only need to distinguish income from expenses—and your quarterly update reports just those two totals.

That could be a serious admin saving for smaller businesses and landlords.

Your software can still categorise everything behind the scenes if you want richer insight, and perhaps the key thing to remember is that you’ll still need to have those digital records of income and expenditure by the quarterly update deadline.

7. You can pick quarter dates that suit you

The standard update periods follow the tax year: 6 April to 5 July, and so on.

But if tidy month-ends suit your bookkeeping better, you can elect to use calendar quarters instead—1 April to 30 June for quarter one—with exactly the same deadlines.

One catch: you have to make the choice before you submit your first update for the tax year and let HMRC know. So if you’ve already filed, it’s one to remember for next April.

8. Each income source gets its own update—even a quiet one

If you’re both a sole trader and a landlord, you don’t send one combined update. You send one for each income source, each quarter. Good software makes this painless, but it’s worth knowing so a second deadline never catches you out.

Keep an eye on both sets of figures as the quarter closes, and let your software’s reminders do the remembering for you.

And yes, if you run two businesses and are a landlord, that’s three quarterly updates.

9. Joint landlords can leave expenses until year end

Own a rental property with someone else?

A dedicated easement lets you report just your share of the income each quarter and deal with expenses once, at the end of the year (subject to the relevant conditions being met). So, no splitting the boiler repair four times annually.

Combine it with three-line accounts (if your property income is under £90,000) and your entire quarterly obligation for a jointly owned property can shrink to a single income figure.

That’s about as light as tax admin gets.

10. Every update gives you a free tax estimate

Here’s the genuine upside nobody mentions: once you submit an update, you get back an in-year estimate of your tax position based on the figures so far.

For the first time, you’ll know roughly the shape January’s bill might take—but in August, with time to put money aside, smooth your cash flow, or talk to an accountant while there’s still a chance to act. (Although don’t forget that your final tax bill might take into account other sources of income like interest or pensions, plus reliefs or adjustments—and these can affect the final amount.)

The old system told you what you owed after the year was over. This one tells you while you can still do something about it. Used well, that estimate might be the most valuable thing MTD gives you.

Bonus tip #2: A £0 quarter still needs an update

One to file under “good to know before it bites”: earning nothing in a quarter doesn’t mean there’s nothing to do.

If you’re signed up to MTD for Income Tax, every income source needs an update every quarter—and when there’s no activity, that means a nil update. It takes seconds in your software, but it does need to occur.

The same logic applies on a bigger scale. Whether you’re included to follow MTD rules is based on your past qualifying income, so a quiet year—a rental property between tenants, a business you’ve wound down—doesn’t automatically take you out of the system.

Your income needs to stay below the threshold for three consecutive tax years before you can leave MTD for Income Tax behind, and if you’ve stopped trading altogether, you should tell HMRC rather than simply going silent.

Until then, keep those nil updates ticking over: they’re the easiest submissions you’ll ever make, and they keep your record spotless.

Final thoughts

MTD for Income Tax has a reputation as extra admin, but look closer and the system is studded with easements designed to keep it light: early filing, batch record-keeping, simplified totals, flexible quarters and a first year with no late-filing penalties.

So don’t just comply. Take control. Pick the fixes that fit your situation, get your bank feed connected so future quarters run themselves, and start using that quarterly tax estimate to plan ahead.

Ten minutes now, four times a year, in exchange for the possibility of never being surprised by a tax bill again. That’s a trade worth making.

Frequently asked questions

Browse more topics from this article

In partnership with Smart Data Foundry and The Centre for Economics and Business Research, Sage has published its latest SME Monthly Workforce Pulse research.

This is drawn from anonymised payroll data from approximately 200,000 small businesses and provides unheralded insight into pay across the UK.

The data is part of Data for Good, Sage’s commitment to help Small and Medium Businesses thrive using anonymised insights from our data and enabling better decision making by stakeholders.

As such, smart managers and leaders can use SME Monthly Workforce Pulse to plan their next moves—such as how to choose a new location with recruitment in mind, and how to get your first hires right.

Here’s what we cover in this article:

SMEs continue to show resilience

SME Monthly Workforce Pulse’s latest data shows median gross pay rose 4.1% year-on-year to £2,209, with take-home pay up 3.5% to £1,804.

However, higher inflation and slower pay growth are squeezing household finances.

Headcount among micro businesses grew +0.5%, outpacing small and medium firms at +0.4% each. The £10,500 Employment Allowance may be shielding the smallest employers from the full impact of the NICs rise, but this protection falls away as firms scale up.

The East Midlands led regional SME growth, with headcount rising 1.5%—three times the UK average while pay increased by 4.2%. This might partly reflect recent investment in the region’s manufacturing, clean-energy and infrastructure economy.

On a sectoral basis, finance and insurance was the strongest sector for headcount growth at +1.3%, while Wholesale and Retail Trade led on earnings growth at +4.4%. This comes amid wider evidence of stronger recruitment across technology, security and transformation roles in the insurance sector.

Yet the recovery remains uneven

Headcount among 65–75-year-olds rose 7.4%, alongside the strongest pay growth of any age group at 4.9%. Meanwhile, employment among 25–34-year-olds fell 1.8%, and workers aged 16–24 recorded the weakest pay growth at just 1.9%.

Accommodation and Food shed the most staff of any sector at -0.7%. Given the sector’s role as an entry point into work, continued weakness could have wider implications for younger workers and local high streets.

All of this data can be put to use in your business right now if you’re thinking of expanding. Here’s what you need to bear in mind.

Follow the talent: Choose your location around the people you need

The East Midlands story is a reminder that growth follows people.

Where investment creates jobs, skills gather—and businesses that set up nearby benefit.

So if you’re weighing up an expansion, don’t start with the property deal. It’s better to start with the local talent picture.

University towns and cities are a reliable signal. A strong local university—especially one running courses aligned to your sector—means a fresh intake of educated graduates entering the jobs market every year, plus placement schemes, careers fairs and research partnerships you can tap into.

Further education colleges matter just as much for skilled trades and technical roles, and many now co-design courses with local employers.

And don’t be put off by competitors nearby in the planned new location. In recruitment terms, they’re often an advantage. Where similar businesses cluster, a pool of experienced people builds up, along with the suppliers, training providers and professional networks that support them.

Finally, check the practicalities: transport links, typical commuting patterns, and whether offering hybrid working would widen your catchment area beyond the immediate postcode.

Do the sums before you commit

Pay varies significantly across the UK, so benchmark local salaries before you set them. The SME Workforce Pulse data is an excellent starting point.

Pitch too low and you’ll struggle to attract anyone, of course. Pitch too high and you may strain your cashflow—and unsettle your existing pay structure. Regional data such as SME Pulse, official statistics, and live job adverts in the area will give you a realistic range.

Look beyond salaries, too.

Compare property costs and business rates between shortlisted locations, and investigate local support—growth hubs, enterprise zones and local authority grants can meaningfully reduce the cost of setting up.

And remember the full cost of employment: the £10,500 Employment Allowance softens employer National Insurance for the smallest firms, but as our data shows, that protection falls away as you scale, so build the total cost of each new hire into your forecasts.

Make your first hire count

Wherever possible, anchor your expansion with an experienced local hire.

This has to be someone who knows the market, brings a network, and can act as your champion on the ground.

They might also tell you what a realistic salary looks like, where good candidates spend their time, and which local quirks a head-office job advert would miss.

Then build your reputation as a local employer.

Show up at regional business events, build relationships with nearby universities and colleges, and write job adverts that demonstrate you understand the area—not a copy-and-paste from HQ.

In a new location, you’re an unknown quantity, so every early interaction with candidates shapes how the local market sees you.

Get the practical side ready before the first payday

Nothing undermines a new team’s confidence faster than a late or incorrect first payslip. Before anyone starts, make sure contracts are issued, right-to-work checks are complete, pension auto-enrolment is set up, and your payroll is ready to run for the new location.

If your expansion takes you into Scotland or Wales, remember that income tax rates and bands differ from the rest of the UK. Good payroll software will apply the correct tax codes automatically, but it’s worth knowing when you’re talking take-home pay with candidates.

Public holidays can vary too, of course.

It’s also the moment to check your HR processes scale: who onboards new starters at the new site, who answers their day-to-day questions, and how you’ll keep a growing, more dispersed team feeling like one business.

Get the admin humming in the background, and you’re free to focus on what the expansion is really for: winning customers in your new market.

Final thoughts

The East Midlands exception revealed in the data shows what happens when investment, skills and opportunity line up in one place—and there’s no reason your business can’t ride a similar wave elsewhere.

Choose your location around the people you’ll need, benchmark the true cost of employing them, anchor your move with a strong local hire, and have payroll and HR ready from day one.

Do that groundwork, and expansion stops being a leap of faith and becomes what it should be: a confident next step for a growing business.

Frequently asked questions

Browse more topics from this article