UK business registration requirements: the basics
Registering your business is about more than one form. You may need to register with HMRC, possibly Companies House, and later for VAT and PAYE as you grow. Understanding which registrations apply to you, and when, prevents penalties and keeps your business on the right side of the rules. This guide covers the main tax registrations every UK founder should know.
Registering with HMRC as self employed
If you trade as a sole trader, you must tell HMRC that you are self employed and register for Self Assessment. You do this once you start trading, and you then file a Self Assessment tax return each year. HMRC uses the return to work out your Income Tax and National Insurance. Register early, because you need your Unique Taxpayer Reference (UTR) before you can file.
Self Assessment explained
Self Assessment is the system HMRC uses to collect tax from people who do not have tax deducted at source. Sole traders, partners and many company directors file a return. The deadline for online returns is 31 January following the end of the tax year. If your bill is large enough, you usually pay in instalments on account, which means paying part of next year’s tax in advance. Keep records of all income and allowable expenses so you only pay what you owe, and no more.
Corporation Tax for limited companies
If you run a limited company, the company pays Corporation Tax on its profits, rather than you paying Income Tax on them. You must register for Corporation Tax within three months of starting to trade. The main rate is 25 per cent for higher profits, with a small profits rate of 19 per cent for lower profits and marginal relief in between. Companies also file a Company Tax Return and statutory accounts.
VAT: when you must register
VAT is a tax on most goods and services. You must register for VAT when your rolling 12 month turnover exceeds the VAT registration threshold, which is currently 90,000 pounds. You must also register if you expect to pass the threshold in the next 30 days alone. Some businesses register voluntarily before the threshold to reclaim input VAT, but this means charging VAT to customers and filing VAT returns, usually quarterly.
Making Tax Digital
VAT registered businesses must keep digital records and file VAT returns through compatible software under Making Tax Digital. Making Tax Digital for Income Tax is being introduced in stages, so self employed people and landlords should check the current start dates for their circumstances. Good software makes both VAT and Self Assessment far easier to manage, and it reduces the risk of errors.
PAYE: paying yourself and staff
If you pay anyone a salary, including yourself as a director, you usually need to register as an employer for PAYE. PAYE collects Income Tax and National Insurance through payroll and reports to HMRC in real time. Even if you pay yourself only a small salary, registering for PAYE can help you build National Insurance contributions towards the State Pension.
National Insurance for the self employed
Self employed people pay National Insurance through Self Assessment. Class 4 contributions apply to profits above a set level. Class 2 contributions are no longer required for most self employed people, though voluntary payments can still protect your record in some cases. Paying the right contributions protects your entitlement to certain benefits and to the State Pension, so check the current rules for your situation.
Other registrations to consider
- Register as an employer for PAYE if you take on staff.
- Register for the Construction Industry Scheme if you work in construction.
- Register with the Information Commissioner’s Office if you handle personal data.
- Check whether your trade needs a specific licence or permit.
Business rates and other taxes
Tax registrations are only part of the picture. If you occupy non domestic property, you may owe business rates to your local council, and small business rate relief can reduce the bill. If you employ staff, you take on pension auto enrolment duties once eligible employees join. If you sell goods abroad or buy services from overseas, VAT and customs rules may apply. It pays to review your obligations each year as the business changes.
Penalties for late filing
HMRC and Companies House both charge penalties for late filing, and the charges escalate the longer you delay. A late Self Assessment return triggers an immediate fixed penalty, with further charges after three, six and twelve months. Late VAT returns and late company accounts follow similar patterns. Interest also accrues on unpaid tax. Filing on time, even if you cannot pay in full, is almost always cheaper than doing nothing.
Getting help and staying compliant
Deadlines matter. Late Self Assessment returns, late VAT returns and late company accounts all attract penalties that grow over time. Set reminders, keep records for at least five years and consider an accountant if your affairs grow complex. A clear public profile also helps you trade with confidence, so add your business to the directory once your registrations are in place.