Tax and HMRC Requirements for Limited Companies

Registering with HMRC

Companies House will notify HMRC when you set up your new limited company (or limited liability partnership). Approximately 15 days afterwards, you should receive a letter from HMRC at your registered office address. This will contain your company’s Unique Taxpayer Reference (UTR) and information about your tax-related obligations.

If you’ve set up a company, you’ll need to register with HMRC for Corporation Tax when you start trading. Your company will then pay Corporation Tax on its taxable profits. You may also need to register for Value Added Tax (VAT) and Pay As You Earn (PAYE).

Limited liability partnerships (LLPs) don’t pay Corporation Tax. If you’ve set up an LLP, you’ll need to register the partnership for Self Assessment instead. Additionally, every member of the LLP must register separately for Self Assessment and pay Income Tax and National Insurance on their share of the partnership’s profits. You may also need to register the LLP for VAT and PAYE.

Corporation Tax and Company Tax Returns

The trading status of all incorporated companies is either ‘active’ (trading) or ‘dormant’ (not trading) for Corporation Tax purposes.

Your company is active if it engages in any form of business activity, including:

• selling goods or providing services with a view to making a profit
• buying goods and services
• leasing or purchasing land or property
• receiving income from rental property or sales
• managing investments - buying shares in another company and receiving dividend payments
• issuing dividend payments to shareholders
• earning interest
• employing staff and operating payroll
• paying directors’ salaries
• advertising your products and services
• paying accountancy fees through a business bank account
• any other significant accounting transactions (monies spent or received) that must be entered into your company’s accounting records

Within 3 months of carrying on any such business activities, you must register your company for Corporation Tax.

If your company is not trading, receiving income, or engaging in any other type of business activity, you must tell HMRC that it’s dormant for Corporation Tax purposes. In this situation, you won’t have to register for Corporation Tax or file a Company Tax Return until your company is active.

Registering for Corporation Tax

You must register for Corporation Tax with HMRC online. The first step is to create a Government Gateway account and take note of your new User ID shown on the screen.

Next, you will be asked to select the type of account you need (select ‘Organisation’) and provide the following information about your company:

• Unique Taxpayer Reference (UTR)
• registered company name in full
• company registration number
• date your company became active - this will determine the start of your Corporation Tax accounting period
• address where your company’s principal business activities take place
• nature of main business activities
• accounting reference date (ARD) - this is the date that your annual accounts are made up to, which falls on the anniversary of the last day of the month in which you set up your company

This information will be used to work out your company’s 12-month accounting period for Corporation Tax. Shortly thereafter, HMRC will provide the deadlines for filing a Company Tax Return and paying Corporation Tax.

Accounting period for Corporation Tax

Your accounting period for Corporation Tax is the period of time covered by your Company Tax Return. It starts on the date your company becomes active for Corporation Tax and ends on the accounting reference date (ARD).

An accounting period cannot be longer than 12 months. Normally, it will correspond with the 12-month financial year covered by your annual accounts.

However, your first set of accounts will likely cover more than 12 months. This will happen if you incorporate your company on any date other than the last day of the month and begin trading immediately.

In this situation, you will have to prepare two Company Tax Returns: one return will cover the first 12 months; the other return will cover the additional days/weeks.

After the first year, your accounting period should align with the 12-month financial year in your annual accounts (unless you choose to shorten or lengthen your company’s financial year at some point).

Preparing a Company Tax Return

You’ll need to prepare a Company Tax Return (form CT600) for HMRC every year, even if you make a loss or have no tax to pay. The tax return is a financial document that reports your company’s income and expenditure, deductions and reliefs, profits or losses, and Corporation Tax liability.

Find out more: Preparing a Company Tax Return – a simple guide

You must file the tax return online, alongside full (statutory) annual accounts detailing how the final figures were worked out. We recommend hiring an accountant to assist with the preparation and filing of your Company Tax Return and accounts.

Paying Corporation Tax

Companies pay Corporation Tax on all taxable income after the deduction of business costs, expenses, and tax reliefs. Depending on how much profit you generate during an accounting period, you will pay:

• 19% small profits rate - if your company makes a profit of £50,000 or less
• 25% main rate - if your company makes more than £250,000 profit
• Marginal Relief rate - if company profits are between £50,000 and £250,000

You’ll work out your company’s taxable profit (or loss) and Corporation Tax bill when you prepare your Company Tax Return.

Find out more: How Corporation Tax works

You must submit the required Corporation Tax payment to HMRC electronically - you cannot pay by post. The various payment options available to you are:

• Faster Payment through online or telephone banking
• CHAPS
• Bacs
• Direct Debit
• online by debit card or credit card
• at your bank or building society

Bear in mind the amount of time it takes for payments to reach HMRC. If your payment arrives late, you may be fined. However, if you pay your tax early, HMRC will pay you interest.

Filing and payment deadlines

The deadline for delivering a Company Tax Return to HMRC is 12 months after the end of the Corporation Tax accounting period that it covers.

The deadline for paying your company’s Corporation Tax bill is 9 months and 1 day after the end of the accounting period.

Dormant company requirements

Generally, a company is dormant for Corporation Tax purposes if it:

• is a new company that has not started trading and is not carrying on any other type of business activity
• has ceased trading and has no other forms of income (e.g. investments)
• is an unincorporated association or club owing less than £100 Corporation Tax
• is a flat management company

Dormant companies do not have to file tax returns or annual accounts for HMRC unless they were active at any point during an accounting period. However, they must file dormant company accounts and a confirmation statement with Companies House on an annual basis.

If your company is dormant, it’s important to tell HMRC as soon as possible - otherwise, you may have to prepare a Company Tax Return and statutory accounts.

Value Added Tax (VAT)

Value Added Tax is charged on most goods and services that are bought and sold. VAT-registered businesses can add VAT to the prices they charge on the products and services they sell to their customers. They can also reclaim any VAT they pay to other businesses.

You must register your business for VAT if:

• your VAT taxable turnover for the last 12 months exceeded the VAT threshold (currently £90,000 since 1 April 2024), or
• you expect your taxable turnover to exceed the threshold in the next 30 days, or
• your business is based in Northern Ireland and you only sell goods or services that are VAT exempt or ‘out of scope’, but you purchase goods for more than £90,000 from EU VAT-registered suppliers to use in your business

VAT registration is also compulsory (regardless of turnover) if:

• you are based outside the UK
• your business is based outside the UK, and
• you supply any products or services to the UK (or expect to do so in the next 30 days)

If your taxable turnover is below £90,000, you can register for VAT voluntarily (unless everything you sell is VAT exempt or ‘out of scope’). Voluntary VAT registration can offer several benefits to your small business, such as:

• boosting your company’s image by having the appearance of a larger and more established business
• claiming VAT refunds on the goods and services you buy for your business - this is particularly beneficial if you sell zero-rated products and purchase standard-rated goods
• ability to reclaim VAT on goods purchased up to 4 years before registration
• appealing to more clients and suppliers, particularly those who are also VAT-registered

It’s worth speaking to an accountant to determine whether or not voluntary VAT registration is right for your business.

VAT rates

There are three rates of VAT that businesses can charge, depending on the types of goods or services they provide and how they are used:

• Zero rate at 0% - applies to zero-rated products and services, such as most food and drink for human consumption, books and newspapers, children’s clothes and shoes, and motorcycle helmets
• Reduced rate at 5% - applies to goods and services like home energy-saving materials, children’s car seats, smoking cessation, and mobility aids for older people
• Standard rate at 20% - applies to most products and services other than those classed as zero-rated or reduced-rate

Registering for VAT

Most businesses can register for VAT online. If registration is compulsory, the deadline for doing so depends on when you exceeded, or expect to exceed, the VAT threshold:

• If your VAT taxable turnover for the last 12 months was more than £90,000, you must register within 30 days of the end of the month in which you exceeded the threshold
• If you expect your turnover to exceed £90,000 in the next 30 days, you must register for VAT by the end of that 30-day period

Once you have registered, HMRC will provide you with the following information by post:

• a unique VAT number
• information about how to set up your business tax account (if you don’t have one already) - you will need this to access the VAT online service
• deadline for submitting your first VAT Return and payment
• confirmation of your ‘effective date of registration’ (official registration date)

From the effective date of registration, you must:

• charge the correct rate of VAT on your goods and/or services
• submit a VAT Return to HMRC, usually every 3 months - the deadline is normally 1 month and 7 days after the end of each 3-month accounting period
• pay any VAT due to HMRC at the end of each accounting period
• retain VAT records for at least 6 years
• keep your VAT registration details up to date by reporting certain changes to HMRC

You can’t include VAT on your invoices until you receive your VAT number. However, you can increase your prices to account for the VAT that you’ll need to pay to HMRC. Once you have your VAT number, you must include it on all invoices you raise.

Self-Assessment for directors, shareholders, and LLP members

Most company directors and shareholders are required to file an annual Self Assessment tax return to declare certain types of income, such as dividends, director’s loans, and any other income that is not processed through PAYE.

Every self-employed LLP member must also send a Self Assessment tax return to declare and pay tax on their share of the LLP’s profits (less any business costs and expenses). Additionally, LLPs must register separately and file an annual Partnership Tax Return with HMRC.

Registering for Self-Assessment

Most people register for Self Assessment online. The deadline is 5 October after the end of the tax year covered by your first tax return. For example, if you need to report income received in the 2024-25 tax year, which runs from 6 April 2024 to 5 April 2025, you must register by 5 October 2025.

Find out more: Self Assessment guidance for company directors and shareholders

Find out more: Self Assessment requirements for limited liability partnerships (LLPs)

To register for Self-Assessment, you will need to create a Government Gateway account and provide information about you and your business. HMRC will then send two letters to your contact address.

One letter will contain your 10-digit personal Unique Taxpayer Reference (UTR). You will use this when filing tax returns and paying tax through Self Assessment.

The other letter will contain your activation code. You must use this code within 28 days to activate your online account. Once you’ve done this, you will be able to file Self Assessment tax returns online and pay any tax you owe.

Filing Self-Assessment tax returns and paying tax

Self Assessment tax returns and Partnership Tax Returns must be submitted to HMRC online or by post after the end of the tax year they cover. The deadlines are:

• 31st October - if you’re sending a paper tax return by post
• 31st January - if you’re filing your tax return online

Depending on the type of income you declare, you may have to pay Income Tax, Class 4 National Insurance contributions (NIC), or dividend tax. The deadline for paying your Self Assessment tax bill is 31st January after the end of the tax year.

Registering as an employer

You may need to register your company or LLP as an employer and enrol for PAYE if you intend to pay yourself a director’s salary or hire staff. You’ll do this online through your Government Gateway account.

Find out more: Registering as an employer – the essentials

It can take up to 30 days for HMRC to finalise your registration. You must register before the first payday, but you can’t register more than 2 months in advance - so you need to plan ahead to ensure that everything is set up on time.

Once you’ve registered, HMRC will provide you with an employer PAYE reference number and Accounts Office reference within 30 days. You will use these details to set up payroll and fulfil your PAYE obligations.