Starting a business is an exciting venture, but it also comes with responsibilities — especially when it comes to tax. From choosing the right business structure to registering with HMRC and managing VAT, understanding tax obligations early on helps avoid costly mistakes.
This article outlines the key tax considerations for new business owners in the UK, helping you lay a solid foundation for financial and legal compliance.
1. Choosing the Right Business Structure
Your business structure determines your tax responsibilities. The most common options include:
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Sole trader – Easiest to set up, taxed as personal income
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Partnership – Similar to sole trader, but shared between partners
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Limited company – Separate legal entity, taxed on company profits
Why it matters:
Each structure has different tax rates, filing requirements, and allowances. Limited companies, for example, pay corporation tax, while sole traders file self-assessment.
2. Registering with HMRC
Once you start trading, you must register with HMRC to report income and pay tax:
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Sole traders register for self-assessment
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Limited companies register for corporation tax and PAYE (if hiring staff)
Tip: Register early to avoid penalties and stay ahead of filing deadlines.
3. Understanding VAT Obligations
You must register for VAT if your business turnover exceeds the registration threshold. You can also choose to register voluntarily.
Benefits of registering:
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Reclaim VAT on business purchases
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Appear more established to clients
Obligations include:
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Charging VAT on invoices
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Filing VAT returns (usually quarterly)
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Keeping accurate records
4. Setting Up Payroll and PAYE
If you hire employees — even just one — you must:
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Register as an employer with HMRC
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Operate PAYE for tax and National Insurance
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Issue payslips and keep payroll records
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Submit Real Time Information (RTI) for each pay run
5. Knowing Your Tax Deadlines
Missing deadlines results in automatic fines. New business owners must track:
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Self-assessment filing and payment – Usually due in January
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Corporation tax filing – Due 12 months after year-end, with payment usually due 9 months in
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VAT returns – Due 1 month and 7 days after each VAT quarter
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Payroll filings – Due on or before each payday
6. Claiming Start-Up Expenses
You may be able to claim tax relief on business costs incurred before you officially started trading, such as:
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Equipment
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Website and branding costs
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Travel to meet suppliers or clients
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Legal and professional fees
Keep detailed records to support your claims.
7. Opening a Business Bank Account
While not legally required for sole traders, a separate business account is strongly recommended. For limited companies, it is essential.
Why it matters:
Separating personal and business finances simplifies tax reporting and reduces errors.
8. Keeping Accurate Records
Every business must keep financial records for several years, including:
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Sales and purchase invoices
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Expense receipts
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Bank statements
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VAT records (if applicable)
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Payroll records (if applicable)
Organised records support accurate returns and protect you during HMRC inspections.
9. Budgeting for Tax Payments
Many first-time business owners overlook the importance of setting money aside for tax. Failure to budget leads to cash flow problems.
Tip: Estimate your tax liability quarterly and reserve funds in a separate account.
10. Working with a Tax Professional
A tax advisor or accountant can help you:
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Choose the right structure
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Register with the correct authorities
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Track and reduce tax liabilities
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Ensure compliance from the start
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Avoid common mistakes
Their guidance adds clarity and reduces risk, especially during the first year of business.
Conclusion
Starting a business is an exciting journey, but tax obligations must be taken seriously from day one. By planning ahead, registering correctly, and maintaining good records, you can build a financially sound and compliant business from the ground up.