So you’re starting a new company. Congratulations! Whether you’re launching a side hustle, leaving your 9-to-5, or turning a passion project into profit, the excitement is real.
But here’s where most new founders stumble: they focus on logos, websites, and product ideas—and completely forget about HMRC until the first penalty letter arrives.
This guide walks you through the essential tax and legal steps you need to take before you start trading. Get these right, and you’ll save yourself fines, stress, and sleepless nights later.
Step 1: Choose Your Business Structure
Step 1: Choose Your Business Structure
This is the most important decision you’ll make. Your structure affects:
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How much tax you pay
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Whether you’re personally liable for debts
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How you file returns
| Structure | Who it’s for | Key feature |
|---|---|---|
| Sole trader | Single owner, low risk | You and the business are legally the same |
| Limited company | Growing businesses, higher risk | Business is separate legal entity |
| Partnership | Two or more owners | Share profits, share liability |
Don’t know which to choose? Start with sole trader—you can always incorporate later.
Step 2: Register with HMRC (Yes, Before You Trade)
Many new founders think: “I’ll just start and register later.”
Wrong.
You must register with HMRC immediately when you start trading. “Trading” means:
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Selling goods or services
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Advertising to find customers
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Buying stock or equipment to resell
Registration deadlines:
| Structure | Deadline |
|---|---|
| Sole trader | By 5 October of your second tax year |
| Limited company | Within 3 months of starting to trade |
| Partnership | Within 3 months (nominated partner registers) |
Penalty for late registration: £100 or more.
Step 3: Understand Your Tax Obligations
Different structures = different taxes to pay.
Sole traders and partnerships:
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Income Tax on profits (20%-45% depending on earnings)
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Class 2 and Class 4 National Insurance
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File one Self Assessment tax return each year
Limited companies:
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Corporation Tax on profits (currently 19%-25%)
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VAT if turnover exceeds £90,000
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File annual accounts and a Company Tax Return
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Pay yourself via PAYE (as an employee) and dividends
Key difference: Sole traders pay tax once a year (by 31 January). Limited companies pay Corporation Tax within 9 months of their year-end.
