HMRC tax registration for new UK businesses, VAT thresholds and Making Tax Digital

What to take away

Registering with HMRC: which taxes apply to a new business

HMRC is the tax authority for registration and compliance across the United Kingdom, and Companies House incorporation does not register a company for tax. HMRC is the body that sends the company its Unique Taxpayer Reference, so the two registrations are separate jobs.

A limited company registers for Corporation Tax through the Register for Corporation Tax service inside HMRC's online account, normally within three months of starting to trade. Trading can begin before incorporation formally completes, so the clock is not always obvious.

A sole trader registers for Self Assessment instead, either online through HMRC or on form SA1. There is no company, so profits are taxed through the individual's return, and the registration deadline is 5 October after the end of the first tax year of trading.

VAT is a separate registration again. It depends on turnover rather than business structure, so a company and a sole trader face the same threshold test.

Some activities add further HMRC registrations. Employing staff means PAYE, and paying subcontractors in construction means the Construction Industry Scheme.

If you are still deciding what the business will actually do, the licensing question starts with the activity, not the company type, and the same logic applies to tax registrations.

Registration routes at a glance

Directors also file a Self Assessment return when HMRC asks for one, which is common where they receive dividends or untaxed income.

Corporation Tax rates and Self Assessment for directors and sole traders

Corporation Tax is charged on the company's taxable profits, not on the money directors take out. The rates and allowances for Corporation Tax are the starting point for any first year forecast.

The main rate of 25% applies to profits above £250,000, and the small profits rate of 19% applies to profits of £50,000 or less. Profits between those limits fall into marginal relief, so the effective rate climbs gradually between 19% and 25% instead of switching at a single figure.

A director taking a salary creates a Corporation Tax deduction and a PAYE obligation. Dividends are taxed on the individual, not the company, which is why the salary and dividend mix matters.

Sole traders pay Income Tax and Class 4 National Insurance on profits through Self Assessment. There is no Corporation Tax and no separate company return.

Partners in a partnership each file a Self Assessment return, and the partnership files its own return as well.

A director with a full-time job elsewhere still files a Self Assessment return if HMRC issues a notice to file. Ignoring the notice does not remove the obligation.

VAT registration: compulsory and voluntary thresholds explained

The compulsory VAT threshold is £90,000 of taxable turnover in any rolling 12 month period. Once you go over it, registration is required, and you must register before the end of the following month.

There is also a forward look test. If you expect to go over £90,000 in the next 30 days alone, you must register at that point even if the past 12 months are below the line.

The deregistration threshold is £88,000: a business that can show its taxable turnover will stay below that figure for the next 12 months can ask HMRC to cancel its registration.

Voluntary registration is available below the threshold. It lets a business reclaim input VAT on purchases, which helps if customers are VAT registered and do not mind the added charge.

Voluntary registration hurts businesses selling to consumers at tight margins, because the added 20% makes the price less competitive or eats the margin.

Registration itself runs through the HMRC VAT Registration Service inside the online account, which is also where the effective date of registration is set.

Choosing whether to register for VAT voluntarily

Registration can also be backdated in some cases, which means VAT is due on sales already made. Check the effective date carefully before submitting.

Making Tax Digital for Income Tax: the step-by-step requirements

Making Tax Digital for Income Tax replaces the single annual return with digital records and quarterly updates. It applies to sole traders and landlords, not to limited companies.

The qualifying income threshold starts at £50,000 from April 2026, drops to £30,000 from April 2027, and reaches £20,000 at a date to be confirmed.

Qualifying income is gross income from self employment and property, not profit. A trader with modest profit but high turnover can still be caught.

Making Tax Digital for Income Tax is run through HMRC's online service, and you sign up to it from the same Government Gateway account you use for Self Assessment. The practical order is:

Quarterly updates are not payments on account. They are summaries of income and expenses, and the tax bill still lands at the end of the cycle.

A limited company director is outside Making Tax Digital for Income Tax for company income, but inside it for a separate sole trade or property income above the threshold.

Setting up an HMRC online account and digital records

Most first-time registrations run through HMRC online services, which is also where returns, payments and letters are managed afterwards.

A limited company needs its own Government Gateway account, separate from any personal account a director already holds. Using a personal login for company business causes access problems later.

Sole traders use a personal Government Gateway account and add Self Assessment, and later Making Tax Digital, to it.

Expect an activation code by post when registering for the first time. It can take several days to arrive, and nothing can be filed until it does.

Agents can be authorised to act through the same system. That does not remove the director's or trader's legal responsibility for what is filed.

Keep the Government Gateway credentials somewhere the business can reach them. A single director holding the only login is a common point of failure.

If you are mapping out the year ahead, the business licences planning template has status columns that work for tax deadlines as well as licence applications.

Choosing software and keeping records that satisfy HMRC

Software for Making Tax Digital must be able to keep digital records and send updates directly to HMRC. A spreadsheet on its own does not qualify unless it is linked through bridging software.

Records must show income and expenses with enough detail to support the figures. Bank statements alone are not records of what a payment was for.

For VAT, digital records must capture the rate applied, the VAT charged and the VAT reclaimed on each transaction.

For Corporation Tax, the company needs accounts that reconcile to the return. Accounting software that produces a trial balance saves time at the year end.

Retain records for at least six years from the end of the accounting period. HMRC can ask to see them, and a compliance check can start years after filing.

Cloud accounting subscriptions for a small company typically run from around £10 to £40 a month, depending on features. That is a real cost to plan for, and the business licences budget template that records sources and payment timing keeps it visible.

If the business also needs licences, the wider costs and budget guide covers how to plan for authority charges and preparation time without inventing figures.

A practical example: a newly incorporated company's first tax year

Take a two-director company incorporated in May, trading from June, selling consultancy to business clients. Turnover for the first 12 months reaches £120,000.

The company registers for Corporation Tax within three months of starting to trade. It registers for PAYE before the first salaries are paid.

VAT registration is triggered partway through the year when rolling turnover passes £90,000. The company registers by the end of the following month and charges VAT from the effective date.

Profits for the year come to £60,000 after salaries. That falls into marginal relief, so the effective rate sits between 19% and 25% rather than at either headline figure.

Each director files a Self Assessment return because HMRC issues notices to file, covering salary and dividends. The company files its own Corporation Tax return nine months and one day after the year end.

Because the business is a company, Making Tax Digital for Income Tax does not apply to its trading income. It would apply if either director also ran a sole trade above the threshold.

Record keeping runs on cloud software from month one, with quarterly VAT returns and a year-end accounts pack produced from the same ledger.

What went right and what nearly went wrong

The directors registered for VAT as soon as the rolling figure crossed the line, which avoided a backdated liability.

They nearly missed the Corporation Tax registration because they assumed Companies House had passed the details on. It had not.

Common registration mistakes and how to correct them

Mistakes here are usually fixable, but the cost rises with time. Most corrections run through the same HMRC online account used to register.

Filing a return with an estimated figure and forgetting it. Amended returns are allowed, but the original figure stands until it is corrected.

Where a penalty is charged, HMRC usually offers a way to appeal or ask for a review. The grounds are narrow, so act quickly rather than waiting for the next letter.

Common questions

Official sources:

• HMRC manual on Making Tax Digital income exemptions
• Check if you need Making Tax Digital for Income Tax