If your business is structured as a limited company, then you will need to pay corporation tax.  You will also need to pay corporation tax if you are a foreign company with a UK branch or office, or a club, co-operative or other unincorporated association.

Corporation tax is paid annually on any profits your business makes during your financial year. This not only includes trading profits from ‘doing business’, but any profits your business makes on investments and selling assets.

The corporation tax rate you are charged is determined by the size of your profits. For the 2024/25 tax year, corporation tax rates are as follows:

• Profits under £50,000: You are charged at the small profits rate of 19%.
• Profits over £250,000: You are charged at the main rate of 25%.
• Profits between £50,000 and £250,000: You are charged at the 25% main rate, but can reduce the effective rate you pay through Marginal Relief (which operates on a sliding scale). You can calculate your Marginal Relief at uk.

Corporation tax isn’t automatically deducted from your profits. Nor do you receive a bill in the post. In order to pay corporation tax, you need to complete the following steps:

1. Register for corporation tax. You need to do this when you start your business, or restart a dormant business. Most businesses do this at the same time as registering with Companies House. To register, you will need your Government Gateway user ID and password to log into your business tax account, alongside your Unique Taxpayer Reference (UTR). If you do not have a user ID, you will get the chance to create one when you first sign in.
2. Keep your accounting records up to date. It is on you – or your accountant – to maintain your accounting records. You will use these to prepare a company tax return. This is how you calculate the amount of corporation tax you need to pay.
3. Pay your corporation tax. You must pay your corporation tax within nine months and one day of the end of your accounting period. If your profits are greater than £1.5 million, you will need to pay in instalments. You will still need to meet this deadline even if you are reporting that you have nothing to pay.
4. File your company tax return. The deadline for filing your company tax return is slightly later than paying your corporation tax. You have 12 months following the end of your accounting period to submit your return.

It’s also worth noting that capital allowances may offer some tax relief to your business. Capital allowances allow businesses to deduct the cost of certain necessary items, such as company vehicles and machinery, from total pre-tax profits. This could significantly reduce your tax bill, so make sure to claim if you are eligible.

Income tax

There are two ways you can encounter income tax as a business:

• as a sole trader, freelancer or self-employed business owner, as you will pay income tax on your own profits that are more than your personal allowance
• as an employer, as every employee will pay income tax on their salary over their personal allowance, and have this deducted from their pay

The UK has the largest network of double tax treaties in the world. The UK government offers a strong package of tax reliefs and incentives to support innovation and growth in technology and fintech companies

If you are a sole trader, freelancer, or are self-employed, then you will need to pay your income tax via your self-assessment tax return. This must be submitted and paid, no later than 31 January, following the close of the most recent tax year. For example, for the 2023/24 tax year, which ended on 5 April 2024, the deadline is 31 January 2025. If you miss the deadline, it is likely you will have to pay a penalty.

VAT

VAT, or value added tax, is added to most goods and services you would sell as a VAT-registered business, and is typically charged at 20%. You can only charge VAT if you are a VAT-registered business.

Once you have registered your business for VAT online via your Government Gateway account or your accountant or agent, you will have a number of responsibilities, including paying HMRC any VAT you owe. If you have charged more VAT to customers than you have paid in VAT to other businesses, you will need to pay the difference to HMRC.

There is, however, a list of items that are eligible for a reduced rate of VAT, or ‘zero-rate’ items on which VAT is not charged. Examples of zero-rate items include books, children’s clothes and most goods exported to outside the UK. A more comprehensive breakdown of reduced and zero-rate items can be found at gov.uk.

As a business, you must register for VAT if your taxable turnover is greater than £90,000. You can still choose to become a VAT-registered business if your taxable turnover is below this threshold – it just isn’t compulsory.

To calculate your VAT taxable turnover, you need to add up the total of all the goods and services you have sold across a 12-month period, excluding any zero-rate items, and see if that total is greater than the threshold.

VAT taxable turnover is calculated on a rolling 12-month basis, not just across your 12-month financial year. This means that at the end of every month, you will need to calculate your 12-month VAT taxable turnover, to check if you have crossed the £90,000 threshold. If you have crossed the threshold, you have 30 days to inform HMRC and register for VAT.

Dividends tax

If you pay yourself a dividend as the owner of a business, you will pay tax on that sum if it is greater than the 2024/25 dividend allowance of £500.

The dividends tax rate you pay is determined by your income tax band. To calculate your new income tax band, you need to add your total annual dividends to your base salary.

• Basic rate (£12,571 to £50,270): If you are on the basic rate of income tax, any dividends over your allowance will be charged at a rate of 8.75%.
• Higher rate (£50,271 to £125,140): Anyone on the higher rate of income tax will see dividends over the allowance charged at a rate of 33.75%.
• Additional rate (over £125,140): If you pay the additional rate of income tax, your post-allowance dividends are taxed at a rate of 39.35%.

If your dividends total less than £10,000, you will need to ask HMRC to change your tax code. If your dividends exceed £10,000, you will need to complete a self-assessment tax return.

Capital gains tax

Capital gains tax is paid on the profit you make when you sell an asset, such as shares in a business or a property that isn’t your home, that has increased in value.

While you don’t need to be a business owner to pay capital gains tax, you should be aware of the assets you may need to pay the tax on as a business. These include:

• land and buildings
• fixtures and fittings
• plant and machinery
• shares
• registered trademarks
• your business’s reputation

You may be able to reduce the amount of capital gains tax you pay when selling all or part of your business through Business Asset Disposal Relief (formally known as Entrepreneurs’ Relief). Alternative forms of relief could be available if you are selling assets that are promptly replaced or gifting assets to another business or individual.

Accounting and Audit Requirements

Your statutory accounts must meet either:

• International Financial Reporting Standards
• New UK Generally Accepted Accounting Practice

 Different types of limited company accounts 

All companies, with the exception of ‘small’ companies, micro-entities, and dormant companies, must deliver full annual accounts (‘statutory accounts’) to Companies House and HMRC. These accounts consist of:

• a profit and loss account
• a balance sheet
• notes about the accounts
• a directors’ report
• an auditors’ report (unless the company qualifies for exemption)
• name and signature of the company director

Small company accounts

Small companies can file abridged (simple) annual accounts at Companies House, which simply consists of a balance sheet and notes about the accounts.

To qualify as small, your company must meet two of the following conditions:

• annual turnover below £10.2m
• a balance sheet total less than £5.1m
• fewer than 50 employees

Small company accounts are exempt from audit, so there is no requirement to include an auditors’ report. However, statutory accounts must still be provided to members and prepared for HMRC as part of the Company Tax Return.

Micro-entity accounts

Very small companies can prepare micro-entity accounts, which have even fewer requirements than small company accounts. To qualify as a micro-entity, your company must meet two of the following conditions:

• annual turnover below £632,000
• a balance sheet total of less than £316,000
• fewer than 10 employees

Micro entities must still send statutory accounts to company members and to HMRC as part of their Company Tax Return.

Dormant company accounts

Dormant companies only need to prepare dormant accounts. These are made up of a balance sheet and notes about the accounts. They don’t have to send anything to HMRC, but they must tell HMRC that the company is dormant for Corporation Tax purposes

How and when to deliver annual accounts to Companies House and HMRC

Your first annual accounts must be delivered to Companies House within 21 months of incorporation. These will usually cover a period of just over 12 months, starting on the date of incorporation and ending on the accounting reference date (ARD). The ARD is normally the anniversary of the last day of the month of company formation.

After the first year, accounts for Companies House will normally cover a 12-month period and should be delivered no later than 9 months after the ARD.

You can send annual accounts to Companies House via the WebFiling service Full annual accounts for HMRC must be included with each Company Tax Return and filed online no later than 12 months after the end of each Corporation Tax accounting period.

What is my company’s accounting reference date (ARD)

All companies are given an accounting reference date (ARD) when they are registered at Companies House. This date represents the end of the company’s financial year.

The first ARD for a company will be the anniversary of the last day of the month in which it was incorporated, for example:

• You register a company on 1 July 2024
• Your first ARD will be 31 July 2025
• Annual accounts must be ‘made up’ to this accounting reference date and filed at Companies House no later than 9 months after the ARD
• The ARD will remain the same every year unless you shorten or extend your financial year

Contact us for complete assistance in opening an offshore company in United Kingdom.