Setting up a Business
When you start up a business you will either
- Be employed but with part time self employment income
- Start a sole trader or partnership
- Form a Limited company
Under the first two, the process is the same. You have to register with HMRC that you have self employed income and then file a self assessment tax return every year. A tax return year runs from 6th April to 5th April and you have until the following January to file that return. So, if you begin self employment on say 10th August 2026, then your first tax year runs from 10-08-26 to 05-04-27 and you need to file a return by 31-01-28.
In the example above, say your tax bill is £2,000. You have to pay this tax on or before 31-01-28 which clears your 26/27 tax year liability. At this point you are 9 months into the tax year 27/28 so HMRC will ask you for a payment on account for that year, which they will calculate as half the previous year’s liability. You pay the second payment on account for 27/28 on 31-07-28.
What this means, taking the above example, is that on 31-01-28 you pay £3,000 (your 26/27 liability of £2,000 plus £1,000 payment on account for 27/28) and then on 31-07-28 you pay £1,000 (your second payment on account for 27/28). If your 27/28 tax liability is calculated as £2,500, then on 31-01-29 you will pay £500 for 27/28 (£2,500 less £2,000 paid on account) and then a payment on account for 28/29 of half £2,500, so £1,750.
This is complicated at the start but once you are into the self assessment system it becomes easier to work out your liabilities and when they are due.
If you form a limited company there is an additional layer on top of the self assessment process. You can form a company at Companies House for £100 and you will then get allocated a formal year end date. If, for example, you form a company in July 2026 you will automatically get a year end date of 30-06-27 (though you can then change that date by completing a form at Companies House).
Once your year end date is up you have 9 months to file those accounts at Companies House and 12 months to file a Corporation tax return with HMRC. What is bizarre though is that you have to pay Corporation tax 9 months after the year end, which is 3 months before the actual return is due.
As a director, you are still required to complete a self assessment return and if you have a personal income tax liability then the payment for that tax is as per the timetable set out above for sole traders.
No matter what your business type is, if your annual sales exceed £90,000 you have to register for VAT. This is one month after the point you exceed that £90,000.