Setting up business in UK

The main types of business structure are sole trader, partnership, and company. Your choice will affect your administrative burden, tax, legal status, and your ability to raise money by selling shares.

"A sole trader is a single-owner business.
It’s easy to set up as a sole trader and tax is simple.
Disadvantages of a sole trader
No special legal status, which means the owner is personally liable for the business. If the business gets into legal trouble, so does the owner. A sole trader may also miss out on some tax advantages that come with being a company"

"A partnership is owned by two or more people.

Advantages of a partnership
It’s easy to set up as a partnership.
Tax is simple.

Disadvantages of a partnership
If the business gets into legal trouble, so do the partners. A partnership is also less advantegeous in some tax advantages available to a company. Partnership also includes a limited liability partnership (LLP) which is a corporate form of partnership providing certain benefits like a company in terms of partners being less exposed to legal or financial issues in comparison to ordinary partnership."

"A company (Coy) is separate legal entity from its owner(s).
A Coy can be owned by one person or many.

Advantages of a company
Owners get legal and financial protection if things go wrong.
Coy(s) pay a lower tax rate
Option to sell shares in your company to raise money.

Disadvantages of a company
Costlier to operate compared to a sole trader or partnership.
More administrative work.
Regular submission of paperwork to Companies House. "

"Setting up a company in the UK is quite simple and easy.
Only basic information on directors, shareholders and trade is required. The same can be done through Companies House online.
Appointment of a UK based director isn't mandatory, although this can help if you want to set up a UK bank account.
A UK registered office address is required and Diaspora Law can provide you with a UK business address."

"Generally, UK companies are set up the same day when applications are made online, however a complex application may take a longer time to process.
This time does not include setting up a bank account for the company.
Note: Opening a bank account in UK is not mandatory at this stage."

"The cost of setting up business in UK varies on your preference. For instance, in setting up a company if you adopt model articles (generally done by most companies) then the cost is low, however, more complex articles require higher fees and expertise.

In order to determine the exact cost of fees for setting up your business, please visit our website and a member of our expert team will guide you. "

"Following documents are required:
Identity documents for the Shareholder(s) or Person(s) with Significant Control (PSC), Identity documents for the Director(s),
Documents required for checks under Anti Money Laundering
Please note that this is not the exhaustive list

We have prepared a Minimum Document Checklist containing the list of documents required for setting up a company. You can contact us at our website: and one of our experts will help you with the exact list based on your requirements "

"Several potential considerations in setting up a UK company:
Tax registrations (VAT)
Employment/Social security
Specific Industry Regulation (if any)

For instance if you employ people in the UK, various obligations that need to be fulfilled are:
Insurance, Employment contracts, Pension contributions, PAYE.

You can contact us at our website: and one of our experts will help you with the exact considerations. "

"London has long been the UK’s de facto centre for business activity having a population of over 8 million, world class transport facilities, Tech and Business parks.

Other major locations include
Birmingham, Manchester, Leeds, Bristol and Bradford."

"Broadly there are following submissions:
1. There is a requirement to submit accounts at Companies House, and these accounts must be audited for bigger groups.
2. Additionally to the UK tax authorities' (HMRC) requires to submit a corporation tax computation and return.
3. The United Kingdom is a relatively transparent jurisdiction, with all corporations required to confirm their shareholders, directors, and control on a yearly basis. A Confirmation Statement is used to do this. The Companies House WebFiling system can be used to submit your company's confirmation statement/annual return, annual accounts, and director/secretary changes.

You can contact us at our website: and one of our experts will help you with any specific requirements your business may have."

The current corporate tax rate in the United Kingdom is 19 percent.

"Opening an account with a UK bank during the company formation process is not required and depends on the convenience of the company.

However, opening a bank account might be difficult - especially if you have a small presence in the UK and no established businesses.

You can contact us at our website: and one of our experts will help you with any specific requirements your business may have regarding opening a bank account in UK."

"VAT registration would be mandatory if the turnover of your business is more than the VAT threshhold limit. However, VAT registration can be on a voluntary basis.

We always urge that you obtain professional assistance to better understand your VAT responsibilities

You can contact us at our website: and one of our experts will help you with any specific requirements your business may have regarding VAT."

"If you decide to hire people in the UK, you must provide them with an employment contract. This is a legal requirement that typically covers pay, holidays, benefits, working hours, notice periods, and any special requirements or instructions.

Employment contracts are frequently supplemented by an Employment Handbook (or Mini-handbook) to ensure that all employee behaviours are consistent with the company's expectations and agreed-upon behaviours and typically cover topics such as Disciplinary, Grievance, Data Protection, Health and Safety, but they can be expanded depending on the business need.

You can contact us at our website: and one of our experts will help you with any specific requirements your business may have regarding employment rules."

No, only a registered office in the United Kingdom is required.

No, however, such entities would be considered a "Branch" of the Overseas entity and would be subject to the same tax and legislative requirements.

"HMRC considers a wide range of items to be taxable benefits, including healthcare, the provision of a company car, travel, and entertainment. It is worth noting that round sum amounts (which may be permissible in other countries to cover sundries/lunch, etc.) are taxable in the UK.

It is your responsibility as a UK employer to be aware of the most recent rulings on expenses and benefits in order to accurately account for them with HMRC. Failure to do so may result in penalties.

You can contact us at our website: and one of our experts will help you with any specific requirements your business may have regarding employee expenses."

Corporation Tax

Corporation Tax in the United Kingdom is a tax levied on the annual profits of UK resident companies and branches of foreign corporations. The Corporation Tax rate in the United Kingdom is currently 19% for all limited companies.

"Corporation Tax is payable on the annual profits of all taxable UK limited companies, moreover, Corporation Tax can also extend to unincorporated organisations such as co-operatives, trade and housing associations, and members clubs or associations etc. You can contact us at our website: and one of our experts will help you with any specific requirements your business may have."

"The company director, or directors, are responsible for ensuring that a firm's Corporation Tax returns are filed with HMRC and that all taxes are paid by the due date.

Many businesses use tax specialists to prepare their Corporation Tax returns, but the legal responsibility remains with the directors."

"Corporation Tax can be paid online, at a bank, or through the mail. If same-day payment is required, the Corporation Tax bill can be paid by CHAPS, online, or over the phone. BACS transfers, direct debits, and credit or debit card payments take three working days on average. "

"The deadline for filing your Corporation Tax return is normally 12 months after the end of the accounting period covered by the return.

One should also keep in mind that the deadline for paying a Corporation Tax payment is normally 9 months and 1 day after the accounting period finishes.

It's worth noting that large businesses may be required to pay Corporation Tax in instalments, with some of these payments due within the accounting year (rather than after the year-end)."

"When Corporation Tax returns are filed late, the UK government imposes the following penalties:"

Time after your deadline Penalty
1 day £100
more than 3 months Another £100
more than 6 months A 10% penalty on top of your unpaid Corporation Tax
more than 12 months

An additional 10% of any unpaid Corporation Tax

Furthermore, if you fail to file your Corporation Tax return three times in a succession, the £100 penalty is increased to £500. The UK government website has more information on Corporation Tax fines.

"If a firm's Corporation Tax bill is not paid on time, the company will be charged interest on the unpaid sum."

"If payments are not made, HMRC may take one of numerous actions to ensure that the unpaid Corporation Tax is paid, including:

Contacting debt collection agencies
Recovering the money directly from your bank or building society account
Selling your assets
Initiating court proceedings
Liquidating the company and closing your business down

It is vital that any unpaid Corporation Tax be paid on time, since the consequences of failing to do so can be severe, putting your firm in peril.

HMRC may be able to assist you in putting up a payment plan if you are unable to pay your unpaid Corporation Tax. They should be notified as soon as possible, rather than after the deadline has gone. "

"Submitting a Corporation Tax return with incorrect or innacurate information can result in many problems and fines.
HMRC views errors in a variety of ways, and fines will vary based on the severity of the fault, whether the error was deliberate, and whether you attempted to disguise it.

If HMRC discovers an inaccuracy on your Corporation Tax return, you will be fined between 0 and 30% of your total Corporation Tax amount. If you do not reveal the inaccuracy and HMRC discovers it, you will be fined at least 15%.

If HMRC discovers deliberate, unreported mistakes in your Corporation Tax return, you could face a penalties of 20-70 percent. If HMRC discovers undisclosed inaccuracies of this nature, they will be fined 35-70 percent.

Deliberately disguised inaccuracies are far more serious.
Offshore inaccuracies may be subject to much harsher penalties.
you're submitting.
We, at Diaspora Law, can assist you in completing your Corporation Tax returns accurately and without errors. Please visit our website to contact us"

There is no concept of threshold in Corporation Tax; all companies are required to pay Corporation Tax on their profits.

"Ring Fence Corporation Tax (RFCT) is like Corporation Tax, except that only enterprises active in oil and gas production in the UK, as well as the UK Continental Shelf, pay it (which includes parts of the North Sea, the North Atlantic Ocean, Irish Sea, and the English Channel).

The main rate of the Ring Fence Corporation Tax is 30%"

Dividends are payments made to shareholders by companies after they have made a profit. Dividends are not subject to Corporation Tax; but, if an individual shareholder receives dividends in excess of £2,000, they will be subject to Income Tax.

Dividend payments will not reduce your Corporation Tax bill. Corporation Tax is levied on a company's profits prior to the payment of dividends

No they do not pay Corporation Tax; instead, they are required to pay other taxes on their business profits.


VAT stands for Value Added Tax, which was implemented in the United Kingdom in 1973. It is a tax levied on the price of certain goods, services, and other taxable supplies purchased and sold within the United Kingdom.

In the United Kingdom, there are three different VAT rates, each of which is determined by the goods or services delivered. These rates are listed in the table below, along with the general categories to which they apply.

Rate Applied to Charge
Standard Most goods and services 20%
Reduced Goods and services such as home energy, children’s car seats, residential property conversions, etc. 5%
Zero Most foods and children’s clothing 0%

However, VAT does not apply to all sales, and some are exempt or beyond the scope of VAT. Insurance, health care, postal stamps, and education, for example, are exempt from UK VAT, whereas statutory fees, goods or services purchased and used outside the UK, and charitable donations are beyond the UK VAT scope.

"If your taxable turnover reaches £85,000, you must register for VAT. All turnover generated by non-VAT exempt sales is referred to as taxable turnover. Taxable turnover includes even transactions where the VAT rate is zero.

Companies who do not meet this criteria are not required to charge VAT on their sales and are not required to register with HM Revenue & Customs (HMRC).

If a company's revenue exceeds the threshold, it must contact HMRC and register for VAT.
Rather than a defined term like the tax year or the calendar year, this turnover criterion is calculated over a rolling 12-month period. As a result, it might be any 12-month period, such as the beginning of February to the end of January or beginning of September to the end of August.

Unregistered enterprises whose turnover is approaching the registration limit should keep a close eye on this since there are stringent deadlines for filing the registration and charging VAT once the turnover level has been exceeded."

"VAT applies similarly to any business structure in this context, including companies, partnerships, and sole traders.
Upon registration, HMRC will issue a VAT registration certificate confirming the business’ VAT number, effective date of registration and the due date of the first VAT return.

It should be noted that any business with a turnover below the threshold can choose to register for VAT, this is known as voluntary registration. There can be advantages of voluntarily registering for VAT, such as the ability to reclaim VAT on purchases and creating a more trustworthy and professional image to customers."

"Once registered, a business will need to include the relevant rate of VAT on all their taxable sales. This is referred to as output tax. The VAT is ultimately paid by their customers, but it is the business’ responsibility to report and pay this to HMRC.

Businesses can also usually reclaim VAT paid on business related purchases, which is known as input tax. However, some items are not eligible for VAT reclaims, such as entertaining costs, cars and (for unincorporated businesses) purchases used for private use."

"Calculating VAT is quite straightforward. To find VAT-inclusive prices, you can simply multiply the price excl. VAT by 1.2, thereby adding the standard 20% rate of VAT to the price. For the 5% reduced rate of VAT, simply multiply the price (excl. VAT) by 1.05.
If you wish to calculate VAT-exclusive prices, simply divide the total price (including VAT) by 1.2 for the standard (20%) rate, or by 1.05 for the reduced (5%) rate."

VAT registered businesses must report the amount of output tax and input tax to HMRC via the submission of a VAT Return. This is usually completed every quarter. Most VAT registered businesses that have a turnover in excess of £85,000 must also follow the rules for Making Tax Digital (MTD) for VAT, which were introduced in April 2019.

"A VAT Number, also known as VAT Registration Number, is a unique code that is issued to a company that is VAT registered. This number is 9 digits long and will usually feature GB at the start. HMRC will issue a company a VAT registration certificate on which the company can find their VAT number. It is very important that your VAT number is checked whenever submitting VAT returns. Mistakes in your VAT return can cause delays, while HMRC may disallow your tax input claim."

You can check whether a UK company is VAT registered using a service on the UK Government website. This service lets you check if a VAT Registration number is valid and will also allow you to look up the business name and address that the number is registered to. It can also be used to keep a record of when you have checked a UK VAT number.

"VAT registration is a legal obligation, failure to adhere to these rules can lead to substantial penalties and in the worst cases a custodial sentence.

The penalty levied by HMRC for late registration is worked out as a percentage of the VAT due (output tax less input tax), from the date when a business should have registered to the date when either HMRC receive your notification, or became fully aware that you were required to be registered. The rate of penalty depends on how late you were in registering:"

"If registered Penalty rate
Not more than 9 months late 5%
More than 9 months but not more than 18 months late 10%
more than 18 months late 15%
HMRC can also charge surcharges if they do not receive the VAT return or full payment for the VAT due by the deadline. These surcharges can be up to 15% of the VAT outstanding at the due date. They also have the power to levy penalties of up to 100% of any tax under-stated or over-claimed if a business sends a return that contains a careless or deliberate inaccuracy.
The above is aimed to be a quick introduction to VAT, but the reality is that the scope is far wider and can be extremely complicated. We haven't even touched here, on the areas of partial exemption or the VAT margin schemes. HMRC take VAT compliance seriously so it is essential that businesses account for VAT correctly. Specialist advice is, therefore, highly recommended."

"You may be able to reclaim VAT on goods and services that are used exclusively by your business, such as computers, office furniture, transportation, and third-party vendor costs (such as accountants).

You cannot reclaim VAT on goods and services intended for personal use, nor can you claim back VAT on business entertainment costs.

Reclaiming VAT requires completion of a quarterly VAT Return. This requires you to calculate the difference between the amount of VAT your business paid, and how much VAT the business charged, during an accounting period.

The process of reclaiming VAT is not simple, and there are many exceptions, exemptions and caveats that must be considered. Therefore, we strongly recommend discussing your requirements with a qualified business taxes expert."

"Many goods and services are exempt from VAT; however, there are often particular items within a goods or services category for which VAT is chargeable.

For example, food and drink is generally zero-rated for VAT; however, exceptions to this include hot food, crisps, alcoholic drinks, confectionery and soft drinks. Many of these exceptions have exceptions of their own!

There are far too many specific items to list here, but for a more in-depth look at which items are exempt from VAT or zero-rated, we suggest consulting a VAT specialist."

"Any business that makes sales that exceed the UK VAT threshold must register for VAT, this can include charities and their trading subsidiaries. VAT registered charities must charge VAT on any standard or reduced rated goods and services sold.

Charities may be able to claim VAT relief on certain goods and services; they may also be able to reclaim some of that VAT from HMRC. It is recommended that charities consult a tax expert to determine whether they qualify for either of these."

"Property related transactions can cover the full gamut of VAT possibilities – exempt, zero-rated, reduced-rated or standard rated.

Different rules can apply to purchases and sales, residential, commercial, or charitable buildings, construction, renovation and conversion. In some cases with commercial property there is a little flexibility, but it is important to decide on the correct approach at the outset because there are also potential pitfalls.

Property transactions tend to be high value, therefore getting the VAT treatment wrong can be expensive."

"Broadly speaking, land and property transactions are exempt from VAT. However, there are numerous exceptions which can result in supplies being standard rated, reduced rated, zero rated or exempt from VAT. This all depends on the nature of the property.

For VAT purposes, subject to meeting certain criteria, a property transferred as a going concern may not be a supply at all.

In addition to the array of different VAT treatments encountered when buying and selling property, there are further different VAT rules which apply to the construction of new buildings and to the conversion, renovation, and repair of existing buildings.

It is crucially important to understand what is what with regards to land and property VAT.

Unfortunately, when it comes to applying the correct VAT rate to land and property there is no ‘one-size-fits-all’ rule which can be applied. Every transaction must be considered on its own merit bearing in mind such issues as:

  • Is the property a new build?
  • Is the property commercial or residential?
  • Is there an option to tax in place?
  • Is the property being transferred as a going concern?
  • Is the property a Capital Goods Scheme item?"

"As a starting point, VAT is chargeable at the standard rate on all goods and services unless an exception applies. However, many of the exceptions relate to the construction industry and a provision of construction services can be standard-rated, reduced-rated or zero-rated. VAT considerations for Construction When establishing whether construction services are subject to VAT the following should be considered: Is a new building being constructed? Is the building commercial or residential? Is the building being converted from commercial to residential? If you are carrying out work in the course of constructing a new commercial building, the standard rate of VAT applies. However, it is not so straight forward to apply the correct VAT treatment to other construction work. For example, the construction of a new dwelling is zero-rated only when certain conditions are met. How different construction work impacts VAT Work on existing buildings presents a challenge as it could be reduced-rated, for example, the conversion of a commercial property to a dwelling or you may be carrying out standard- rated repairs. Renovation work can be either reduced rated because the property has been empty for 2 years, or more, or standard rated if it is occupied. Further consideration is required when constructing communal residential buildings such as children’s homes, residential care homes, hospices, school boarding houses, student accommodation, monasteries, and nunneries. The VAT treatment of construction work may also depend on who the customer is. Is the work being carried out for a charity? Or a disabled person?"