Profits and income taken from the business are treated differently depending on whether you are a company, a partnership or a sole trader. The most tax effective business form will depend on how profitable your business is, and how you use those profits – will you be reinvesting profits back into the business or taking them for your personal use?
Sole traders need to register for Self-Assessment with HMRC and file a tax return every year.
Partnerships need to register for Self-Assessment with HMRC and choose a ‘nominated partner’ who will be responsible for managing the partnership’s tax returns and keeping business records. The other partners need to register separately and send their own tax returns as individuals.
Most companies register for Corporation Tax and PAYE as an employer at the same time as registering the company with Companies House. Limited companies need to register for Corporation Tax within 3 months of carrying out business via the company.
You will need to register for PAYE as an employer with HMRC when you start employing staff. You must register even if you’re only employing yourself, for example as the only director of a limited company.
You must register for VAT if your taxable turnover is over £85,000 or you know that it will be. Your VAT taxable turnover is the total of everything sold that is not VAT exempt. You can also choose to register for VAT if, for example, you sell to other VAT-registered businesses and want to reclaim the VAT.