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Making Tax Digital is entering its next major phase.

From April 2026, many sole traders and landlords will need to keep digital records and report income and expenses to HMRC using compatible software. This is a significant change from the traditional once-a-year Self Assessment process.

For some taxpayers, this will mean a major shift in how records are kept, how often information is reviewed, and how closely tax is monitored during the year.

At WAKE Accounting, we are helping sole traders, landlords and business owners prepare for the move to digital tax reporting.

What is Making Tax Digital?

Making Tax Digital, often called MTD, is HMRC’s programme to modernise the UK tax system. The aim is to move taxpayers away from paper records, manual spreadsheets and once-a-year tax reporting towards digital record keeping and electronic submissions.

For VAT-registered businesses, Making Tax Digital for VAT is already in place. VAT-registered businesses are generally required to keep digital VAT records and submit VAT returns using compatible software.

The next major stage is Making Tax Digital for Income Tax, which affects many sole traders and landlords.

Who is affected by Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax applies to individuals with income from self-employment, property, or both. HMRC is introducing the rules in stages:

HMRC confirms that qualifying income is based on turnover from self-employment and property income before expenses, using the relevant previous tax return. This means a landlord with property income, a sole trader with business income, or someone with both may need to prepare for MTD sooner than expected.

What will change?

Under Making Tax Digital for Income Tax, affected taxpayers will need to:

• keep digital records
• use compatible software
• send quarterly updates to HMRC
• submit their tax return through compatible software
• keep records updated during the year

HMRC says quarterly updates are summaries of business income and expenses, sent every three months for each relevant income source, including self-employment and property income. This is a major change for anyone who currently pulls together income and expense records once a year.

Why this matters for sole traders

For sole traders, MTD means bookkeeping needs to become more regular. Instead of waiting until the end of the tax year, records will need to be maintained digitally throughout the year. This may affect:

• consultants
• tradespeople
• freelancers
• online sellers
• self-employed professionals
• local service businesses
• contractors

The change may feel like extra administration at first. But good digital records can also help business owners understand profit, tax and cash flow much earlier.

Why this matters for landlords

Landlords are also affected if their qualifying property income is above the relevant threshold. This is particularly important because many landlords have historically kept simple annual records.

Under MTD, landlords may need to keep digital records of:

• rental income
• letting agent fees
• repairs and maintenance
• insurance
• mortgage interest
• service charges
• property management costs
• professional fees
• other property expenses

Landlords with more than one property should think carefully about how records are organised before the rules apply.

Why early preparation matters

Making Tax Digital should not be left until the last minute. Affected taxpayers will need to choose compatible software, authorise it for use with HMRC and make sure records are being kept correctly. HMRC advises those who need to use the service to prepare and sign up before they are required to use it.

Early preparation gives time to:

• review whether MTD applies
• choose suitable software
• move away from paper or manual records
• connect bank feeds
• organise receipts and invoices
• review bookkeeping processes
• understand quarterly reporting
• agree how an accountant will support the process

The businesses and landlords that prepare early are likely to find the transition far easier.

The opportunity behind Making Tax Digital

It would be easy to see MTD as just another HMRC requirement. But there is also a positive side.

A better digital accounting process can help business owners and landlords:

• reduce manual errors
• avoid missing expenses
• understand tax liabilities earlier
• improve cash flow planning
• reduce January tax stress
• work more efficiently with their accountant
• make better financial decisions during the year

The real benefit is not simply compliance. It is better financial visibility.

How WAKE Accounting can help

WAKE Accounting can help sole traders, landlords and business owners prepare for Making Tax Digital. We can support with:

• checking whether MTD applies
• reviewing qualifying income
• choosing suitable accounting software
• setting up Xero, QuickBooks or FreeAgent
• connecting bank feeds
• improving bookkeeping processes
• setting up digital record keeping
• preparing for quarterly updates
• supporting Self Assessment tax returns
• ongoing bookkeeping and accounting support

Our aim is to make the transition practical, clear and manageable.

Key takeaway

Making Tax Digital for Income Tax is now a real issue for many sole traders and landlords. The first group comes into the regime from 6 April 2026, with further thresholds applying from April 2027 and April 2028.

If you are self-employed, a landlord, or have both business and property income, now is the time to check whether the rules apply and make sure your records are ready.

Employers need to make sure payroll is updated for the new National Minimum Wage and National Living Wage rates applying from 1 April 2026.

The National Living Wage for workers aged 21 and over has increased to £12.71 per hour, with increases also applying to younger workers and apprentices. GOV.UK confirms that minimum wage rates change on 1 April each year and lists the April 2026 rates by age category.

For employers, this is not just a payroll update. It is also a good time to review pay structures, employment costs, salary sacrifice arrangements, working hours and compliance processes.

New minimum wage rates from 1 April 2026

The confirmed hourly rates from 1 April 2026 are:

The apprentice rate applies to apprentices aged under 19, or apprentices aged 19 or over who are in the first year of their apprenticeship. Apprentices who are aged 19 or over and have completed the first year of their apprenticeship are entitled to the minimum wage rate for their age group.

What employers need to do

Employers should review payroll before the first pay period affected by the April 2026 rates. Key actions include:

• update payroll software with the new rates
• check all hourly paid staff are above the correct minimum
• review apprentices by age and apprenticeship year
• check salaried staff where hours worked may bring pay close to minimum wage
• review deductions, uniforms, tools or other worker costs
• check salary sacrifice arrangements do not reduce pay below the minimum
• review working time records
• budget for the increased employment cost

This is especially important for businesses with hourly paid workers, younger staff, apprentices, variable hours, overtime, unpaid working time or deductions from pay.

It is not only hourly pay that matters

Minimum wage compliance is not always as simple as checking the hourly rate on payroll. Employers can still run into issues where pay looks correct but other factors reduce the effective hourly rate.

Common risk areas include:

• unpaid overtime
• time spent opening or closing premises
• training time
• travel time between assignments
• deductions for uniforms or equipment
• salary sacrifice
• apprentices moving into a different rate category
• birthdays moving workers into a higher age band
• salaried workers whose actual hours exceed expected hours

GOV.UK’s Check Your Pay guidance notes that deductions or payments made by workers for items connected with the job, such as uniform, dress code, safety clothing or tools, must not take workers below the National Minimum Wage or National Living Wage for the pay period.

Why employers should take this seriously

National Minimum Wage compliance is actively enforced. Employers who underpay workers can be required to repay arrears and may face financial penalties. GOV.UK guidance states that penalties can be calculated at 200% of the underpayment, with a maximum penalty of £20,000 per worker.

A payroll error can therefore become expensive, even where the underpayment was not deliberate. For small businesses, the safest approach is to review pay rates, hours, deductions and payroll records before the new rates take effect.

How WAKE Accounting can help

WAKE Accounting can help employers prepare for the April 2026 minimum wage increases. We can support with:

• payroll rate reviews
• payroll software updates
• apprentice rate checks
• salaried worker minimum wage reviews
• payroll processing
• payslips
• PAYE submissions
• Employment Allowance review
• payroll cost forecasting
• management accounts and cash flow planning

We help businesses keep payroll accurate, compliant and properly connected to wider financial reporting.

Key takeaway

The National Minimum Wage and National Living Wage rates increased from 1 April 2026. Employers should check that payroll systems, worker rates, apprentice rates, salary sacrifice arrangements and working time records are fully up to date.

Minimum wage compliance is not just about the headline hourly rate. It is about making sure workers are paid correctly for the hours and circumstances that apply.

Employers need to prepare for important changes to Statutory Sick Pay from 6 April 2026.

The changes mean SSP will become available from the first full day of sickness absence, rather than after three waiting days. The Lower Earnings Limit is also being removed, meaning more lower-paid employees will be eligible for SSP. GOV.UK confirms that from 6 April 2026, SSP is available to all eligible employees regardless of earnings, payable from the first full day of sickness absence, and paid at the lower of 80% of average weekly earnings or the flat weekly rate of £123.25.

For employers, this means payroll processes, sickness records and employee work patterns need to be accurate.

What is changing?

From 6 April 2026, the key SSP changes are:

• SSP will be payable from the first full day of sickness absence
• the current three waiting days will be removed
• the Lower Earnings Limit will be removed
• SSP will be available to eligible employees regardless of earnings
• the weekly SSP amount will be the lower of £123.25 per week, or 80% of the employee’s average weekly earnings

ACAS has also confirmed the core changes: payment from day one, removal of the lower earnings threshold and an earnings-linked calculation.

New SSP rate from April 2026

The weekly SSP rate for 2026/27 is:

GOV.UK’s employer rates and thresholds guidance confirms the 2026/27 weekly SSP rate is £123.25 or 80% of the employee’s average weekly earnings, whichever is lower. It also notes that the daily SSP rate depends on the employee’s average weekly earnings and the number of qualifying days worked each week.

Simple examples

Example 1

An employee earns £300 per week. 80% of £300 = £240. The flat weekly SSP rate of £123.25 is lower, so SSP is paid at £123.25 per week.

Example 2

An employee earns £150 per week. 80% of £150 = £120. £120 is lower than the flat weekly rate of £123.25, so SSP is paid at £120 per week.

What employers should review now

Employers should review payroll and sickness absence processes before the new rules take effect. Key areas to check include:

• how sickness absence is recorded
• whether sickness dates are captured accurately
• employee work patterns and qualifying days
• average weekly earnings calculations
• company sick pay policies
• how SSP interacts with company sick pay
• zero-hours and variable-hours workers
• payroll software settings
• payroll communication with managers
• employee absence procedures

This is especially important where employees have variable hours, irregular pay or changing work patterns.

Why sickness records will matter more

With SSP becoming payable from day one, accurate sickness records become even more important. Employers will need clear information on:

• the first full day of sickness
• the number of qualifying days
• whether the absence is covered by company sick pay
• whether SSP applies
• whether the absence links to a previous period of sickness

Employers need to tell payroll whether sick days are company sick pay, SSP only, or a combination, so the correct payroll treatment can be applied. The 28-week maximum SSP entitlement and linked periods of sickness make accurate records essential.

Company Sick Pay policies should be reviewed

Employers with Company Sick Pay policies should review how those policies interact with the new SSP rules. Questions to consider include:

• Does company sick pay start from day one?
• Is SSP offset against company sick pay?
• Are policies clear for part-time or variable-hours staff?
• Are managers recording absence consistently?
• Is payroll receiving the right information on time?
• Do employment contracts or staff handbooks need updating?

The payroll treatment needs to match the company policy.

Impact on lower-paid and part-time employees

The removal of the Lower Earnings Limit means more lower-paid workers will qualify for SSP. This is a significant change for employers with:

• part-time staff
• casual staff
• zero-hours workers
• lower-paid employees
• seasonal workers
• variable-hours workers

The new 80% calculation is designed so that lower-paid employees do not receive more SSP than their usual earnings. Employers will need to make sure payroll systems can calculate SSP correctly where employees earn below the flat weekly SSP rate.

How WAKE Accounting can help

WAKE Accounting can help employers prepare for the April 2026 SSP changes. We can support with:

• payroll process reviews
• SSP payroll calculations
• sickness record requirements
• company sick pay payroll treatment
• payroll software checks
• variable-hours employee payroll
• director and employee payroll
• PAYE submissions
• payroll cost forecasting
• management accounts and cash flow planning

The aim is to make sure payroll remains accurate, compliant and properly documented.

Key takeaway

The SSP changes from 6 April 2026 are significant. Employers need to prepare for day-one SSP, the removal of the Lower Earnings Limit and the new earnings-based calculation. Good sickness records, accurate work patterns and clear payroll processes will be essential.

The Employment Rights Bill has now become the Employment Rights Act 2025.

The Act became law on 18 December 2025 and introduces a wide range of employment law changes that will be phased in during 2026 and 2027. ACAS confirms that most changes are not immediate and will take effect over time.

For employers, this is a significant update. Some changes affect payroll directly, such as Statutory Sick Pay. Others affect employment policies, family leave, dismissals, harassment, union rights and workplace record keeping.

At WAKE Accounting, we are helping employers understand the payroll and practical finance implications of these changes.

Why employers need to pay attention

The Employment Rights Act 2025 is not a single change. It is a package of reforms affecting different parts of the employment relationship.

For small and growing businesses, the key point is preparation. Employers will need to review payroll processes, sickness records, absence policies, family leave procedures, employment contracts and staff handbooks.

Some changes have already taken effect. Others are expected later in 2026 and 2027. The government’s current timetable says reforms are being delivered in phases so employers, businesses and workers have time to plan and prepare.

Changes already in force

Some employment law changes have already taken effect.

ACAS confirms that minimum service level rules for strikes were removed when the Act became law on 18 December 2025. From 18 February 2026, dismissal for taking part in industrial action became automatically unfair, and several trade union activity rules changed.

For many SMEs, these may not be the most immediate practical issues. The bigger day-to-day impact is likely to come from the April 2026 employment and payroll changes.

April 2026 changes

A number of important changes took effect from 6 April 2026. The government’s timetable confirms that these include:

• Day-one paternity leave and unpaid parental leave
• Statutory Sick Pay changes, including removal of the Lower Earnings Limit and waiting period
• stronger whistleblowing protections linked to sexual harassment
• doubling of the collective redundancy protective award
• voluntary action plans on gender equality and menopause support
• simplification of the trade union recognition process

The government also launched the Fair Work Agency from 7 April 2026, bringing together enforcement functions to support employment rights compliance.

Statutory Sick Pay changes

The Statutory Sick Pay changes are especially important for payroll.

From April 2026, employees receive SSP from the first day of sickness absence, rather than waiting until the fourth day. The Lower Earnings Limit has also been removed, meaning more employees can qualify. GOV.UK states that SSP is paid at the lower of £123.25 per week or 80% of average weekly earnings.

Employers should review:

• sickness absence recording
• payroll software settings
• qualifying days and work patterns
• company sick pay policies
• variable-hours workers
• zero-hours workers
• payroll communication between managers and payroll providers

This change can create more payroll administration, especially where employees have short or irregular sickness absences.

Day-one paternity and unpaid parental leave

From 6 April 2026, paternity leave and unpaid parental leave became day-one rights.

GOV.UK says new fathers and partners gained the right to paternity leave from the first day in a new job, rather than having to wait six months. It also confirms that new day-one rights to unpaid parental leave began at the same time.

Employers should review:

• family leave policies
• staff handbooks
• manager guidance
• payroll and absence processes
• notice requirements
• employee communications

It is important to note that the right to leave and the right to statutory pay may not always have identical qualifying conditions, so payroll and HR treatment should be checked carefully.

October 2026 changes

Further changes are due in October 2026. The current government timetable includes:

• tighter tipping law
• duty to inform workers of their right to join a trade union
• stronger trade union access rights
• requirement for employers to take “all reasonable steps” to prevent sexual harassment
• obligations around third-party harassment
• protection against detriment for taking industrial action
• employment tribunal time limit changes expected no earlier than October 2026

For employers, the harassment-related changes are likely to be particularly important. Businesses should think about staff training, policies, customer-facing environments, grievance procedures and how complaints are handled.

January 2027 and 2027 changes

More changes are due in 2027. The current government timetable says that from January 2027, the unfair dismissal qualifying period will reduce to 6 months for dismissals from 1 January 2027, compensatory awards will be uncapped, and fire and rehire protections will take effect.

Other 2027 measures include:

• mandatory action plans on gender equality and menopause support
• enhanced dismissal protections for pregnant women and new mothers
• flexible working changes
• bereavement leave, including pregnancy loss
• guaranteed hours and short-notice payment rights
• regulation of umbrella companies
• changes around collective redundancy consultation thresholds
• non-disclosure agreement reforms in harassment and discrimination cases

Some of these measures are still subject to further detail and implementation rules, so employers should monitor updates.

What employers should do now

Employers should not wait until each change is already in force. Practical steps include:

• review employment contracts
• update staff handbooks
• review sickness absence policies
• check company sick pay arrangements
• review payroll systems
• check family leave policies
• train managers on absence and leave processes
• review harassment and dignity-at-work policies
• review zero-hours and variable-hours arrangements
• check redundancy and dismissal procedures
• consider whether legal employment advice is needed

For smaller employers, the biggest immediate impact may be payroll and absence administration.

How WAKE Accounting can help

WAKE Accounting can support employers with the payroll and finance side of these changes. We can help with:

• payroll processing
• SSP payroll treatment
• sickness record processes
• PAYE submissions
• payroll cost forecasting
• Employment Allowance review
• management accounts
• cash flow planning
• employer cost analysis
• coordination with employment law advisers where needed

We are not an employment law firm, but we can help ensure payroll, records and financial reporting are properly aligned with the new requirements.

Key takeaway

The Employment Rights Act 2025 introduces major employment law changes across 2026 and 2027.

For employers, the immediate priorities are payroll readiness, sickness records, family leave policies and wider employment compliance planning. The rules are being phased in, but the administrative burden should not be underestimated.

Starting a business is exciting, but the financial setup matters more than many founders realise.

A good idea, a strong product and early customer interest are all important. But if the finance structure is wrong from the start, problems build quickly. Tax deadlines are missed. VAT registration is overlooked. Payroll is set up late. Shareholdings become messy. Cash flow is misunderstood. Investors ask basic financial questions and the business is not ready.

At WAKE Accounting, we help startups and growing businesses put the right financial foundations in place from day one. That includes company setup, bookkeeping, VAT, payroll, statutory accounts, corporation tax, management accounts, cash flow forecasting and access to experienced CFO-level support when the business needs more than basic compliance.

This guide explains the key financial, tax and accounting issues UK startups should consider when setting up and scaling.

1. Choose the right business structure

One of the first decisions is how the business should be structured. The most common options are:

• sole trader
• partnership
• limited liability partnership
• limited company

A sole trader structure can be simple to start, but the business is not legally separate from the individual. That means the owner is personally responsible for the business debts.

A limited company is a separate legal entity. It can trade, own assets, enter into contracts and incur liabilities in its own name. This can provide limited liability protection, although directors may still give personal guarantees in certain situations, especially where funding or leases are involved.

For many startups, especially those planning to raise investment, employ staff, build intellectual property or scale, a limited company is often the most appropriate structure. However, the right answer depends on the business, the founder’s wider tax position, the expected profit level, future funding plans and commercial risks.

GOV.UK confirms that sole traders may need to register for Self Assessment if they earn more than £1,000 in a tax year, while company owners need to register the company before trading as a limited company.

2. Register the business properly

Once the structure is chosen, the business needs to be registered correctly.

A sole trader will normally need to register for Self Assessment. HMRC requires individuals to tell them by 5 October after the end of the tax year if they need to complete a tax return and have not previously submitted one, or if they had previously registered but did not need to file for the relevant prior year.

A limited company must be registered with Companies House. The company will usually also need to register for Corporation Tax, and depending on the business, may also need VAT, PAYE and other registrations.

Startups should also think about:

• the company name
• registered office address
• director appointments
• shareholder structure
• articles of association
• shareholder agreements
• intellectual property ownership
• accounting reference date
• company bank account
• accounting software

This is where many founders make mistakes. A company can be incorporated quickly, but that does not mean it has been set up properly.

3. Set up accounting software from the start

A startup should not wait until year-end to think about bookkeeping. Clean books from day one make everything easier:

• VAT returns
• payroll reporting
• corporation tax
• annual accounts
• investor updates
• cash flow planning
• management accounts
• funding applications
• business valuation
• due diligence

Modern cloud accounting systems such as Xero, QuickBooks or FreeAgent can help startups keep records organised, connect bank feeds, process invoices and monitor performance. The key is not just choosing software. The key is setting it up properly.

That means using the right chart of accounts, connecting the bank correctly, setting VAT treatment properly, separating personal and business expenses, keeping purchase invoices and building useful reporting from the start.

4. Understand tax from the beginning

Tax should never be treated as a year-end surprise.

For limited companies, Corporation Tax is payable on taxable profits. For the 2026 financial year, the small profits rate is 19% for companies with profits under £50,000, the main rate is 25% for companies with profits over £250,000, and marginal relief applies between those levels.

For sole traders, profits are generally taxed through Self Assessment, with Income Tax and National Insurance considered through the personal tax system.

Startups should consider:

• what expenses are allowable
• whether costs are revenue or capital
• how founder salaries should be structured
• whether dividends are available
• when Corporation Tax will be due
• whether R&D relief or creative reliefs may apply
• whether investor reliefs such as SEIS or EIS are relevant
• how to avoid mixing personal and business expenditure

For limited companies, the deadline to file a Company Tax Return is 12 months after the end of the accounting period, while Corporation Tax is usually payable 9 months and 1 day after the accounting period ends.

5. Know when to register for VAT

VAT is one of the most common areas where startups get caught out.

A UK business must register for VAT if its total taxable turnover for the last 12 months goes over £90,000. It must register within 30 days of the end of the month in which it exceeded the threshold. The VAT threshold is not based on the company’s accounting year. It is measured on a rolling 12-month basis.

A startup may also decide to register voluntarily before reaching the threshold. This can make sense if the business sells mainly to VAT-registered businesses and wants to reclaim VAT on costs. It may be less attractive if the business sells mainly to consumers and VAT registration would make the pricing less competitive.

Founders should also consider:

• whether sales are standard-rated, zero-rated, exempt or outside scope
• whether international sales create VAT or sales tax issues
• whether Making Tax Digital applies
• whether VAT is being correctly coded in the accounting software
• whether pricing has been set with VAT in mind

6. Prepare for Making Tax Digital

Making Tax Digital is becoming increasingly important for sole traders, landlords and businesses.

From 6 April 2026, Making Tax Digital for Income Tax applies to sole traders and landlords with qualifying income over £50,000. The threshold then reduces to £30,000 from 6 April 2027 and £20,000 from 6 April 2028.

Under MTD for Income Tax, those within scope will need to keep digital records, use compatible software, send quarterly updates to HMRC and submit their tax return digitally. For VAT-registered businesses, Making Tax Digital already means VAT records and VAT returns need to be handled through compatible software.

7. Set up payroll correctly before taking on staff

When a startup takes on employees, the admin and compliance burden increases.

Employers need to register with HMRC, set up PAYE, run payroll, report pay and deductions, pay employer National Insurance where applicable, handle student loan deductions if relevant and maintain payroll records. GOV.UK’s employer guidance sets out PAYE setup as one of the key steps when employing someone for the first time.

Startups also need to consider:

• employment contracts
• right-to-work checks
• National Minimum Wage
• workplace pension duties
• holiday pay
• statutory sick pay
• maternity and paternity obligations
• employers’ liability insurance
• payroll software
• director payroll
• benefits and expenses

Automatic enrolment duties begin from the day the first member of staff starts work, even where the employer thinks no staff need to be placed into a pension scheme.

8. Build a cash flow forecast

Profit and cash are not the same thing.

A startup can be profitable on paper and still run out of money. This usually happens because of timing differences: customers pay late, stock has to be bought upfront, VAT becomes payable, payroll falls before income is received, or growth absorbs working capital.

A proper startup cash flow forecast should include:

• expected sales
• timing of customer receipts
• supplier payments
• payroll
• VAT
• corporation tax
• loan repayments
• software costs
• insurance
• rent
• marketing spend
• founder drawings or salaries
• investment receipts
• contingency

The cash forecast should be updated regularly. It should not be a document created once for a bank and then forgotten.

9. Prepare management accounts, not just year-end accounts

Year-end accounts are important, but they are historic. Management accounts help founders run the business in real time.

Good monthly management accounts can show:

• revenue
• gross margin
• overheads
• EBITDA
• cash position
• debtor days
• creditor position
• stock levels
• runway
• budget versus actual performance
• key performance indicators
• profitability by product, location, customer or service line

For a startup, management accounts are not just for the accountant. They are a decision-making tool. They help answer questions such as:

• Are we pricing correctly?
• Are margins improving or declining?
• How much runway do we have?
• Can we afford to hire?
• Which products or services are actually profitable?
• Are we ready to raise funding?
• What needs to change before the next stage of growth?

10. Think about funding early

Most startups need some form of funding. This may come from:

• founder savings
• friends and family
• bank lending
• Start Up Loans
• grants
• invoice finance
• asset finance
• angel investors
• venture capital
• SEIS or EIS investment
• retained profits

The right type of finance depends on the business model, stage of growth, risk profile and funding requirement.

Equity funding can be powerful, but it dilutes ownership. Debt avoids dilution, but creates repayment obligations. Grants can be useful, but they are often specific, competitive and slow. Invoice finance can improve working capital, but only where suitable debtor balances exist.

For startups looking to raise investment, SEIS and EIS can be especially important. HMRC’s venture capital schemes are designed to provide tax relief to individual investors who invest in qualifying unquoted companies, and companies can apply for advance assurance to check whether a proposed investment may qualify.

11. Get the share structure right

For limited company startups, share structure matters. Founders should consider:

• who owns the shares
• whether shares are issued in the right proportions
• whether different share classes are needed
• whether an option pool may be needed
• how future investors will come in
• whether SEIS or EIS conditions could be affected
• whether shareholder agreements are required
• whether intellectual property is owned by the company
• how decisions will be made if founders disagree

This is particularly important for startups planning to raise external investment. Investors will expect a clear cap table, properly issued shares and no unresolved ownership disputes.

12. Protect the business

Startups often focus on sales and product development, but basic protection matters. Areas to consider include:

• business name checks
• domain names
• trademarks
• patents where relevant
• intellectual property ownership
• supplier contracts
• customer terms
• data protection
• insurance
• cyber risk
• key person risk
• employment contracts
• shareholder agreements

Some insurance may be legally required. GOV.UK’s employer guidance includes employers’ liability insurance as one of the steps to consider when employing someone for the first time. Other insurance may be commercially necessary depending on the sector, such as professional indemnity, public liability, product liability, cyber insurance, business interruption or key person cover.

13. Build a business plan that actually works

A business plan should not be a generic document full of optimistic statements. A useful startup business plan should explain:

• what the business does
• the problem it solves
• the target market
• the product or service
• the pricing model
• the sales strategy
• the competitor landscape
• the management team
• operational requirements
• funding requirements
• financial projections
• risks and mitigations
• key milestones

The financial model should be realistic. It should not simply show a hockey-stick revenue curve with no evidence behind it.

Founders should be able to explain the assumptions behind the numbers:

• How many customers are needed?
• What is the average order value?
• What is the gross margin?
• What is the customer acquisition cost?
• What is the churn rate?
• What are fixed costs?
• What costs increase with revenue?
• When does the business break even?
• How much cash is needed before break-even?

14. Keep credit control tight

Winning customers is not enough. The business also needs to collect cash. Startups should have a simple credit control process from day one:

• agree payment terms upfront
• issue invoices promptly
• make invoices clear and accurate
• include purchase order references where required
• chase overdue invoices quickly
• monitor debtor days
• set credit limits where appropriate
• avoid giving too much credit to one customer
• understand customer concentration risk

Late payment can put pressure on payroll, VAT, suppliers and founder drawings.

15. Know your compliance deadlines

Limited companies have filing and payment deadlines. Private limited companies usually need to file first accounts with Companies House 21 months after registration, annual accounts 9 months after the financial year-end, pay Corporation Tax 9 months and 1 day after the accounting period ends, and file the Company Tax Return 12 months after the accounting period ends.

Startups should maintain a compliance calendar covering:

• annual accounts
• Corporation Tax
• confirmation statements
• VAT returns
• PAYE payments
• payroll submissions
• pension submissions
• Self Assessment
• Companies House filings
• SEIS/EIS compliance
• insurance renewals

16. When should a startup use an accountant?

A startup should consider using an accountant before the business becomes complicated. The best time is usually before:

• incorporating the company
• issuing shares
• registering for VAT
• hiring staff
• taking investment
• applying for SEIS/EIS
• setting up payroll
• choosing accounting software
• preparing forecasts
• signing a lease
• entering a franchise agreement
• applying for finance
• paying dividends
• filing the first accounts

A good startup accountant should not just file accounts. They should help the founder understand the numbers, make better decisions and build a finance function that can grow with the business.

How WAKE Accounting helps startups

WAKE Accounting supports startups and growing businesses with practical, commercially focused finance support. Our services include:

• company setup
• bookkeeping
• VAT registration and VAT returns
• payroll and workplace pension support
• statutory accounts
• Corporation Tax returns
• management accounts
• cash flow forecasting
• SEIS and EIS advance assurance support
• investor-ready financial models
• board and investor reporting
• fractional FD and CFO support
• outsourced finance department services

We work with founders who want more than basic compliance. Our role is to help put structure, visibility and control into the business from the start.

Whether you are setting up a new company, preparing for investment, hiring your first employee, registering for VAT or trying to understand your cash runway, WAKE Accounting can help you build the right financial foundations.

Setting up a limited company is one of the most common ways to start and grow a business in the UK.

A limited company is legally separate from the people who own and run it. This means the company can trade, enter into contracts, own assets, employ people and take on liabilities in its own name. It also means the company has its own tax and filing responsibilities.

For many startups, consultants, contractors, property businesses, e-commerce businesses and growing SMEs, a limited company can be the right structure. But it should not be treated as a simple box-ticking exercise. The way a company is set up at the beginning can affect tax, ownership, investor readiness, funding, dividends, payroll, control and future sale value.

At WAKE Accounting, we help business owners set up limited companies properly, with the right accounting, tax and financial foundations in place from day one.

What is a limited company?

A limited company is a separate legal entity from its shareholders and directors.

The shareholders own the company. The directors run the company. In many small businesses, the same person may be both shareholder and director.

A private limited company is legally separate from the people who own it, and the owners’ liability is usually limited to the value of their investment in the company. Companies House states that a limited company has “limited liability”, meaning owners are responsible for business debts only up to the value of their financial investment.

That limited liability protection is one of the reasons many business owners choose to trade through a company rather than as a sole trader. However, limited liability does not remove all risk. Directors still have legal duties, and banks, landlords or funders may ask for personal guarantees.

Is a limited company right for your business?

A limited company may be suitable if you:

• want to separate your business affairs from your personal affairs
• are building a business with growth potential
• expect to employ staff
• want to raise investment
• want to bring in shareholders
• need a more professional trading structure
• are building intellectual property or long-term business value
• want flexibility around salary, dividends and retained profits

It may not always be the right structure for a very small side business, low-risk sole trader activity or a business where the extra administration outweighs the benefits.

The right structure depends on profit level, risk, tax position, funding plans, ownership, cash extraction and long-term goals.

Step 1: Choose your company name

Before registering a company, you need to choose a name. The name cannot be the same as another company already on the Companies House register. It also cannot be too similar to another registered name or trademark, otherwise you may be required to change it if someone complains. Company names cannot be offensive or contain certain sensitive words unless approval is obtained.

You should check:

• Companies House name availability
• existing trademarks
• domain name availability
• social media handles
• whether the name is easy to spell and remember
• whether it still works if the business grows or changes direction

You can also trade under a different trading name, but the company’s registered legal name must still appear correctly on formal documents, contracts, invoices and statutory records.

Step 2: Decide who the directors are

Every private limited company must have at least one director. The director is legally responsible for running the company and making sure the company’s accounts and reports are properly prepared. Directors must be at least 16 and must not be disqualified from acting as a director. Directors do not have to live in the UK, but the company must have a UK registered office address.

Directors are responsible for:

• keeping company records
• maintaining accounting records
• preparing annual accounts
• filing the Company Tax Return
• paying Corporation Tax
• reporting certain company changes
• acting in the best interests of the company

A director can hire an accountant or adviser to help, but Companies House makes clear that directors remain legally responsible for the company’s records, accounts and performance.

From 2025/26, Companies House identity verification has also become an important part of company setup. Companies House now provides services for identity verification, and incorporation documents refer to verified identity requirements and Companies House personal codes for directors and persons with significant control.

Step 3: Decide who the shareholders are

A company limited by shares must have at least one shareholder. The shareholder can also be the director. If there is only one shareholder, they own 100% of the company.

Shareholders control the company through their shares and voting rights. They may also receive dividends if the company has sufficient profits available for distribution.

Companies House confirms that a company limited by shares must have at least one shareholder, there is no maximum number of shareholders, and shareholders can control the company, receive dividends and vote on company decisions.

When setting up the company, you need to decide:

• who owns the shares
• how many shares are issued
• what value is attached to each share
• whether all shares have the same rights
• whether future investors or employees may need shares or options
• whether a shareholder agreement is needed

For a simple owner-managed business, one class of ordinary shares may be enough. For a startup planning to raise investment, the share structure may need more thought.

Step 4: Identify persons with significant control

A person with significant control, often referred to as a PSC, is someone who has significant influence or control over the company. This can include someone who owns more than 25% of the shares or voting rights. Companies House requires companies to identify people with significant control and confirm these when registering the company.

PSC details matter because they show who ultimately controls the company. This is part of the UK’s corporate transparency regime.

Common examples of a PSC include:

• a founder owning more than 25% of the shares
• a majority shareholder
• someone with more than 25% of voting rights
• someone with the right to appoint or remove the majority of directors
• someone who exercises significant influence or control

Step 5: Choose a registered office and email address

A limited company must have a registered office address.

The registered office must be a physical address in the UK and must be in the same country in which the company is registered. For example, a company registered in England and Wales must have a registered office address in England or Wales. Companies House also requires the address to be “appropriate”, meaning company post must come to the attention of someone acting for the company and delivery confirmation must be possible. A Royal Mail PO Box can no longer be used as the registered office address.

The registered office appears on the public Companies House register. If you do not want your home address to be public, you should use another appropriate address, such as an accountant’s registered office service or another approved service provider.

Companies must also provide a registered email address. Companies House states that this email address will not be published on the public register, but the company must read emails sent to it.

Step 6: Prepare the company documents

When registering a company, certain constitutional documents are required. These include:

• memorandum of association
• articles of association
• statement of capital
• shareholder information

The memorandum of association is a legal statement signed by the initial shareholders or guarantors agreeing to form the company. The articles of association are the written rules about how the company is run. Companies House confirms that online registrations automatically create the memorandum, while companies can use standard model articles or write their own articles.

For many simple companies, model articles may be sufficient. However, where there are multiple shareholders, investors, special rights or complex ownership arrangements, tailored articles and a shareholder agreement may be needed.

Step 7: Choose the right SIC code

When registering the company, you must choose a SIC code.

A SIC code identifies the nature of the company’s business activity. It appears on the Companies House register and is used to classify what the company does. Many businesses have more than one activity, but the SIC code should reflect the company’s main trade or intended activity.

Examples might include:

• management consultancy
• software development
• retail sale via mail order or internet
• property letting
• construction
• professional services

Choosing the wrong SIC code is not usually disastrous, but it can make the company look inconsistent to banks, funders, customers or investors.

Step 8: Register the company with Companies House

Once the name, directors, shareholders, PSCs, registered office, email address, share structure and SIC code are ready, the company can be registered with Companies House. Companies House states that when you register a company, you will receive a certificate of incorporation. This confirms that the company legally exists and shows the company number and date of formation. At the time of writing, Companies House states that online registration costs £100 and the company is usually registered within 24 hours.

The certificate of incorporation is an important document. Banks, funders, suppliers and professional advisers may request it.

Once incorporated, the company exists as a legal entity. However, that does not mean the finance function is ready. The real work starts after incorporation.

Step 9: Register for Corporation Tax

A limited company usually needs to register for Corporation Tax when it starts trading.

Companies House states that when using the online registration service, companies are usually set up for Corporation Tax at the same time unless the company is dormant.

A company pays Corporation Tax on its taxable profits. This means proper accounting records are needed from the start. The company will eventually need to file a Company Tax Return. HMRC states that the Company Tax Return deadline is 12 months after the end of the accounting period, while Corporation Tax is usually payable 9 months and 1 day after the end of the accounting period.

Step 10: Open a business bank account

A limited company should have its own business bank account.

This is essential because the company is legally separate from the directors and shareholders. GOV.UK guidance states there must be a clear division between the company’s finances and those of the owners and directors, and the simplest way to keep finances separate is to open a business bank account.

Using a personal bank account for company transactions creates confusion and makes bookkeeping, tax, VAT, dividends and director loan accounts more difficult.

A business bank account also helps with:

• bookkeeping
• VAT returns
• payroll
• cash flow forecasting
• loan applications
• investor due diligence
• credibility with suppliers and customers

Step 11: Set up accounting software

A limited company needs accurate accounting records. The best time to set up accounting software is before the business starts trading, not after months of transactions have already built up.

Good accounting software helps with:

• bank feeds
• sales invoices
• supplier bills
• expense records
• VAT returns
• payroll
• management accounts
• cash flow forecasting
• year-end accounts
• Corporation Tax

Common options include Xero, QuickBooks and FreeAgent. The right system depends on the size, complexity and needs of the business. The setup matters. A poor setup creates poor reporting.

Key areas to get right include:

• chart of accounts
• bank feed setup
• VAT settings
• invoice templates
• payment terms
• payroll integration
• expense categories
• director loan account
• reporting structure

Step 12: Understand your filing obligations

Once the company is formed, it has ongoing filing responsibilities.

A private limited company must prepare annual accounts and a Company Tax Return after the end of its financial year. Companies House and HMRC deadlines include filing first accounts with Companies House 21 months after registration, filing annual accounts 9 months after the company’s financial year-end, paying Corporation Tax 9 months and 1 day after the accounting period ends, and filing a Company Tax Return 12 months after the accounting period ends.

The first year can be slightly more complicated because first accounts often cover more than 12 months, while a Corporation Tax accounting period cannot be longer than 12 months. This can mean the company has to file two Company Tax Returns for the first period.

The company must also file a confirmation statement at least once every 12 months. Companies House states this is used to check that the company information held by Companies House is correct. The confirmation statement covers details such as the registered office, directors, share capital, SIC code and PSCs.

Frequently asked questions

Do I need an accountant to set up a limited company?

You do not legally need an accountant to register a company, but professional support ensures share structures, tax registrations, PSC filings and accounting systems are set up correctly from day one.

How long does it take to set up a limited company?

Online registration with Companies House is usually completed within 24 hours once all director, shareholder and registered details are submitted.

How much does it cost to register a limited company?

At the time of writing, Companies House states that online registration costs £100.

Do I need a business bank account for a limited company?

Yes. Because a limited company is legally distinct from its directors and shareholders, company funds and personal money must be kept completely separate.

Can one person own and run a limited company?

Yes. A single individual can be both the sole director and the sole 100% shareholder of a private limited company in the UK.