Tax Implications of Establishing a Corporation in the UK

Establishing a UK corporation presents businesses with lucrative opportunities, access to one of the world’s strongest financial hubs, and a business-friendly regulatory framework. However, understanding the latest tax implications is crucial to ensure compliance and long-term financial efficiency. This guide outlines the key tax obligations, reliefs, and reporting requirements for companies incorporating in the United Kingdom.

Corporate Taxation in the UK

As of April 2023 (and still applying in 2025), the UK uses a tiered Corporation Tax system (HMRC — Corporation Tax rates):

• 19% — for companies with profits of £50,000 or less (small-profits rate).

• 25% — for companies with profits of £250,000 or more (main rate).

• Marginal relief applies between £50,000 and £250,000, so the effective rate gradually increases between 19% and 25%.

This structure allows smaller companies to benefit from lower rates while ensuring proportionate contributions from larger corporations.

UK-resident companies are taxed on their worldwide profits, while non-UK-resident companies are generally taxed only on UK-source income. Normal business expenses — rent, professional fees, staff salaries, software, etc. — are deductible, so accurate bookkeeping and tax planning directly affect your effective tax burden.

Companies also pay Corporation Tax on chargeable gains (for example, profit on selling an asset). There is no separate “Capital Gains Tax” for companies — those gains are taxed at the same 19%–25% Corporation Tax rates.

Your Company Tax Return (CT600) must generally be filed within 12 months of the end of the accounting period, and Corporation Tax is usually due 9 months and 1 day after the end of that period.

VAT Registration and Compliance

If your UK company’s taxable turnover exceeds £90,000 in any rolling 12-month period — or you expect it to exceed £90,000 in the next 30 days — you must register for VAT (HMRC — Register for VAT).

(Note: this threshold increased from £85,000 to £90,000, and £90,000 remains the current level.)

Current VAT rates are:

• Standard rate: 20% (most goods and services)

• Reduced rate: 5% (for certain items like energy-saving materials and some household efficiency products)

• Zero rate: 0% (for essential categories such as most basic food and children’s clothing)

After VAT registration, you must:

• charge VAT (where applicable),

• keep VAT records,

• file VAT returns (normally quarterly) through Making Tax Digital–compatible software.

Failure to register on time or to file correctly can lead to penalties. This is especially important for non-UK founders using a UK company for cross-border trading, because services received from overseas suppliers can trigger reverse-charge VAT rules.

Employer Obligations: PAYE and National Insurance Contributions (NICs)

If you put staff (or yourself as a paid director) on UK payroll, you must run PAYE and account for National Insurance Contributions (NICs). HMRC publishes the official thresholds and rates for each tax year

(HMRC — Rates and thresholds for employers).

Key points for 2025/26:

• Employer NICs: 15% on most earnings above roughly £5,000 per year per employee (this increased from the old 13.8% rate and the threshold was pushed down, so hiring in the UK is now more expensive for employers).

• Employee NICs: 8% on earnings between about £12,570 and the upper earnings limit, and 2% above that limit.

• Benefits-in-kind (for example, a company car) are also taxable and can create extra NIC liabilities.

UK payroll must be reported to HMRC in real time (RTI). Each payslip must be reported on or before payday. Late RTI submissions or late NIC/PAYE payments can trigger penalties.

Dividend Taxation for Shareholders

If the company distributes profits as dividends:

• The current tax-free dividend allowance is £500 (reduced from £1,000).

• Dividend tax rates are:

  • 8.75% for basic-rate taxpayers,

  • 33.75% for higher-rate taxpayers,

  • 39.35% for additional-rate taxpayers.

Dividends are often more tax-efficient than salary for shareholders, but they must be formally declared, properly minuted, and paid from distributable post-tax profits. UK-resident shareholders report dividend income in their personal Self Assessment. Non-UK shareholders may have different outcomes depending on treaty protection and residence status.

Reliefs and Incentives

The UK offers attractive deductions and incentives to encourage real activity and innovation:

• R&D Expenditure Credit (merged scheme): For most companies with accounting periods beginning on or after 1 April 2024, qualifying R&D spend can generate an above-the-line credit of around 20%, which typically works out to roughly a ~15% net tax benefit. There is still enhanced treatment for certain R&D-intensive SMEs.

• Patent Box: Qualifying profits from patented inventions can be taxed at an effective 10% Corporation Tax rate.

• Annual Investment Allowance (AIA): A permanent £1 million cap lets you deduct 100% of qualifying plant and machinery in the year of purchase.

• Full Expensing: In many cases, you can deduct 100% of the cost of most new main-rate plant and machinery in the year you buy it.

• Creative Industry Tax Reliefs: Film, TV, gaming, and certain media projects can access enhanced relief.

These incentives materially reduce the effective tax cost of scaling in the UK — but only if you document spending correctly and claim in line with HMRC guidance.

Annual Compliance and Deadlines

Every UK company has continuing filing and disclosure duties:

• Corporation Tax payment: Usually due 9 months and 1 day after the accounting period ends.

• Corporation Tax Return (CT600): Due within 12 months of the end of the accounting period.

• Annual accounts (Companies House): Normally due within 9 months after the end of each financial year (your first accounts can have a longer window, up to 21 months from incorporation).

• Confirmation Statement (Companies House): Must be filed at least once every 12 months to confirm directors, shareholders, Persons with Significant Control (PSCs), and registered office details are up to date.

• VAT returns: Usually filed quarterly (digital submission required).

• PAYE/NIC payments: Generally due by the 22nd of the following month when paying electronically.

From 18 November 2025, new Companies House rules under the Economic Crime and Corporate Transparency Act require all directors and Persons with Significant Control (PSCs) to complete identity verification. There will also be a 12-month transition window for existing companies. Not completing ID verification will block certain filings and may trigger penalties. This is especially important for non-UK founders and cross-border structures.

Why This Matters for Non-UK Founders

• There is no requirement for directors to be UK residents, but every UK company must have a valid registered office address in the UK for official notices, and directors / PSCs will have to pass identity verification.

• The VAT registration threshold (£90,000) and employer NIC cost (15%) can quickly turn into real cost and compliance triggers, even for lean startups.

• Late filing of accounts, tax returns, VAT returns, or PAYE submissions can lead to penalties, investigations, and even strike-off action at Companies House if ignored.

In other words, forming the company is only step one. Running it correctly is what protects you.

How Mirr Asia Can Help

Mirr Asia provides end-to-end UK company formation and management support, including registered office service, Companies House filings, VAT registration, payroll setup, and ongoing compliance management. We help you understand real tax cost (Corporation Tax, VAT, payroll, dividends) and build a structure that is compliant from day one — not just incorporated on paper.

Whether you are a startup, SME, or global group expanding into the UK, our team can guide you through incorporation, management, and ongoing reporting to HMRC and Companies House.