Starting a business is exciting. It's also the moment you quietly become responsible for two taxpayers: your new company and yourself. The decisions you make in the first few months, often at the kitchen table, can shape both tax bills for years. Here's what UK founders should have on their radar.

Company or Sole Trader?

Not every new venture needs a limited company. Sole traders have less admin and pay Income Tax and National Insurance on their profits through Self Assessment.

A limited company is a separate legal entity. That brings limited liability (your personal assets are generally protected if things go wrong), a more credible face for customers and investors, and the ability to issue shares. It also brings more paperwork, public filings and a set of director's duties. For most founders planning to grow, take on investment or build something they may one day sell, the company route is the natural fit.

Setting up the company properly

Incorporating at Companies House is quick. Doing it well takes a little more thought.

Identity verification: directors (and people with significant control) now need to verify their identity with Companies House. Build this into your timeline.

Share structure: decide who owns what from day one. Co-founders splitting 50/50 on a handshake is a classic source of later heartache.

Shareholders' agreement: covers what happens if a founder leaves, how decisions are made and who can sell shares. Consider "vesting" so founders earn their equity over time.

Registered office: this address is public. Many founders would rather it wasn't their kitchen.

Registering for tax

Once your company starts trading, you have three months to register for Corporation Tax. Profits are taxed at 19% up to £50,000, rising to 25% above £250,000, with Marginal Relief in between.

VAT registration becomes compulsory once taxable turnover passes £90,000 in any rolling 12-month period. Registering voluntarily earlier can make sense, particularly if your customers are VAT-registered businesses or you have heavy start-up costs to reclaim.

If you pay anyone, yourself included, through payroll, you'll also need to register as an employer with HMRC.

Paying yourself: salary vs dividends

This is where company and personal tax meet. A common approach for owner-directors is a modest salary plus dividends.

Salary is a deductible cost for the company and builds your National Insurance record for the State Pension. Many directors set it around the £12,570 Personal Allowance, though the right level depends on your circumstances and whether the company can claim the Employment Allowance.

Dividends are paid from profits after Corporation Tax. From 6 April 2026, dividend tax rates are:

Band Rate First £500 (dividend allowance) 0% Basic rate 10.75% Higher rate 35.75% Additional rate 39.35%

Two warnings. Dividends can only be paid from available profits, so no profits means no dividends, however lean the month. And money taken from the company that isn't salary or dividend goes through your director's loan account. An overdrawn balance left unpaid for more than nine months after the year end can trigger a tax charge for the company and a benefit-in-kind charge for you.

The personal side

Being a director usually means registering for Self Assessment, especially once dividends are involved. The deadline for filing and paying is 31 January after the end of the tax year, and HMRC won't chase you in advance.

Pensions deserve a mention too. Employer pension contributions from your company are generally deductible for Corporation Tax and don't attract National Insurance, making them one of the more efficient ways to extract value, provided the payments are commercially justifiable.

And watch out for personal guarantees. Banks and landlords often ask founders to sign one, which quietly removes some of the protection limited liability was meant to provide.

Raising money: SEIS and EIS

If you plan to bring in angel investors, the government's venture schemes are a powerful selling point:

SEIS lets investors claim 50% Income Tax relief on investments in very early-stage companies. A company can raise up to £250,000 under SEIS. EIS offers investors 30% relief. From April 2026, the annual limit a standard company can raise doubled to £10 million, with a £24 million lifetime cap.

Timing and paperwork really matter here. Shares must meet strict conditions when issued, and a technical slip can cost your investors their relief. Most founders apply to HMRC for advance assurance before approaching investors. It isn't compulsory, but many angels won't invest without it.

Rewarding your team: EMI options

Cash is usually tight in a start-up, so equity becomes currency. Enterprise Management Incentive (EMI) options let qualifying companies grant employees options over up to £250,000 of shares each, with potentially no Income Tax or National Insurance on exercise and Capital Gains Tax on the eventual sale instead. Set up correctly, EMI can help you hire people you couldn't otherwise afford.

Thinking about the exit (yes, already)

It feels premature, but decisions made at the start affect what you keep at the end. Business Asset Disposal Relief reduces the Capital Gains Tax rate on qualifying gains to 18% from April 2026 (against a main rate of 24%), on up to £1 million of lifetime gains.

To qualify, you'll generally need at least 5% of the shares and voting rights and to have been an officer or employee for two years before the sale. Founders whose stake gets diluted by funding rounds should keep an eye on that 5% threshold.

How we can help

Founding a company means juggling two sets of finances from day one, and the choices that feel minor now, from share splits to salary levels, tend to matter most later.

Whether you're about to incorporate, working out how to pay yourself or preparing for your first funding round, get in touch to arrange a consultation. We'll help you get the foundations right, so you can get on with building the business.

This article is general information, not advice for your specific business. Please get in touch before acting on anything covered here. Higginson James Limited accepts no liability for any loss arising from reliance on this article.