Starting, or incorporating, a limited company comes with lots of questions. One of the most common is around minimum turnover – as many people believe that the official nature of a limited company means you need to meet a certain threshold in order to call yourself a business.

If you’ve asked this question and found yourself on this page, the good news is that the answer is no – there’s no defined minimum turnover needed to form or operate a limited company. 

However, that’s only from a legal standpoint. The practicalities of life and running a business mean there is a more practical minimum you need to calculate for yourself, which involves weighing factors such as business costs, growth potential and tax efficiency. 

While there may be no minimum income for a business, you still need to adhere to some minimum standards. In this guide, we’ll walk through the basic considerations you need to have when calculating how much your business needs to make and what you need to take care of to stay compliant.

Interpreting UK regulations and company classifications

Here in the UK, forming a limited company is affordable and easy to do. Once formed, all money made by the business belongs to the business rather than individual directors and you can only take money out in certain ways – see our guide to getting money out of your limited company here. 

In terms of how much money your business ‘needs’, there’s no minimum turnover requirement in any legal sense. However, even if you make nothing at all, you are still responsible for all reporting and compliance obligations. 

Companies House, the government body responsible for company registration and oversight, outlines these obligations.

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Reporting obligations for limited companies 

Every limited company, regardless of size or turnover, must fulfil specific responsibilities:

• Filing annual accounts and a confirmation statement with Companies House.
• Maintaining accurate financial records.
• Meeting tax obligations, including filing corporation tax with HMRC.

The scope of these obligations can vary based on your company’s classification…

Understanding classifications

Companies House sorts companies into the following categories to determine reporting requirements. These classifications are based on criteria like turnover, balance sheet total, and number of employees:

• Micro-entities: Turnover of less than £632,000, a balance sheet of £316,000 or lower and a maximum of 10 employees 
• Small companies: Turnover of less than £10.2 million, balance sheet of less than £5.1 million and up to 50 employees
• Medium companies: Turnover less than £36 million, a balance sheet totalling up to £18 million, and 250 employees or fewer.
• Large companies: Exceed any of the thresholds above

Classification is important because it significantly changes what you have to report on. Smaller companies can file simplified accounts (e.g., abridged or micro-entity accounts) and have different eligibility for certain reliefs and audit exemptions. 

Tax and turnover: explaining the requirements 

Every business has to keep accurate accounts, which means you must track and record turnover. You don’t pay tax on turnover – instead it is calculated on profit, which you need to work out by subtracting any allowable expenses and costs from turnover. 

Your business pays corporation tax on profits, though the rate you pay may vary depending on how much profit you made:

• If a business makes more than £250,000 in profit, you’ll have to pay 25%
• If it makes £50,000 or less, you’ll pay the small profits rate of 19%
• Some businesses qualify for marginal relief on profits between £50,000 and £250,000

Don’t forget that you’ll also have to calculate and potentially pay income tax for any earnings you take from the business in the form of salary and/or dividends. Use our income tax calculator to work out how much you might need to pay. 

In the context of this guide, where you may be worried your business isn’t making enough money to operate, it’s unlikely you’ll have to pay large tax bills. However, even those earning small amounts may still be taxed at 19%, so it’s something to bear in mind, as it will dampen the earning potential of even the most humble side hustles. 

Should you run a limited company: thinking beyond turnover

It’s only natural that people worry about a minimum turnover, but you need to consider plenty of other things. As we’ve just covered, the tax reporting obligations attached to a limited company differ from those faced by a Sole Trader, so you need to be comfortable with them before setting it up. 

But tax is only one part of the puzzle. Setting up a limited company also means considering liability protection, brand credibility, and growth potential—factors that go well beyond turnover alone.

Liability protection

One of the most compelling reasons to form a limited company is its protection for personal assets. A limited company is a separate legal entity, meaning that the financial risks of the business are not directly tied to the individual owner. That means that, even if you don’t meet your expected ‘minimum’ turnover or land in difficult financial situations, you won’t be risking any personal assets such as savings or property. 

Credibility

Operating as a limited company can enhance your professional image and help you win clients you may not otherwise have managed. Clients and suppliers alike prefer limited companies and you may also be able to access certain funding or support pots designed for small businesses. 

Investment & loans

Again, in the context of this article, if you’re worried your business isn’t making enough money, you may need to try to secure an investment to keep it afloat. You’re far more likely to do so as a limited company rather than a sole trader. If you decide to resort to a loan or other forms of borrowing,  limited liability protection helps ensure you’re less exposed compared to a sole trader.

Dispelling common myths about minimum turnover

Some persistent myths surround the financial thresholds needed to run a limited company. We’ve already dispelled most of them in this article, but let’s quickly address the most common and point out what you need to know…

• MYTH: You need to make a certain amount of turnover to run a limited company
• TRUTH: There is no legal mandate to make a certain amount of money within your business. As long as your outgoings don’t outweigh your income, your company can make next to nothing and still operate legally. 

• MYTH: You need lots of money to form a limited company due to share capital requirements
• TRUTH: Though it may be true that you need to allocate share capital at the start of a limited company’s life, there is no minimum value set for any shares. Most new companies are formed with an initial share capital of £100 or less. Public companies, on the other hand, require a minimum share capital of £50,000. 

• MYTH: It costs too much money to run a limited company
• TRUTH: Aside from the additional reporting requirements associated with the business, there’s no reason that running a limited company should cost much more than being a sole trader. You can take care of your accounting responsibilities easily and affordably with Crunch. 

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What low turnover really means for your business

So now that we know you can legally operate a limited company even if it generates very little revenue, we can turn towards the more practical aspects. 

In reality, your business needs to make enough money to sustain itself (and hopefully pay you a salary). Even if you forgo any income, you still need to make enough money to pay for the costs of setting up and running a limited company. 

In addition to operating costs, you’ll also need to calculate how much turnover you’ll need to pay yourself a minimum salary. To be tax-efficient, you should pay yourself £758.33 per month, or £9100 per year. 

Add your salary and minimum operating costs together to work out the most realistic level of minimum turnover you’ll need to avoid falling into debt. In difficult months, you can forgo a salary and cut down on other costs such as advertising – but this can’t continue for long or you’ll quickly find yourself dispirited and disillusioned with running your business. 

Regardless of your turnover level, you’ll need to prepare annual accounts, confirmation statements and corporation tax returns as part of your duties. You can also outsource these tasks – but paying for a traditional accountant may be costly. 

Instead, consider Crunch’s affordable limited company accounting service, and we’ll take care of all of it for you at a far more reasonable rate. Our digital tools help you streamline your finances, take care of tax obligations and keep you compliant – all from just £34.90+ VAT.

Book a call to learn more about how we can help you get your company’s finances back on track. 

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