Due diligence when buying a small business in the UK: a practical checklist

What does due diligence on a small business involve?

Due diligence is the work a buyer does to confirm that the business is what the seller says it is, and to find the liabilities before they become the buyer's problem. For a small UK company it has two layers: free checks on the public record at Companies House and in The Gazette, and private documents you request from the seller.

The public record shows standing, control, secured lenders and the balance sheet trend. It rarely shows turnover, profit, tax arrears or customer concentration; those come from documents the seller must provide.

Key facts:

• A charge created by a company must be delivered to Companies House within 21 days beginning with the day after it was created (Companies Act 2006, s.859A).
• A person with significant control typically holds more than 25% of shares or voting rights, can appoint or remove a majority of directors, or otherwise controls the company (GOV.UK).
• Director disqualification can last up to 15 years, and a disqualified person cannot take part in the management of a company without court permission (GOV.UK).
• 32.4% of active UK companies last filed micro-entity accounts on 1 October 2026 (UK Company Data, accounts type study).

Share purchase or asset purchase?

Decide the deal structure first, because it decides which liabilities you take on. In a share purchase you buy the company itself, and every liability it has stays with it: unpaid tax, supplier debts, claims from former employees, defects in past work. In an asset purchase you buy selected assets, and the liabilities generally stay with the seller's company.

Two points are often missed. Under TUPE, employees usually move to the new owner with their existing terms and continuity of employment when a business or part of one transfers, so an asset purchase does not leave staff liabilities behind. And HMRC guidance confirms that a share sale is not a TOGC, because the assets still belong to the same company.

Share purchases rely on warranties and indemnities drafted by a solicitor; the checks below tell you what they should cover.

Companies House checks

The Companies House register is free and covers most of what is publicly known about a limited company. Work through it in this order.

1. Status. Confirm the company is "Active". A status of "Active - Proposal to Strike off" means the registrar or the company has started the process of removing it from the register. On 1 October 2026, 423,006 companies carried that status (strike-off data).
2. Filing history. Look for late accounts, late confirmation statements, repeated changes of registered office and year end changes. A punctual filing record is not proof of health, but a messy one is a warning.
3. Accounts over several years. Read at least three years of balance sheets, not just the latest. Track net assets, cash, creditors due within one year and net current assets. Our guide on comparing accounts year on year shows how to line them up.
4. Charges register. Every registered charge shows a lender with security over company assets. Check which charges are outstanding and which have been satisfied, and ask for the facility letters behind any live ones.
5. People with significant control. Confirm that the PSC entries match the person selling you the shares. If they do not, find out why before going further.
6. Officers and their other appointments. Open each director's appointments list. A director with several dissolved or liquidated companies is something to ask about. Since 18 November 2025, new directors and PSCs must verify their identity with Companies House, with existing ones moving across during a 12-month transition.

Our list of Companies House red flags explains each warning sign in more detail, and our guide on how to check a UK company covers the basic register search.

Insolvency and disqualification checks

Three further public sources cover insolvency and conduct, and none of them is on the company page itself.

• The Gazette. Search the company name and number for winding-up petitions, liquidation and administration notices, and strike-off notices. GOV.UK points to the London Gazette and Companies House for insolvent companies.
• Disqualified directors register. Companies House keeps a free register of currently disqualified directors. Search every director and anyone acting like one, such as a major shareholder who runs the business day to day.
• Individual insolvency register. The Insolvency Service register covers people, not companies: bankruptcies, debt relief orders and individual voluntary arrangements in England and Wales. Search the directors and any individual giving you a personal guarantee.

Financial checks beyond the public record

The public accounts of a small company rarely show the information a buyer needs, so ask the seller for these documents and compare them with each other.

1. Management accounts for the current year and the last full year, including monthly profit and loss and an aged list of debtors and creditors.
2. Statutory accounts and the full working papers behind the filed version, since small companies may leave the profit and loss account out of what they file.
3. VAT returns for at least the last two years. Turnover declared to HMRC should line up with the management accounts.
4. HMRC position. Ask for the company's HMRC online account statements for corporation tax, VAT and PAYE, and for details of any time to pay arrangement, enquiry or penalty.
5. Bank statements for every account, for at least 12 months. Match receipts to invoiced sales and look for payments to connected people.
6. Director's loan account balance, and whether the company owes the director money or the director owes the company.
7. Key contracts, leases and customer list, so you can see how much of the turnover depends on a few customers or one landlord.

If the bank statements, VAT returns and management accounts tell three different stories, stop and find out which one is wrong.

What micro-entity accounts cannot tell you

Micro-entity accounts can be sent to Companies House as a short balance sheet with very little supporting detail. GOV.UK describes them as simpler accounts that meet the statutory minimum, and small companies may choose not to send the profit and loss account or directors' report.

From micro-entity accounts you will not normally learn:

• turnover, gross margin or profit for the year;
• what makes up debtors and creditors, including how much is owed to HMRC;
• whether assets are held at a value close to what they would sell for;
• anything about events after the balance sheet date.

You can still read the shape of the balance sheet and its trend. To judge whether the figures are normal for the trade, compare the target's net assets, cash and creditors with the sector benchmarks in our industry pages, for example construction, hospitality or wholesale and retail. A gap against sector peers gives you specific questions for the seller.

To pull several years of a target's balance sheet in one view before you start asking those questions, look the company up on our accounts page.

General information, not legal, tax or financial advice. Use a solicitor and an accountant for any purchase.

Sources

1. Companies Act 2006, section 859A: charges created by a company, legislation.gov.uk, accessed 18 October 2026.
2. People with significant control (PSCs), GOV.UK, accessed 18 October 2026.
3. Verify your identity for Companies House, GOV.UK, accessed 18 October 2026.
4. Company Directors Disqualification Act 1986 and failed companies, GOV.UK, accessed 18 October 2026.
5. Search for people or companies in insolvency proceedings, GOV.UK, accessed 18 October 2026.
6. Search the bankruptcy and insolvency register, GOV.UK, accessed 18 October 2026.
7. Business transfers, takeovers and TUPE, GOV.UK, accessed 18 October 2026.
8. Transfer a business as a going concern and VAT (VAT Notice 700/9), GOV.UK, accessed 18 October 2026.
9. Prepare annual accounts for a private limited company: micro-entities, small and dormant companies, GOV.UK, accessed 18 October 2026.

FAQ

What checks should I do before buying a UK limited company?

Start with Companies House: status, filing history, at least three years of accounts, the charges register, PSCs and each director's other appointments. Then search The Gazette for insolvency notices and the disqualified directors register. Finally ask the seller for management accounts, VAT returns, bank statements and HMRC account statements, and check that they agree with each other and with the filed accounts.

Do I take on the company's debts if I buy its shares?

Yes. When you buy the shares, the company stays the same legal person, so its debts, tax liabilities and claims stay with it and you now own it. That is why share purchases rely on warranties and indemnities from the seller. In an asset purchase the liabilities generally stay with the seller's company, although employees can transfer to you under TUPE.

Is VAT charged when buying a business?

It depends on the structure. A sale of shares is not a supply of the company's assets, so the transfer of a going concern rules do not apply to it. A sale of business assets can be outside the scope of VAT if it qualifies as a transfer of a going concern, which requires the buyer to carry on the same kind of business, among other conditions in VAT Notice 700/9.

Can I rely on the accounts filed at Companies House?

Use them as a starting point only. Most small company accounts are unaudited, many are micro-entity accounts showing only a short balance sheet, and they can be well over a year old. They will not show current trading, tax arrears or customer concentration. Ask for management accounts, VAT returns and bank statements, and have an accountant review them before you commit.

Sources: Companies House register and accounts data (Open Government Licence v3.0), legislation.gov.uk and GOV.UK guidance where linked. This page is general information, not legal, tax or credit advice. Spotted an error? Email info@globalmindsetmarketing.co.uk.