It can be daunting to think about legal requirements and paperwork, but setting up a small business in the UK is not as difficult as you might think. There were 810,316 new businesses launched in the financial year ending in 2021. And if all those entrepreneurs can do it, you bet you can too!
If you’re keen to get started but worried about dealing with the legal processes, don’t worry. Our handy UK business start-up guide is here to help you through what you need to do.
And don’t forget! If you’d prefer to go through your options one-on-one with our founder Gerald, you can book into a mentoring session with him when you purchase any of our virtual office packages. Gerald is an expert in getting new businesses off the ground, and he’ll take you step-by-step through the process of setting up your company.
Please be aware that this guide mainly focuses on for-profit companies. If you’re planning on setting up a charity or social enterprise in 2024, you can use our alternative guide!
New Rules and Regulations for Small Businesses In 2024
Companies House are making some big changes to the fees for setting up a small business. From 1st March, the fee for incorporating a limited company online will rise from £12 to £50. For registering a community interest company online, the fee is going from £27 to £65. Incorporating a limited company by post is upping from £40 to £71. And if you’re changing the name of your company, you’ll need to pay £20 rather than £8.
If your small business involves selling goods or services on platforms including Airbnb, Etsy, Vinted, Uber and Amazon, you’ll need to double check whether you need to pay tax under new guidelines released by the UK Government this year. If you regularly sell items with the intent of making a profit and you earn over £1000, you may need to pay. Check out the new regulations here.
Companies House has seen a big shake-up this year – but you’ll only need to worry if you’re up to no good (which we really hope you aren’t!). New regulations included in the Economic Crime and Corporate Transparency Act give Companies House enhanced powers to verify the identities of company directors, remove fraudulent organisations from the company register and share information with criminal investigation agencies. This is all designed to prevent organised crime and fraud.
Also, heads up that the National Living Wage rises from £10.42 to £11.44 an hour in April 2024 for workers over 21, and he National Minimum Wage for 18-20-year-olds increases to £8.60 per hour. So if you’ve got employees, you’ll need to make sure you’re paying them accordingly!
Step One: Choose a Company Structure
When starting a business in the UK, the first thing you need to do is choose a company structure. There are quite a few options out there, but don’t let choosing a business structure stress you out!
The most common options for business structure in the UK include the following:
Sole Trader (Self-Employed)
This is a great option for small businesses that are just starting out. As a sole trader, you are the sole owner and operator of your business. You can run the business in your name or under a trading name, so you can still build a brand that pops!
In terms of taxation requirements, it’s fairly straightforward. You pay Income Tax and National Insurance Contributions (NICs) on your business profits through the self-assessment system. It’s one of the easier tax registration processes for small businesses
The advantages of being a sole trader or self-employed is that it’s low cost, easy to set up, and you retain full control of your business operations. It’s worth bearing in mind the disadvantage of starting a sole trader business, though, which is that you have full liability for any debt you incur.
Limited Company (Ltd)
A limited company is a separate legal entity from its owners (shareholders). It’s a good legal structure for a small business because it offers more protection for your personal assets. Unlike a sole trader business, where you are entirely responsible for any debt your business incurs, with a limited company shareholders’ liability is limited to the value of their shares. That means that your personal assets are generally protected.
This does mean that there’s slightly more to do in terms of taxation, but it’s not too bad! Limited Companies have to pay Corporation Tax on their profits, and shareholders must pay Income Tax on any dividends received. Also, it’s worth noting that for 2024/25, the tax-free allowance for dividends is going down, from £1,000 to £500.
The advantages of setting up a limited company in the UK are numerous. They include limited liability, a more professional image for your business, and potential tax advantages. There are also plenty of opportunities for growth and raising capital, so it’s a good option if you’re planning to scale.
The disadvantages of setting up a limited company in the UK are that there are slightly more complex administrative requirements, including filing annual accounts with Companies House.
Partnership
This is a great option if you’ve got a business partner – or even partners! A partnership involves two or more individuals running a business together. You and your partners personally share responsibility for your business. You also share the business profits, and each partner pays tax on their share.
It’s worth noting that a partner does not have to be an actual person. For example, a limited company counts as a ‘legal person’ and can also be a partner. It opens up plenty of opportunities for exciting collaboration.
In terms of small business legal requirements in the UK, for partnerships you’ll need to select a ‘nominated partner’ to be responsible for managing the partnership’s tax returns and record keeping. Each partner is then required to report their share of business profits on their personal tax returns – there is no separate partnership tax. This is super straightforward, but it does mean that you need to partner with people who are going to remember to do their personal tax returns on time!
There are lots of advantages to setting up a partnership for your small business. It’s easy to form, manage and run, and you’ll have more potential to raise finance. The disadvantage to setting up a partnership, however, is that you and your partners have full liability for any debts your business incurs. You also have to share control of your business with your partners, so make sure you partner with people you can work with well!
Limited Liability Partnership (LLP)
This is similar to a regular partnership, but a limited liability partnership offers limited liability to its partners. This means that members’ personal liability is limited to their capital contributions. This is unlike a regular partnership, where all partners are responsible for all of the debt the business incurs.
You’ll need to draw up a deed of partnership, which will outline your partnership’s liabilities, ownership, how profits of the business are split and what happens if one partner wants to leave.
In terms of compliance and regulations for small businesses in the UK, at least two of your partners need to be ‘designated members’ responsible for filing annual accounts. As with regular partnerships, each partner must register as self-employed and submit a separate tax return. However, you’ll also need to register your limited liability partnership at Companies House and file the accounts for your limited liability partnership annually.
The benefits of setting up a limited liability partnership is that there’s limited liability for members, flexibility in management, and tax transparency. The disadvantages of setting up a limited liability partnership are that it’s more complex than a traditional partnership, and you have to register with Companies House and file annual accounts.
Step Two: Choose a Business Name for Your Company
This is the fun part. Now that you’ve got your brilliant idea and chosen your company structure, you need to choose a name for your business. This is often the first thing that clients and customers encounter, so it needs to be professional and reflect your brand.
Your business name needs to be unique and memorable, and you’ll need to use the Companies House name checker to make sure that no one else has snapped up your idea already. It’s really important you check names with Companies House, as no two businesses can have the same name!
Business name registration in the UK is fairly straightforward. Read on to find out what you need to do!
Step Three: Register Your Company
This is it, entrepreneur. You’re ready to register your company. But don’t worry. UK small business registration is a step-by-step process that can easily be followed.
Whether you register with HMRC, Companies House, or both depends on your chosen business structure (hop on back to the first step in this guide, if you need a reminder of the options!). Here’s a breakdown of what you need to do, depending on the business structure you’ve chosen.
Sole Traders and Partnerships
The great thing about sole traders and partnerships is that they do not need to be registered with Companies House. So that’s a whole bunch of paperwork that you don’t need to worry about!
Instead, you only need to register through HMRC. This is so that you (and your partners) can pay your tax on your individual tax return. Bear in mind that you’ll need your National Insurance Number to register through HMRC, so be sure you have that to hand!
Alongside your National Insurance Number, you’ll also need to give HMRC your company name and business address. Lots of people choose to use a virtual office address for their business address, as it can give their company a more prestigious postcode, which helps to boost their brand. If you’re considering taking out a virtual office or you want to know, check out our complete guide to virtual office registration here!
If you’re in a partnership, it’s up to your nominated partner to provide HMRC with your company name and business address.
Limited Companies (Ltd)
Unlike sole traders and partnerships, limited companies are required to register with Companies House. This is because it’s only through Companies House that you can get a business registration number, and this is necessary for setting up bank accounts, filing taxes, and more.
Registering a limited company with Companies House is a longer process than registering a sole tradership or partnership with HMRC. Before you register, there are a few things you’ll need to do:
- Appoint a director
- Appoint a secretary
- Appoint shareholders
- Outline your business structure
- Decide how much authority shareholders will have
- Write up a memorandum of association
- Write up articles of association
That sounds like a long list, but don’t worry! Work through it step by step and remember, there’s tons of advice out there. You got this, entrepreneur!
Limited Liability Partnerships
Limited liability partnerships are also required to register with both Companies House and HMRC.
Registering a limited liability partnership in the UK is a slightly longer process, and there are more annual requirements. You’ll need to submit your annual accounts, prepare and sign the accounts on behalf of the members, deliver the accounts to Companies House, notify Companies House of any membership changes, or of a change to the registered office address or name of the LLP, and prepare, sign and deliver the annual return to Companies House. You can find plenty of help and guidance on the Companies House website.
Managing Your Finances: How to Open A Business Bank Account in the UK
We know, we know – you set up your company to chase your dream, not to get bogged down in boring things like banking and accounts. But you can’t thrive unless you’ve got your finances in order, and it’s really important that you keep your books neat and up-to-date so that you’re ready when it comes to submitting your annual accounts.
The easiest way to keep track of your accounts is to open a separate business bank account. This helps to keep your personal and business finances separate, which is important for accounting and tax purposes.
Most major high street banks offer business banking services, and there are tons of options out there for small business finance and funding. Check them out, and find the best account that works for you!
Consider the type of insurance your business may need, such as public liability insurance, professional indemnity insurance, or employers’ liability insurance if you have employees.
Small Business Insurance in the UK: What You Need
There’s only one policy you’re legally required to have as a small business, and that’s employers’ liability insurance (EL). This is super important, because it covers your business in the event that one of your staff members claims they’ve suffered an illness or injury as a result of working for you. It covers any legal and compensation costs involved in defending the case.
You may be wondering if sole traders need to take out employers’ liability insurance. If you work alone and you never work with anyone else, then no. However, even if you only occasionally need an extra pair of hands, then yes – you need to make sure you’ve got it.
There are huge fines attached to not having employers’ liability insurance, so it needs to be top of your list of priorities when you’re ready to start employing staff in the UK.
That’s the only one that you absolutely need to have, but there are tons of other policies that you might want to consider. Public liability insurance covers you for claims made against you by members of the public. Contents and portable equipment insurance helps to protect you if your essential equipment falls victim to theft, fire, flooding, loss or damage. Professional indemnity insurance (PI) has got you covered if you make a mistake, or if a client suffers a financial loss as a result of your work, picking up the bill for any legal and compensation costs. There’s loads out there, and you can find out more about the options available here.
FAQs
Do I need to register my company for VAT?
VAT registration for UK small businesses is simple – it all depends on how much you earn. In the UK, the VAT threshold is £85,000. That means that if your business’s annual turnover is £85,000 or above, you will need to register for and start paying VAT. That applies to every small business, including sole traders. All you need to do is complete your small business VAT registration online and you’re good to go. You’ll need to send four VAT returns a year, although if you’d prefer, you can appoint an accountant/agent to deal with HMRC on your behalf. This is an extra expenditure for your business, but it could save you lots of time!
What if I choose the wrong business structure?
Choosing the wrong business structure for your company can cause quite a lot of problems down the line. So it’s really important that you have a proper understanding of the difference between each model. Check out the guide and resources above, and seek legal advice if you need. Don’t forget, you can book a one-on-one session with our founder Gerald when you purchase any of our virtual office packages.
Does it cost to register a business in the UK?
Yes, there is a small fee for registering your business in the UK. From 1st March, the fee for incorporating a limited company online will rise from £12 to £50.
What licenses are required to start a business in the UK?
Generally speaking you don’t need any permits or licenses to set up a small business in the UK, but you have to make sure that you’re registered with Companies House. If you want to double check if you need a business permit, you can find a full list of them here.
Before you set up your business, it’s a good idea to get in contact with your local council. This way, you can easily find out if there are any area-specific requirements, industry-specific permits or zoning restrictions that could limit or halt your businesses activities – before you start making your plans.
