February 2025
By Account Academy
In today’s fast-changing world, starting a small business in the UK is an exciting opportunity. Whether you dream of launching a tech startup, opening a café, or running a consulting firm, it’s important to know the rules and steps to make your business legal and successful. This guide will explain everything you need to know in simple terms, so you can confidently start your business and meet all the legal requirements.
Choosing the Right Business Structure
Your first step is to decide what kind of business structure suits your needs. This choice affects your taxes, responsibilities, and how much personal risk you take on.
Sole Trader
Being a sole trader is the simplest and most popular option. It means you’re self-employed and fully responsible for your business’s profits and debts. To become a sole trader, you need to:
- Register with HM Revenue & Customs (HMRC) for Self Assessment if your annual income exceeds £1,000. Register as a sole trader here.
- Keep records of your business income and expenses.
Limited Company
A limited company is a separate legal entity from you, offering protection for your personal assets. Setting up a limited company involves:
- Choosing a unique company name.
- Appointing at least one director.
- Having at least one shareholder.
- Preparing a memorandum and articles of association (rules for running the company).
- Registering with Companies House.
The registration fee is £12 for online applications. Learn how to register a limited company.
Partnership
A partnership involves two or more people running a business together. Each partner shares responsibility for the business’s profits and debts. All partners must:
- Register as self-employed with HMRC.
- Submit individual Self Assessment tax returns.
Although not legally required, a partnership agreement is highly recommended to prevent future disputes.
Registering Your Business
No matter your business structure, you must register your business with HMRC. Registration is required by October 5th of the second tax year after you start trading. Failing to register can lead to penalties.
VAT Registration
If your business turnover exceeds £85,000 (as of 2024), you must register for Value Added Tax (VAT). You can also register voluntarily if your turnover is below this amount, which may benefit businesses working with other VAT-registered companies. Register for VAT here.
Opening a Business Bank Account
While not mandatory for sole traders, having a separate business bank account is highly recommended. For limited companies, it’s a legal requirement. Many UK banks offer accounts tailored to small businesses, so compare features and fees to find the best fit.
Essential Business Insurance
Protecting your business with the right insurance is critical. Here are the key types to consider:
- Employers’ Liability Insurance: Mandatory if you hire staff (minimum cover: £5 million).
- Public Liability Insurance: Recommended if your business interacts with the public.
- Professional Indemnity Insurance: Important for businesses providing advice or services.
- Commercial Property Insurance: Necessary if you own or lease premises.
Compliance and Regulatory Requirements
Data Protection
If your business collects personal data, you must follow the UK General Data Protection Regulation (UK GDPR). This includes registering with the Information Commissioner’s Office (ICO). Registration fees start at £40 for most small businesses. Register with the ICO here.
Health and Safety
All businesses must ensure the safety of their employees and customers. Key requirements include:
- Writing a health and safety policy (if you have five or more employees).
- Conducting risk assessments.
- Displaying the Health and Safety Executive (HSE) poster or providing leaflets.
- Ensuring appropriate first aid provisions.
For detailed guidance, visit the HSE website.
Employment Law
If you hire employees, you must:
- Register as an employer with HMRC.
- Set up PAYE (Pay As You Earn) for salaries.
- Provide written employment contracts.
- Comply with minimum wage laws.
- Offer a workplace pension scheme if required.
Financial Management and Taxes
Keeping Records
Accurate records are essential for managing your business and paying taxes. You must keep:
- Records of all income and expenses.
- VAT records (if applicable).
- PAYE records (if you employ staff).
- Invoices, receipts, and bank statements.
Keep these records for at least six years.
Tax Returns
A visual comparison of tax obligations for Sole Traders and Limited Companies, highlighting Income Tax, National Insurance, Corporation Tax, and VAT.
Your tax obligations depend on your business structure:
- Sole Traders: Submit an annual Self Assessment tax return and pay Income Tax and National Insurance.
- Limited Companies: File an annual Company Tax Return (CT600), pay Corporation Tax (currently 19% for small businesses), and submit annual accounts to Companies House.
For more details, visit the HMRC tax page.
Business Rates
If you operate from a commercial property, you may need to pay business rates. Small businesses may qualify for relief. Use the business rates calculator to check.
Industry-Specific Licenses
Certain industries require extra licenses or permits:
- Food Businesses: Register with your local council and follow food hygiene standards. Register a food business.
- Financial Services: Obtain authorization from the Financial Conduct Authority (FCA).
- Healthcare Providers: Register with the Care Quality Commission (CQC).
Planning for Growth
Protecting Intellectual Property
Secure your business name, logo, and creations through:
- Trademark registration with the Intellectual Property Office.
- Patent applications for inventions.
- Copyright protection for creative works.
Business Support
Take advantage of resources designed to help small businesses:
- Local Enterprise Partnerships (LEPs).
- Chambers of Commerce.
- Government grants and loans.
- Professional advisors, such as accountants or lawyers.
Staying Compliant
Running a business is an ongoing commitment. Regularly:
- Update your business details with HMRC or Companies House if anything changes.
- Meet all tax and filing deadlines.
- Review and improve policies, such as health and safety.
- Train employees to stay compliant with new regulations.
Final Thoughts
Starting a small business in the UK can feel overwhelming, but with careful planning and a step-by-step approach, you can succeed. Always check official government resources for the latest rules and seek professional advice if needed.
By following this guide, you’ll be well-prepared to navigate the legal and registration requirements, setting a solid foundation for your business to thrive in the UK.
Starting a small business in the UK can be a rewarding journey, but having the right guidance and tools is essential. For more in-depth resources and expert advice, visit Account Academy, where we help SMEs get started with everything they need—from registration guidance to essential tools for running a successful business.
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