In short: To start an online business in the UK, test your idea, choose a structure (sole trader or limited company), register with HMRC, set up a website or marketplace shop that meets UK consumer and data rules, and keep records from the first sale. Most of this can be done in a few days.
Selling online has a low cost to start, but the legal and tax rules are the same as for any other business. This guide walks through the main steps.
1. Test the idea before you spend
Before building a full website, check that people will pay:
- sell a small batch on an existing marketplace or social media shop;
- set up a simple landing page and see if visitors sign up;
- talk to ten potential customers about the problem you solve.
Work out your numbers: product or service cost, delivery, platform fees, payment fees, returns and advertising. Many online businesses fail because the margin disappears once all the costs are added.
2. Choose your structure
You can trade as a sole trader or through a limited company. A sole trader is simpler. A limited company separates your personal assets from the business and can make it easier to bring in partners. Our guide to the advantages of a limited company over self-employment explains the trade-offs, and an accountant can help with the tax side.
If you form a company, it needs a registered office address in the UK and a registered email address, and every director must verify their identity with Companies House.
3. Register with HMRC
- Sole trader: if your gross trading income in a tax year is more than £1,000 (the trading allowance), you normally need to register for Self Assessment. Register as soon as you start: HMRC sets a deadline after the end of your first tax year, and late registration can lead to penalties.
- Limited company: register for Corporation Tax within 3 months of starting to trade.
- VAT: you must register if your VAT-taxable turnover goes over £90,000 in a rolling 12-month period, or you expect it to in the next 30 days. You can register voluntarily below that.
Keep accurate records even if your sales are small, because online platforms can share information about sellers with HMRC.
4. Follow online selling rules
UK consumer law gives online shoppers strong rights. In general:
- show clear prices, delivery costs and your business details;
- give customers the legal right to cancel most online orders within 14 days of receiving goods;
- deliver goods that are as described, of satisfactory quality and fit for purpose;
- have clear terms and conditions and a returns policy.
Some products, such as food, cosmetics, toys and electrical goods, have extra safety and labelling rules. Check the rules for your product before you sell.
5. Protect customer data
If you collect personal data (names, emails, addresses), UK data protection law applies. You need a privacy policy, a lawful reason to use the data, consent for marketing emails in most cases, and good security. You may also need to pay a data protection fee to the Information Commissioner's Office (ICO). Check the ICO website to see whether you need to.
6. Build your shop
Your options are:
- marketplaces, which bring customers but charge fees and control the relationship;
- hosted shop builders, which are quick to set up and charge a monthly fee;
- a custom website, which is flexible but costs more to build and maintain.
Many businesses use a mix: a marketplace for reach and their own site for repeat customers.
7. Get paid and keep records
Open a business bank account and connect a payment provider. Use bookkeeping software from day one and keep every invoice and receipt. If you register for VAT, you must keep digital records and file returns through Making Tax Digital compatible software.
8. Look professional
Customers want to know who they are buying from. Online businesses must give a geographic address. If you work from home, a London Virtual Office or Edinburgh Virtual Office gives you a business address without publishing your home address.
How Form My Company can help
We form UK companies for online businesses, fast. The Digital Package costs £290, including the £100 Companies House fee, VAT and Corporation Tax registration, and we verify your identity in-house as a Companies House ACSP. The Fully Inclusive Package at £1,400 adds VAT and PAYE registration.
Frequently asked questions
Do I need to register my online business with HMRC?
Usually yes. Sole traders with gross trading income over £1,000 in a tax year normally need to register for Self Assessment. A limited company must register for Corporation Tax within 3 months of starting to trade.
When does an online business need to register for VAT?
When VAT-taxable turnover goes over £90,000 in a rolling 12-month period, or you expect it to in the next 30 days.
Can I run an online business from home?
Yes. You can use a separate business address, such as a virtual office or registered office service, to keep your home address private.
Do online customers have a right to cancel?
In most cases, yes. Consumers can usually cancel online orders for goods within 14 days of receiving them, with some exceptions.