How to start a business in the UK: the basics

Starting a business is less complicated than many people think. You can be legally set up in days. The harder part is building something customers will pay for. This guide covers the basic steps.

1. Test your idea

Before you spend money, check that people want what you offer:

• talk to potential customers and ask what they currently use
• look at competitors and their prices
• make a small first sale, even to friends of friends, to test demand
• work out how much you need to charge to make a profit

2. Choose a legal structure

The main options in the UK are:

• Sole trader – you run the business as yourself. It is simple to set up, but you are personally responsible for all business debts.
• Limited company – a separate legal person. Your personal liability is usually limited to what you put into the company. It involves more paperwork, such as annual accounts and a confirmation statement.
• Partnership – two or more people share the business and its debts.
• Limited liability partnership (LLP) – partners have limited liability. An LLP needs at least two designated members.

The best structure depends on your risk, your expected profits and how you want to be paid. Many people ask an accountant before deciding.

3. Register your business

• Sole traders register for Self Assessment with HMRC. You must register by 5 October after the end of the tax year in which you started. If your gross trading income is £1,000 or less in a tax year, the trading allowance may mean you do not need to register.
• Limited companies register with Companies House. The online fee is £100. You will need a company name, a registered office address, at least one director, at least one shareholder and a registered email address. Every director and person with significant control must also verify their identity with Companies House.

After forming a company, you must register it for Corporation Tax with HMRC within three months of starting to trade.

4. Choose a name

Check that your name is available on the Companies House register and that it does not copy an existing brand or trade mark. Some words need permission to use. Also check whether the website domain and social media names are free.

5. Set up your money

• Open a business bank account. For a company, the company's money must be kept separate from yours.
• Choose simple bookkeeping software or a spreadsheet.
• Keep every receipt and invoice.
• Put money aside each month for tax.

6. Check the rules for your trade

Some businesses need licences, permits or insurance. Examples include food, alcohol, taxis, childcare and some construction work. If you employ staff, you usually need employer's liability insurance. Check the rules for your sector with your local council and on GOV.UK.

7. Understand your tax duties

Depending on your business, these may apply:

• Income tax for sole traders, through Self Assessment
• Corporation tax for companies
• VAT – you must register if your taxable turnover goes over £90,000 in 12 months
• PAYE if you employ anyone, including yourself as a director on a salary

8. Get your first customers

Start with the people you can reach directly: your network, local groups, and online communities. A simple website and a Google Business Profile help people find you. Ask happy customers for honest reviews.

How Form My Company can help

If you choose a limited company, we can form it for you – most companies are registered within 24 hours. Our Digital Package costs £290, including the £100 Companies House fee, VAT and HMRC Corporation Tax registration. As a Companies House ACSP, we verify your identity for you as part of the order. Check your name is free with our name check, or compare our packages.

Frequently asked questions