How do I start a business in the UK?

To start a business in the UK you need to: choose a business structure (sole trader, limited company, or partnership), register with HMRC (sole trader) or Companies House (limited company), open a business bank account, register for Self Assessment and/or VAT if applicable, get any required licences or insurance, and set up basic accounting. A sole trader can start trading immediately after registering with HMRC, while setting up a limited company requires company registration, which can be done online in a few hours for as little as £12.

Should I be a sole trader or limited company?

It depends on your circumstances. Sole trader is simpler, has less admin, and is fine if your profits are relatively low (under ~£30,000–£40,000). Limited company offers tax advantages at higher profits (you can pay yourself through dividends which attract less NI), provides limited liability protection, and looks more professional to some clients. However, a limited company has more admin (annual accounts, confirmation statement, corporation tax return) and less privacy (accounts are public). Most people start as sole traders and switch to a limited company when profits grow.

How much does it cost to start a business?

Basic costs include: registering as a sole trader (free) or forming a limited company (£12–£50 online), business bank account (free–£15/month), accounting software (£12–£35/month), public liability insurance (£50–£300/year), and a domain name/website (£50–£500). Total minimum startup costs can be under £200. However, costs vary hugely by industry — some businesses need stock, equipment, premises, or professional certifications which can cost thousands.

Do I need to register for VAT?

You must register for VAT if your taxable turnover exceeds £90,000 (2025/26 threshold) in any 12-month rolling period, or if you expect to exceed it within the next 30 days. You can voluntarily register below this threshold — this can be beneficial if your customers are VAT-registered businesses (they reclaim the VAT, so it doesn't affect your pricing) or if you make significant purchases with VAT. You won't need to register immediately if you're just starting out with low turnover.

Starting a Business in the UK — A Complete Guide | PocketWise

Starting a business is one of the most significant financial decisions you’ll make. Here’s a practical step-by-step guide to getting it right.

First Steps

Step	Action	Timeframe
1	Validate your idea — research demand, competition, pricing	Before anything else
2	Choose a business structure	Before registering
3	Register your business	Immediately
4	Open a business bank account	Within your first week
5	Set up accounting	From day one
6	Get insurance	Before you start trading
7	Register for VAT (if needed)	When turnover exceeds £90,000
8	Start trading	When all essentials are in place

Choosing a Business Structure

Structure	Best for	Liability	Tax	Admin
Sole trader	Freelancers, small businesses, low risk	Unlimited — you’re personally liable	Income tax + NI on profits	Minimal — Self Assessment, basic records
Limited company (Ltd)	Higher profits, credibility needed, multiple founders	Limited — company is separate legal entity	Corporation tax (25%) + income tax on salary/dividends	More admin — Companies House filings, annual accounts
Partnership	Two+ people working together	Unlimited (each partner)	Each partner taxed individually via Self Assessment	Moderate — partnership tax return
LLP (Limited Liability Partnership)	Professional services firms	Limited	Each partner taxed individually	More admin than partnership

Sole Trader vs Limited Company — Quick Comparison

Factor	Sole trader	Limited company
Setup cost	Free (register with HMRC)	£12–£50 (Companies House + formation agent)
Annual admin	Self Assessment tax return	Self Assessment + corporation tax return + annual accounts + confirmation statement
Tax at £30,000 profit	~£5,800 (income tax + NI)	~£4,500 (salary + dividends structure)
Tax at £50,000 profit	~£11,300	~£8,700
Tax at £80,000 profit	~£21,200	~£16,500
Personal liability	Unlimited	Limited to company assets
Privacy	Name/address can be private	Directors and accounts are public
Accounting	Simple records	Double-entry accounting recommended

Tax figures are illustrative and assume standard allowances and optimal salary/dividend mix for Ltd.

Registering Your Business

As a Sole Trader

Step	Detail
Register with HMRC	Online at gov.uk — free
When	By 5 October after the end of your first tax year of trading
You’ll receive	A Unique Taxpayer Reference (UTR) number
Then	File a Self Assessment tax return each year by 31 January

As a Limited Company

Step	Detail
Register with Companies House	Online at gov.uk or via a formation agent
Cost	£12 (online) or £50 (same-day service)
What you need	Company name, registered address, at least one director, shares structure, SIC code
You’ll receive	Certificate of incorporation, company number
Also register with HMRC	For corporation tax (within 3 months of starting to trade)

Tax Obligations

Tax	Who pays	When
Income tax	Sole traders, partners, directors on salary	Via Self Assessment (31 January)
National Insurance (Class 2 + 4)	Sole traders, partners	Via Self Assessment
Corporation tax (25%)	Limited companies	9 months and 1 day after accounting year end
VAT (20%)	Businesses with turnover over £90,000	Quarterly VAT returns
PAYE	If you employ staff (including paying yourself as director)	Monthly to HMRC
Dividend tax	Directors taking dividends from Ltd company	Via Self Assessment

Key Tax Dates

Date	What
5 April	End of tax year
31 July	Second payment on account (Self Assessment)
5 October	Register for Self Assessment if new sole trader
31 October	Paper tax return deadline
31 January	Online tax return deadline + balance of tax payment + first payment on account

Startup Costs Checklist

Item	Typical cost
Company formation (if Ltd)	£12–£50
Business bank account	Free–£15/month
Accounting software (FreeAgent, Xero, QuickBooks)	£12–£35/month
Domain name	£5–£15/year
Basic website	£0–£500 (DIY) or £500–£5,000 (professional)
Business cards	£20–£50
Public liability insurance	£50–£300/year
Professional indemnity insurance	£100–£500/year
Equipment and tools	Varies hugely by industry
Stock/inventory	Varies
Premises/workspace	£50–£500+/month (co-working) or home (free)

Funding Options

Source	Detail	Typical amount
Personal savings (bootstrapping)	Most common for small businesses	Any amount
Start Up Loan	Government-backed personal loan at 6% fixed interest	£500–£25,000
Small business grants	Government, local council, and private grants	£500–£50,000+
Business loan	High street banks and alternative lenders	£1,000–£500,000+
Business credit card	Short-term cash flow	£500–£25,000
Angel investment	Individual investors who take equity	£10,000–£500,000+
Crowdfunding	Raise money from many small investors/backers	£1,000–£1,000,000+
Friends and family	Informal lending/investment	Varies
Invoice financing	Borrow against unpaid invoices	Up to 90% of invoice value
Venture capital	For high-growth businesses	£250,000+

Essential Insurance

Insurance	What it covers	Who needs it
Public liability	Claims from the public for injury or property damage	Anyone meeting clients or the public
Professional indemnity	Claims of negligence or bad advice	Anyone providing professional services
Employer’s liability	Required by law if you have staff	All employers (legally required)
Business contents	Equipment, stock, tools	If you have valuable business assets
Cyber insurance	Data breaches, hacking, IT failures	Businesses handling sensitive data

Record Keeping

What to keep	How long
Invoices (sales and purchases)	6 years (7 years for Ltd companies)
Bank statements	6 years
Receipts for expenses	6 years
PAYE records	3 years after the tax year they relate to
VAT records	6 years

Starting a Business in the UK — A Complete Guide

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