By registering as a small business, you’ll be joining millions of other private-sector businesses in the UK. While the steps are relatively straightforward, you want to make sure you get it right from the get-go, ensuring your business is built on a strong and sustainable foundation.
Getting the details wrong while registering your small business could lead to costly fines, fees and lawsuits. From choosing your business structure to finding a name and premises, and registering for VAT, we cover everything you need to know about registering a small business in the UK.
Once you’ve got your business idea, whether that’s a product or service, you’ll have to choose a business structure. In the UK, there are 3 main types of business structures to choose from.
Sole traders tend to be low-risk small businesses run by one person. Sole traders run their businesses as self-employed individuals and must submit a self-assessment tax return every year. Common examples of sole traders include:
Setting up as a sole trader is the easiest way to register a small business with HMRC. It does come with some potential downsides though. For example, your business’s finances are linked to your personal finances. So, if your business encounters financial difficulties, it could impact your life.
When you set up a limited company, it means your business is a separate legal entity and that your personal and business assets are completely separate. This can make it easier to set up business bank accounts and take out business loans.
You have to register your limited company with Companies House as well as HMRC and appoint a named director who is legally responsible for the business. With lower tax rates, tax relief on pension contributions, and easier access to financing, there are plenty of reasons why registering as a limited company might be the right route for you.
Registering as a partnership is often the simplest way for two or more people to run a business together. Partnerships bring advantages like tax efficiency and ease of registration – you don’t have to register a partnership with Companies House, for example.
However, things like joint liability and shared responsibility can have severe ramifications if the business fails. When registering a partnership, it’s important to clarify who and what is at stake should the worst-case scenario happen.
There are a few circumstances that mean you have to take out special licenses, permits, and insurance policies to run a business legally in the UK. If you plan to sell food or serve alcohol, play licensed music, or trade in the street, there are a number of legal hoops you have to jump through.
The same goes for if your business buys and sells goods online or abroad, or if it stores and uses protected personal information.
When it comes to naming your business, you need to ensure you choose a unique name. A preexisting company can bring legal action against you if your name is close enough to cause confusion. The same goes for logos, which are protected by copyright laws. Before registering your business’s name, search google, as well as the Companies House Registry.
In the UK, you have to register your business for VAT if:
You can also choose to register your business for VAT even if it falls under the £85k threshold.
Being VAT registered can help create a good impression with clients, suppliers and insurers as it gives your business credibility and authority. It also means you can claim VAT back on goods and services you buy.
On the other hand, registering for VAT means you also have to charge your customers VAT – and therefore increase the price of your goods and services. There’s also an increase in paperwork as you will have to keep and submit your VAT returns and records.
Now you’ve chosen a business structure and name and checked which licenses, permits, and policies it needs, you’re ready to register your small business with the HMRC.