Whether you’re dreaming of being your own boss as a sole trader or teaming up with partners, knowing how to start a business is crucial. In this guide, we'll cover the seven most important legal requirements when starting a business in the UK - and explain how to handle each step.
1. Choose your business structure
The first step in your business journey is choosing the right structure. This decision affects your finances, taxes, and legal responsibilities. The most common options in the UK are:
Sole trader: Perfect for individuals running a small business on their own. You have full control and keep all profits, but you're personally liable for any debts, meaning your personal assets could be at risk.
Partnership: Ideal if you're going into business with others. Partners share the profits, losses, and liabilities of the business.
Limited company (Ltd.): A separate legal entity from its owners. Shareholders’ liability is limited to the value of their shares, providing more protection. Limited companies can attract investment but come with more responsibilities.
Choosing the right structure depends on factors like the size of your business, risk tolerance, and growth plans. If you're unsure, check out our guide on choosing between self-employment vs. a limited company.
2. Register your business
Once you've picked your structure, the next step is to register with the right authorities. Here's how:
How to register as a limited company
To set up a limited company, you need to:
Choose a company name: It must be unique and follow Companies House rules.
Appoint at least one director: This person manages the company’s day-to-day operations.
Decide on shareholders and shares: Who owns the business and how much control each shareholder has.
Create a Memorandum and Articles of Association: The memorandum and articles of association outline the company’s rules and structure.
Register with Companies House: This can be done online for a £12 fee. Once registered, you’ll receive a Certificate of Incorporation. This confirms your company legally exists.
How to register as a sole trader
Sole traders must register with HMRC for self-assessment. The process is straightforward:
Register online using your National Insurance number.
HMRC will send a Unique Taxpayer Reference (UTR) and guidance on filing tax returns.
How to register as a partnership
For a general partnership, each partner must register with HMRC for self-assessment. If you set up an LLP, you’ll also need to register with Companies House.
3. Register for tax and National Insurance
To stay compliant and avoid penalties, you need to register for the right taxes. Getting your tax registration right from the start saves time and hassle when filing returns. Here's a quick breakdown:
Sole traders and partnerships: Register with HMRC for self-assessment and report business profits.
Limited companies: Register for corporation tax within three months of starting your business.
VAT registration: If your taxable turnover exceeds £90,000 per year, you must register for VAT. Even if you don’t meet this threshold, voluntary VAT registration can help you reclaim VAT on expenses.
National Insurance Contributions (NICs): Sole traders and employers must pay NICs. If hiring staff, you’ll need to set up a PAYE system to manage income tax and NICs on their behalf.
💡Editor's insight: "If you're outside the UK or selling goods abroad, don’t forget to register for VAT. This is important if your business or sales involve cross-border transactions.”
4. Apply for licences or permits
Depending on the nature of your business, you may need specific licences or permits to operate. Failure to get the right permit can result in fines or being shut down, so always check with your local authority for guidance. Some common examples include:
Food businesses: Must register with the local council’s environmental health department.
Selling alcohol: Requires a premises licence and a personal licence.
Health and safety compliance: Businesses that deal with chemicals or waste management need permits.
5. Comply with data protection and GDPR laws
Any business handling customer data must follow the General Data Protection Regulation (GDPR). This means:
Only collecting data that is necessary for a specific purpose.
Keeping data secure and informing customers how they will use the data.
Registering with the Information Commissioner’s Office (ICO) if you process personal data.
6. Understand employment law and contracts
If you plan to hire staff, the employment law has obligations for you as an employer. Key requirements include:
You need to provide a written contract of employment within two months of hiring.
Paying the National Minimum Wage or National Living Wage, depending on the worker’s age.
Auto-enrolling employees into a pension scheme if they meet eligibility criteria.
Make sure workplace health and safety measures are in place.
You’ll also need to follow payroll records and work within working hours regulations for business.
7. Know your intellectual property rights
Protecting your brand, inventions, or designs is crucial to your business success. Intellectual property (IP) rights cover:
Trademarks: Protect your business name, logo, or slogan.
Patents: Protects new inventions.
Copyright: Applies to original works like written content or software.
Design rights: Cover the appearance of a product.
FAQs
What are the requirements to start a business in the UK?
The main requirements when you start a business are to choose a structure and register with Companies House and HMRC. You need to follow tax and employment regulations, and necessary licences.
What are the legal obligations of a business?
Legal obligations vary by structure. You need to register for taxes, follow data protection laws, and meet employment standards. You also need to maintain accurate financial records.
Do you need to register for VAT after incorporating?
If your turnover exceeds £90,000, VAT registration is mandatory. You can register voluntarily to reclaim VAT on business expenses.
Final thoughts
To get your business off the ground, you'll need to meet the appropriate legal requirements. While the process can seem complex, professional advice can help make the journey smooth.
Looking for legal advice? Get in touch today to see how one of our small business lawyers can help your business.
References
Set up and run a limited liability partnership (LLP) by Gov.UK
Incorporation and names by Gov.UK
Data protection by GDPR
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant. Bear in mind that tax rules can change and will differ based on your circumstances.