Starting a Business

Starting a business in the UK is more straightforward than in many other countries, but there are still important legal and tax decisions to make before you begin trading. Your choice of legal structure determines your tax obligations, personal liability, and administrative burden. This guide covers the three most common structures — sole trader, limited company, and partnership — along with the key registration steps and ongoing compliance requirements.

Legal Structures

Sole trader is the simplest structure. You are the business — there is no legal separation, and you are personally liable for all debts. You register with HMRC as self-employed and file a Self Assessment tax return each year. Profits are taxed at Income Tax rates, and you pay Class 2 and Class 4 National Insurance. This structure suits freelancers, contractors, and small local businesses.

A limited company is a separate legal entity. Shareholders' liability is limited to their share capital. The company pays Corporation Tax on profits, and you extract income through salary and dividends. The administrative burden is higher: you must file annual accounts and a confirmation statement at Companies House, operate PAYE if you draw a salary, and file a CT600 return. Company accounts are a matter of public record. This structure suits businesses that want to retain profits, attract investment, or limit personal risk.

A partnership involves two or more people sharing ownership, profits, and liabilities. Partnerships file an SA800 return, but each partner pays tax on their share via Self Assessment. A Limited Liability Partnership (LLP) gives all members limited liability while retaining partnership tax treatment. See our Partnership Tax guide for more.

Registering with HMRC

Once you have chosen your structure, you must register with HMRC. Sole traders register for Self Assessment by 5 October after the tax year their income exceeds £1,000. Limited companies must register for Corporation Tax within 30 days of starting to trade — HMRC will send your company's UTR and activate your online account. If you are taking on employees, including yourself as a director drawing a salary, you must register as an employer with HMRC at least four weeks before the first pay day. You will then receive an employer PAYE reference number. See our PAYE guide for more on payroll setup.

Business Bank Account

While sole traders can legally use a personal bank account for business transactions, it is strongly recommended to open a separate business bank account. This simplifies record-keeping, makes tax preparation easier, and is required for limited companies (company assets must be kept separate from personal assets). Many digital banks offer fee-free business accounts for startups. Compare features such as transaction limits, foreign exchange fees, and integration with accounting software before choosing.

VAT Registration

You must register for VAT if your taxable turnover exceeds the VAT registration threshold, which is £90,000 in 2025/26. Even if your turnover is below this threshold, you can voluntarily register for VAT — this may be beneficial if you predominantly supply VAT-registered businesses (they can reclaim the VAT) or if you incur significant VAT on your own costs. Once registered, you must charge 20% VAT on most supplies, submit VAT returns (usually quarterly), and pay any VAT due to HMRC. The VAT flat rate scheme can reduce your administrative burden if your turnover is under £150,000.

Business Plan Basics

A solid business plan helps you clarify your strategy and is essential if you seek external funding. Key sections include: an executive summary, your business idea and value proposition, market analysis (target customers, competitors, market size), marketing and sales plan, operational plan (location, equipment, suppliers), management team, and financial projections (profit and loss, cash flow, balance sheet forecasts for at least three years). The Start Up Loans scheme (government-backed) provides loans of up to £25,000 plus free mentoring for new businesses. Check if you qualify for tax-free Seed Enterprise Investment Scheme (SEIS) investment — this allows investors to claim 50% Income Tax relief on investments in your company.

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