A guide to starting your own business in the UK

Starting your own business in the UK is very simple. All you need to do if you want to start a home business is either register as self employed or create a limited company, and you can start trading! However, if you want a successful home based business you will need to look into other things, such as registering for VAT, getting a business bank account and consider taking business insurance.

Sole trader or limited company?

Choosing between sole trader and limited company is a matter of personal preference and your personal circumstances. A limited company is more tax efficient, and will work as a different legal entity, giving you a higher degree of protection for company losses. However, it also requires more paperwork than a sole trader, who is mostly only required to fill a tax report. If you plan to become your own boss working full time at your new company you will probably be better off with a limited company and a good accountant to do the year end reports and other ongoing communications with HMRC for you. If you only want to work part time, or don’t expect your company to make much money, starting as a sole trader can be easier.
If you know your expected profits (or can estimate them) you can use our Limited vs Sole Trader calculator to see what would be better money wise.

Sole trader registration and requirements

To register as a sole trader you just need to head over to the HMRC website within the first three months of trading and register your intention of being a sole trader. You will need to make an annual self-assessment tax return, and keep records of your business expenses and income. You will need to pay Class 2 NI, Class 4 NICs on profits and personal income tax on all your profits. You will need to answer for your company debts with your own personal assets. You can also use a third party service, for example Companies Made Simple will register you and help you get a bank account with Barclays, along with several guides on taxation and marketing for a flat fee of £19.99.

Limited company registration and requirements

A limited company is a separated legal entity, and you’ll need to start with registering it with the Companies House, which you can do online if you are using model articles. You will need to file accounts yearly with Companies House and send a financial annual return as well, which you can do electronically. You will need to appoint at least one director, who must be a UK resident over 16 years old. Each time you change the management structure (appoint a secretary or add or remove directors) you’ll need to update the Companies House. Tax wise you will need to submit a Company Tax Return yearly to HMRC, and pay corporation tax on benefits. You will also need to run payroll and company with HMRC requirements on PAYE, VAT and specific industry legislation.

As a limited company, you will be able to manage your tax much more efficiently, for example by paying yourself a lower salary and higher dividends and keeping profits in the company to avoid hitting the higher levels of personal income tax. An accountant can become your agent and do the paperwork for you, as well as provide advice on the best dividend and salary structure. And most importantly, you won’t be liable for your company losses for more money than your shares on the company. You can use Companies Made Simple to register your new company for £16.99, including all the documents you will need, a start-up pack, £50 cash back with Barclays Business Banking and an AdWords voucher. Personally I find it easier than doing everything myself, which can be quite time consuming, and costs £14 anyway as the Companies House fee.