How to Start a Business in the UK: A Step-by-Step Guide

Starting a business is an exciting step, but it involves more than just coming up with an idea. Between legal requirements, financial setup, and registration, the process can feel overwhelming enough to make you reconsider the whole plan.

That’s why this guide breaks it down into 6 simple steps. From planning and registering your business to sorting out finances, you’ll get everything you need to start on the right foot and avoid common challenges. 

A successful business starts with a clear plan and a solid understanding of the responsibilities involved. With nearly 5.5 million SMEs in the UK, competition is high, and getting the essentials right from the start can make all the difference.[1]

Before taking the next step, let’s look at the key things you should know before becoming self-employed or starting your own business in the UK.

Running a business comes with risks and challenges. Before committing, consider whether you are prepared to take financial and personal risks and can handle operations, finances, and business growth.

Registering and running a business wherever you are in the UK requires dealing with various authorities. The key bodies include:

• HM Revenue & Customs (HMRC) – Handles tax obligations such as self-assessment, corporation tax, VAT, and PAYE.
• Companies House – Responsible for registering and maintaining records of limited companies.
• Local Authorities – Issue-specific licences and permits for businesses operating in certain sectors.

Many new businesses struggle financially in their first year. Before starting, it’s a good idea to:

• Estimate your startup and operational costs. Expenses such as renting an office or setting up a home office, purchasing equipment, marketing, and staffing can add up quickly.
• Have a financial safety net. Revenue takes time to grow, so ensure you have reserves to cover expenses during slow periods.
• Explore funding options. Government-backed loans, business grants, bank financing, and private investment can provide the financial support needed to sustain and grow your business.
• Check industry-specific insurance requirements. Some businesses, particularly those dealing with clients, employees, or the public, may be legally required to have public liability or professional indemnity insurance. Understanding these obligations helps ensure compliance and financial protection.[2]

A common mistake is starting a business without validating demand. Avoid this by identifying your target customers and analysing your competition to understand market gaps. 

Testing your idea is also advised. You can conduct customer surveys, a small-scale launch, or a pre-order strategy to gauge real interest before committing fully.

Even if you start as a solopreneur or sole trader, keeping business finances separate makes accounting and tax filing easier. Many banks in the UK offer business and corporate accounts tailored to different business sizes, including small businesses. 

Moreover, using accounting software is a good practice for bookkeeping, invoice management, and tax calculations. It also provides better visibility into cash flow management, helping you maintain financial stability as your business grows.

The first step to setting up a business in the UK, like in any other country, is to determine the type of business you want to run. 

Choosing the right business structure affects how you operate, pay taxes, and handle liability. The main options are:

• Sole Trader:  Simple to set up, but you are personally liable for debts. As a sole trader, you have full control over your business decisions and work as your own boss, but you are also personally responsible for any debt.
• Limited Company: A limited company provides limited liability, meaning your personal assets are protected if the business incurs debt or legal issues.

Let’s look at the differences.

A well-structured business plan acts as a roadmap, guiding your business through its early stages and growth. It outlines how your business will operate, who your target audience is, and how you will generate revenue. A strong plan also helps attract potential customers and investors by demonstrating your market understanding and growth potential.

Here are the how to come up with a business plan:

• Step 1: Define your business idea by outlining your goals, target market, and the problem your product or service solves.
• Step 2: Conduct market research to analyse competitors, understand customer needs, and validate demand.
• Step 3: Outline your products or services with pricing, revenue streams, and what sets them apart from competitors.
• Step 4: Develop a financial plan that includes startup costs, revenue projections, and potential funding sources.
• Step 5: Create an implementation strategy with clear milestones, timelines, and marketing plans to launch and grow the business.

You can also use a business plan template to help structure your plan if you are unsure where to start.

Running a business comes with tax and regulatory responsibilities that must be managed correctly to avoid penalties. Understanding these obligations in advance helps assess whether you have the time and expertise to manage them yourself or if professional support is the better option.

Tax responsibilities depend on your business structure:

• Sole traders pay Income Tax on their profits through Self Assessment and must register for VAT if annual turnover exceeds GBP 90,000.
• Limited companies pay Corporation Tax on profits, and if they employ staff, they must set up PAYE (Pay As You Earn) to handle employee tax and National Insurance. VAT registration is also required if turnover exceeds GBP 90,000.

Certain industries require specific licences and permits. For example, food businesses must comply with hygiene regulations, financial services need approval from the Financial Conduct Authority (FCA), and import/export businesses must follow customs rules.

You can check for licences and how to apply for them on the government website.[3]

Now that you have evaluated everything, the next big step is to register your business. This is important to ensure that you operate legally, comply with tax regulations, and protect your business name. It also allows you to access financial services, apply for licences and permits, and build credibility with customers and suppliers.

Registering as a Sole Trader

Sole traders earning over GBP 1,000 in a tax year must register with HM Revenue & Customs (HMRC) for Self Assessment to report income and pay taxes. This can be done online through the government website:[4]

1. Go to the Self Assessment registration page.
2. Create a Government Gateway account if you do not have one.
3. Complete the registration form by providing your personal and business details.
4. Receive your Unique Taxpayer Reference (UTR) number, which is required for filing tax returns.

Sole traders do not need to register with Companies House and can start trading immediately. However, if the business name is different from your own, check that it does not infringe on existing trademarks.

Registering a Limited Company

Limited companies must register with Companies House and follow additional legal requirements. Like sole traders, registration can be done online through the Companies House website or by using a formation service.

To register:

1. Choose a unique company name that follows UK naming rules and does not infringe on existing intellectual property or trademarks.[5]
2. Appoint at least one director and, if applicable, a company secretary.
3. Determine shareholder or guarantor details, as well as identify the people with significant control (PSC).
4. Prepare key documents, including a memorandum and articles of association, outlining how the company will operate.
5. Register the company online and pay the registration fee. You will need to provide personal information such as town of birth, National Insurance (NI) number, and passport number.[6]
6. Receive a Certificate of Incorporation confirming the company’s legal status.
7. Once registered, the company must also sign up for Corporation Tax with HMRC, which can be done during the registration process.

Although it’s a good idea to plan your financing before registering your business, most loans and grants require your business to be registered as a legal entity first. Here are some loan and financing options to consider for securing capital for your business:

• Government-backed loans: The UK government offers Start Up Loans ranging from GBP 500 to GBP 25,000. However, this is an unsecured personal loan that requires a credit check.
• Traditional bank loans: High street banks provide business loans, but eligibility often depends on your credit history, business plan, and financial projections.
• Alternative financing: Crowdfunding platforms, peer-to-peer lending, and venture capital are options for businesses that may not qualify for traditional loans.

 You can also explore financing options on the government website.[7]

A business bank account helps keep personal and business finances separate, making it easier to manage cash flow, track expenses, and file taxes. While sole traders can use a personal account, a separate business account is recommended. Limited companies must have a business account as they are legally separate from their owners.

Many UK banks offer business accounts, including high street banks like Barclays, HSBC, and Lloyds, as well as digital banks like Starling. Zempler Bank, and Monzo. Some providers also offer fee-free accounts for freelancers and new businesses.

Banks typically request the following information and documents when opening a business account: 

• Business registration details – Certificate of Incorporation for limited companies or proof of Self Assessment for sole traders.
• Proof of identity – Passport or driving licence of the business owner or directors.
• Proof of address – A recent utility bill or bank statement.
• Business details – Nature of the business and expected turnover.

Starting a business is a big step, but with the right planning, you can set a strong foundation for success. Choosing the right structure, handling registrations, and setting up a business bank account are all part of the process, but what really matters is staying committed and adaptable. Taking action and staying informed about regulation changes will put you on the right path to building something that lasts. Remember to seek professional advice and assistance if needed.