29 Nov 2021 - 6 minutes to read
What you need to do to set up and register a business is dependent on what kind of business you run, the stage your business is at, and the number of legal owners or shareholders. Most businesses will need to register as either a Sole Trader, Limited Company (LTD), or Partnership, all of which require you to register with HM Revenue and Customs (HMRC). You also need to register as an employer with HMRC as soon as you start employing staff. It is also a requirement to register for VAT if your business’s VAT taxable turnover is over a certain amount. Other than that, the rules differ between the business types.
A sole-trader is a self-employed person who owns and runs their business as an individual. As a sole trader, you have absolute control over your business, its assets and profits after tax. This does also mean you are in control of your business’s debts.
You should set up as a sole trader if you have earned more than a certain amount from self-employment in a year (exact earnings and dates depend on the year); or if you need to prove you’re self-employed; or if you want to make national insurance payments to help you qualify for benefits.
To set up as a sole trader, you need to register for self-assessment with HMRC, and then file a tax return every year. As a result, you’ll need to keep records of your business’s sales and expenses, and pay income tax and national insurance on your profits.
You can have a business name* but you do not need to register it - although it is advised if you want to stop people from trading under your business name. You do need, however, to include your name (and business name if you have one) on official paperwork. When deciding on a business name, you cannot include anything that indicates it is an LTD - more on that below.
* You can check if your business name idea is already taken using this tool.
A limited company (LTD) is a private company where the company has a legal identity of its own, separate from its owners (often called shareholders) and managers (sometimes called directors). This type of business must be incorporated at Companies House.
There is a longer process for setting up and registering this type of business. You must choose and register a name (which must end in ‘Limited / LTD’ or ‘Cyfyngedig / CYF’ if you’re registered in Wales and would like to use the Welsh equivalent), pick a director; decide on a shareholder or guarantor (can be the director); prepare a memorandum of association' and 'articles of association' (a legal statement from all shareholders and guarantors agreeing to form the business, and written rules about the running of said business); keep company and accounting records; register an official address and SIS code (which identifies what you company does); and register with HM Revenue and Customs (HMRC).
A partnership is a formal arrangement by two or more parties to manage and operate a business, and share its profits. This also means you share responsibility for its losses, and bills for things you buy for the business. It is important to note that a partner does not have to be an actual person (limited companies can act as a “legal person”).
To set up a partnership you need to choose a name (like a sole trader, you do not need to register it); include all the partners’ names and the business name (if you have one) on official paperwork; and register your partnership for self assessment (if you’re the nominated partner that is responsible for the partnership’s tax return). All partners must also send their own tax returns as individuals.
Within partnerships, there can be different types of arrangements - this often boils down to varying degrees of liabilities* and profit. A general partnership will often see partners sharing workload, liability and profits; a limited partnership allows outside investors to buy into a business with often limited involvement; and a joint partnership is often defined as short-term alliance for a project.
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Other factors you should consider when you set up and register a business are licenses and permits, insurance, health and safety, and rules of sale.
Some businesses require a license or permit for their business activities. The type of license you require will depend on the type of business you run.
For example, a food business in the Cardiff area must be registered with the local authority - a registration which cannot be refused. However, your premises might need to be approved by your local council if you make, prepare or handle food that comes from animals.
As you might imagine, this really is a case-by-case scenario, so you should use the Gov.uk licence finder to help you make an informed decision on what licenses or permits you’ll need.
Keep in mind that you might need certain licenses or permits even if you are working from home.
The Association of British Insurance writes that “Business insurance can help protect business owners and independent professionals against everyday risks, such as mistakes, stock or premises damage, and legal costs.”
As with licences and permits, you might still need insurance even if you are working from home.
Basic health, safety and welfare issues and apply to most workplaces, as per the Health & Safety at Work Act. You must carry out a health and safety risk assessment in the workplace and take action to remove any hazards. For more information, specific to your workplace, refer to the Health & Safety Executive HSE website.
There are certain rules of sale if you are trading online or outside of the UK, as well as if you are offering a digital service (like a game or film). You must also follow rules on data protection if your business stores or uses personal information.
Keep in mind that this will all differ between businesses; this is a guide for educational purposes, but should not be your only source of information. Always refer to Gov.uk or an expert if you are unsure on what steps your specific business needs to take.
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