Startup Business Guide for the UK
How to Start a Business in the UK?
When you start a business in the UK, you can typically register as either a sole trader, a limited company, or as a partnership. Whichever option you choose, it’s a good idea to get the advice of an accountant before starting out, as having an expert on board will really help to make sure you cover all bases and get started with maximum traction.
Starting a new business can be both exciting and daunting, it is important to keep a clear head from the outset so that the basic practical decisions you make support your business’s development.
We have outlined below some of the key points you need to consider before starting your business in the UK, and some of the essential criteria you need to consider if you want to make your business successful. If you are in a hurry, why not hire expert startup accountants who will help you set up your business, connect you with key industry contacts and answer any questions that you may have.
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- How to Select the Best Business Structure?
- Other factors to consider when starting a business in the UK
- Where will your business be running from?
- How will you fund your business
- Will you be hiring staff?
- How do I Insure my business?
- Opening a business bank account
- Video: How to open a business bank account in the UK
- What are the costs involved in starting a business?
- Are you ready to start your own business?
- Do you need an accountant?
- Why do new businesses fail?
- The importance of a business exit strategy
- The advanced business model – Lean Startup Business Model
- Generally Asked Questions
How to select the best Business Structure?
One of the most important factors before starting a business in the UK is to decide the legal structure of your company. Deciding on the right structure from the very beginning will determine how you pay your taxes, the method of reporting and the personal liabilities that you will be facing. These factors play an important role in how you make profits and how your business advances, it can also help you decide what kind of reliefs you can offer your investors.
There are four main types of business structures, each structure comes with its own set of rules for taxation and liabilities.
One of the simplest ways to start a business in the UK is to establish yourself as a sole trader. You will need to register for Self-Assessment with HM Revenue & Customs. Along with that, you will need to file a tax return every year (after an initial grace period of one year). However, as a sole trader, you will be held responsible for any debts that your business may accrue. Sole trading might not be the right option for riskier or larger scale ventures as it might not be the most tax-efficient structure.
As a sole trader, you’ll also need to make sure to keep detailed records of sales and expenses (to save yourself time when it comes to filing your tax return), pay income tax on your profits, and make national insurance contributions. If your business has a turnover of £85,000 or over, you have to register for a VAT registration certificate and complete and pay VAT returns. All in all, this route is good for smaller businesses. You may speak to a personal tax accountant or a VAT accountant to help you in this regard.
Setting up as a ‘General Partnership’ is similar to being a sole trader. However, in a partnership, there are one or more people who share the responsibility for the business debts that may occur along the line. Similarly, business profits are shared as well, and the individual members of the partnership pay taxes on their share of the profits.
It is important to note that a partner doesn’t have to be an individual person – a partner can also be a limited company who has a share in the partnership. In the case of a shared partnership, all the shareholders will select a ‘nominated partner’. The responsibility of this partner would be to register the partnership with HMRC and make sure the tax return is delivered on time.
In some cases, it is also feasible to opt for a ‘Limited Partnership’. this is different to a General Partnership as the responsibility of the debts is not shared amongst the partners. Instead, there are two roles: the ‘general partner’ and the ‘limited partner’. The general partner is liable if the partnership runs into any debt. As for the limited partner, their contribution is financial, and they will not have responsibility for any debts incurred by the partnership.
The third type of partnership is the Limited Liability Partnership or LLP. In this case, none of the partners are personally liable for the business’s debts. In this setup, members can either be individuals or a company, and each pays tax on whatever share of the profits they receive. To set up an LLP you need an address, an LLP agreement and, of course, to register the partnership with Companies House. If you want to go for this option try searching for an accounting firm near me or an online accountant who are experts with partnership structures and should be able to help you set up and run your partnership effectively. You can learn more about starting a Limited Liability Partnership here.
If you decide to proceed with a UK company formation, then the Limited Company structure is your best option. Setting up as a limited company affords you the greatest legal protection as your personal finances will be treated separately from the company’s finances. However, there are additional reporting responsibilities and you will probably want to get the support of an accountant in the UK company formation process.
Additionally, you will need to register as an incorporated company with Companies House and will have to file annual accounts and returns in the UK. A good UK formations agent or a good Accountant in London can ease the process of forming a company in the UK and help to fulfil the compliance requirements of a limited company structure.
Other requirements that need to be fulfilled by a limited company are as follows:
- Use a company name that is not used by anybody else (ending with ‘Limited’, ‘Ltd’ or the Welsh equivalents);
- Use a physical UK address as the registered address for the company (in the same country as your company is registered in);
- Issue a minimum of one share to a shareholder (there is no limit to the number of shareholders your limited company can have);
- Setup a ‘memorandum and articles of association’ listing the written rules of the company, and; details of anyone with voting rights in your company or who owns more than 25% of shares.
It is very important to know what business structure is best for your business and the vision that you have for it before you decide that you want to proceed with a UK company formation. We have explained the process of setting up a company if that is the route you have selected. Before you finalise your UK Business setup make sure you decide that this is the place you want to set a business, also try and finalise a city where you expect your Head Quarters to be located.
Other factors to consider when starting a business in the UK
Where will your business be running from?
Whether you decide to start a business from home or an office space, it is important to be in compliance with certain rules and regulations. Being in touch with a good Accountant in London can ease the process of understanding complicated rules and processes. If you are living in rented accommodation and are planning on running your business from home, it is a good idea to notify your landlord. In case you own the house, you should share this information with your mortgage provider. You may need to pay business rates for the part of your home you are using for your business. This is worth checking out via the Valuation Office Agency.
Another important factor to consider, if you are running your business from home, is the tax allowances you will be entitled to – such as the internet, lighting, phone line etc. – as this can save you some money and will become part of your tax return. It may not seem like a lot initially, but over the course of the year, this can be a decent saving. Our in-house accountants are experts at finding the best and most efficient tax solutions for you and your business.
If you plan to run your business in an office space, there are separate factors that need to be considered. For example, if you are planning on running a business from a rented property there are health and safety standards that you need to ensure for your employee’s well-being. This can be the smallest details like making sure the working environment is comfortable, providing clean toilets and access to drinking water. Our free employment and health and safety helpline can help you prepare for any major issues you think you may encounter.
How will you fund your business?
Starting a business is the easy part, keeping it running is what’s hard. A business requires a constant source of funds to run, which can come from bootstrapping, loans, crowdsources, investors or if you are lucky enough from customers. A business owner needs to be very clear from day one about where the business will get its funds from and what the business plans to do once it runs out of its funds? this will ensure the survival of the business. We have worked hard on curating a funding guide which will help you understand the various options available. We have also tested out the best crowdfunding platforms for you if that is an option you will be going for.
Will you be hiring staff?
As mentioned above, hiring staff has implications in relation to health and safety considerations. However, you’ll also have other requirements placed on you, whether your hiring agency workers, freelancers or full-time employees.
The three key factors you need to consider before hiring your staff are:
- Running your own payroll.
- Making national insurance contributions and how to claim the allowance to reduce your own tax bill.
- Providing eligible staff with their now mandatory workplace pensions.
In addition to understanding these areas, you’ll be required to check that anyone you employ is legally entitled to work in the UK, purchase employment insurance as soon as you employ someone. You need to provide written terms and conditions along with job descriptions to any new employee. Moreover, you must notify HMRC that you’ll be employing people by registering as an employer. Businesses who have access to a good Startup Accountant in London tend to avoid costly mistakes which save them time and money in the long run.
The good news about becoming an employer is that you will receive up to £3,000 worth of tax relief on your own national Insurance bill. This will be the case if you are paying employee’s Class 1 National Insurance contributions. You can even claim this when completing an Employer Payment Summary. You may learn more about the employee hiring process here and how pensions are taxed here.
Once the staff is hired, retaining them is also important for the growth of a new business, EMI schemes can be one incentive you can offer employees to keep them interested and to reduce employee turnover, you can learn more about designing an attractive EMI scheme and what these are here.
Related: Our guide to effective payroll compliance is useful for first-time employers processing payroll.
How will you Insure your business?
No matter what the size of your business is, there may be certain unexpected difficulties that you may encounter over the course of time. As part of a contingency plan, it is a good idea to have a relevant insurance plan. Depending on the nature of your business, there may be certain types of insurance plans that you are required to implement. For instance, if you are going to be running a delivery service, you need to have motor insurance. Similarly, if you are going to hire staff, you are required to have employer’s liability insurance which can be implemented in case your employees become ill or injured as a result of their work. It would be better to be aware of the legal insurance requirements that are required for your business type to avoid any issues at a later stage
Insurance procedures can get complicated at times. To start off, you may adopt a liability insurance plan, along with the insurance your business is legally required to have. This will provide you with sufficient coverage if you are faced with any legal costs. In case there are any damages incurred or any other unexpected costs, you can learn more about setting up insurance for your business in our specially curated insurance guide.
Alternatively, speak to an insurance broker, they will be your middleman, and they should be able to guide you through the dos and don’ts of insurance planning.
Opening a Business Bank Account
It is very important to keep your personal and business finances separate when starting a new business. This will not only reduce administrative and tax implications, but it will also make sure that you build a credit history for your business. Down the line, this will help you to get the relevant funds and the financial support that you need to prosper.
Our guide to top business bank accounts can help you learn more about the different options that are available and how they can help to open an account.
Video: How to Open a Business Bank Account when starting a business in the UK?
Watch the video to find out everything about opening a business bank account in the UK.
What are the costs involved in starting a business?
This brings us to the most important factor that needs to be considered – the business cost. We highlighted the importance of cost in the previous sections, especially when you are renting or buying a space to run your business. Budgeting is an important aspect of running a business. We always recommend speaking to a Startup Accountant or a recognised Accountant in London who is both technically capable and strategically located to help you prepare a business plan or a business model canvas. It is better to have a detailed budget plan to avoid any surprises in the future and to be well prepared to attract investors, banks or other stakeholders on board when required, alternatively a good cash flow forecast will also help to ensure if you will have sufficient funds to survive the initial few months.
While the costs for each business will be different, here are some general costs to be considered:
Registering your company (also known as company incorporation) with Companies House.
- Insurance-related cost.
- Staff costs.
- Rental costs and council tax.
- Utility bills such as heating, water, and phone bills.
- Internet bills.
- Equipment for your business.
- Website maintenance cost.
- Accountancy costs.
- Legal fees.
- Branding and advertising cost.
Given this long list of costs to consider, make sure you have prepared a well-costed budget before getting started. You will need to make sure that you have the capital required, and also make sure you keep some cash in reserve as it is inevitable that there will be unexpected expenses along the way.
Are you ready to start your own business?
In most cases, starting your business can cost you more than you have budgeted. It may require a lot of planning from your side to successfully set up a business in the UK. You’ll also need to consider where your major strengths are and, conversely, what your major weaknesses are, as these areas might require some additional outlays for bought-in expertise.
Beyond this basic understanding, if you are starting a business, you need to be passionate about the venture you are embarking upon if it is going to be successful. It seems trite to say, but passion is perhaps the key ingredient to enable a new business to succeed, as it can drive you on through the energy-sapping process of taking something from inception and into fruition, growth and flourishing.
Do you need an Accountant?
Having an expert who has solved similar problems for thousands of others can add immense value to your new business. If you have the funds and want to make sure that you start correctly and save as much money and time as possible then it would be highly advisable to hire an expert accounting firm. If you are still unsure, why not read, how an accountant can help your startup grow here.
Why do new businesses fail?
Since around 30% of new businesses fail during their first 2 years of operation, understanding yourself is vital if your business is going to be successful. The key cause of business failure is the lack of research at the early stages to make your business a niche area along with a haphazard marketing approach., leadership failure and lack of expert advice.
In order to prevent this, make sure you conduct in-depth research before starting out so that you understand the market area you are getting into. Structure your business plan and make sure your financing has a wiggle room, a decent marketing strategy, internet presence, and physical location feasible to your business operations. Moreover, you should be flexible enough to adapt to the changing trends if your initial plan is not running smoothly. Finding a good Accountant in London could be the perfect way to begin your planning phase. Choose someone who is located in the heart of the UK, accountants have access to a strong network of highly capable professionals which you can use to build a strong foundation for your business and address the concerns mentioned above.
The Importance of a Business Exit Strategy
It may seem unnecessary to think of an exit strategy when starting a business. However, having a business exit strategy in place is a crucial component of any business plan to help ensure long-term growth, increase the potential exit valuation and help to attract investors.
Related: If you want to sell your business, read our guide to maximize the tax efficiency when selling your business and understand other tax aspects surrounding it.
The Advanced Business Model – Lean Startup Business Model
The lean startup business model is all about finding new ideas in the quickest and the most efficient way and bringing that service or product to market using techniques that get rid of redundant processes and methodologies.
The main principles of Lean Business Start-up are:
- Managed use of Resources: Try and use resources in the most efficient way to showcase the product in front of customers.
- Most Viable Product: The process involves trying out every possible iteration of an idea to produce the most viable product; this is also known as the development of a Minimum Viable Product (MVP).
At the end of the day, it is all about learning from these failures and giving your startup a chance to refine processes to develop the startup as quickly as possible.
Starting a business in the UK will be both an exciting and challenging experience. Being your own boss comes with countless rewards, but it also means taking on more responsibility. Deciding on what type of business you wish to set-up is an essential starting point and should be undertaken with careful consideration. You also need to think about where you will be running your business from, whether you will be hiring staff, getting insurance and a range of other start-up costs.
In addition to practical considerations, make sure you take some time to ensure you are mentally prepared for the task of starting your own business. A successful business has passion and hard work at its core, therefore make sure your idea is something you really believe in and are willing to dedicate your time to. With these key ingredients and some careful planning and consideration, we’re sure you can make your business a success!
Clear House Accountants are Specialist Startup Accountants in London. We have built processes and systems for startups looking to start a business in the UK, these have enabled them to start up quicker, grow faster and find smart solutions to complex problems that they can encounter.
Generally Asked Questions
The most common business structures are Sole Proprietorship, Limited Liability Company and Partnership.
The quickest method would be to get a product or service ready and start selling if you have a customer base available.
A business plan is a go-to document which explains your business plan in your absence or explains it in detail where you cannot due to time constraints. It is a must-have when you are looking to raise funds, bring on co-founders or when you expect to pursue an aggressive growth plan, which means revisiting this document can help you get back perspective.
The key questions you need to ask yourself are:
-Do I have sufficient funds to survive for at least 6 to 8 months?
-Do I have a go-to-market strategy or a customer acquisition strategy?
-Does my business model actually work when tested?
-How do I grow my business with limited resources and in how much time?