How to Start a Business in the UK?
Starting a Business UK
We have collaboratively worked with expert startup accountants, formation specialists, and our service partners to curate an exceptionally valuable guide to starting a business in the UK, which provides secrets from industry experts to starting a successful business in the UK versus a business that will potentially fail. Before you jump to the part where we show you the tricks to selecting the most optimal business structure, the various types of business models you can use, and the strategy on how to start a company in the UK with the least risk, even when targeting risky and new trending start-up ideas, you should first understand what the term business actually means.
Practical Business Meaning
In practical terms, a business is an entity that deals in an exchange of goods and services in return for an economic benefit, mostly money. All Businesses in the world engage in trading activity for the sole purpose of earning a profit.
Starting a new business can either be done by starting something from home or setting up a business that runs from an office premise. Businesses can be classed into small, medium, or large which in its easiest form can be classed as per The Department for Business Innovation and Skills (BIS) approved new regulations. The ‘new regulations’ known as the Companies, Partnership, and Groups (Accounts and Reports) Regulations 2015 revised the existing definition for companies, and now gov.uk defines companies into three classifications. These classifications are small, medium, and large size companies; the small one includes a subcategory called micro-entity.
Each business start-up can be classified into one of three company sizes; micro, small, or medium that may later expand into a large size company. A majority of people still fail to understand the key difference between a start-up and a small business venture, which can create issues later on in the process, the differences might be more prominent than what you think.
Table of Contents
- How to Select the Best Business Structure?
- Requirements that need to be fulfilled by a limited company
- What are the various types of Businesses?
- 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
- 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
- What’s the Quickest Way to Start Strong? – Use a Lean start-up Business Model
- Five tips before starting a business
- Figure out which business works right for you
- Make sure there are demand and the market for your product
- Plan for success
- Procrastination is the enemy
- Don’t go down with your mistakes
- Generally Asked Questions
Business Plan Template
Marketing Plan Template
How to select the best Business Structure?
One of the most important factors before starting a business is to decide on the most optimal legal structure of the company. Deciding on the right structure from the very beginning will determine how you pay your taxes and the digital reporting of these taxes, which is crucial if you do not want to face any legal penalties.
It is always suggested to take professional business advice as 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 relief you can offer your investors to enable them to save money and to convince them to invest in your business.
The four main types of business structures in the UK come with their 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 guidance on how 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). It would be better to seek professional tax help if you want to file your tax returns smoothly and hassle-free.
As a sole trader, you will take responsibility 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, and might not limit your liability, but it can be the quickest and least demanding from a compliance perspective.
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. Moreover, it’s crucial to know about income tax basics on your profits and to make national insurance contributions.
If your business has a turnover of £85,000 or over, you have to register for VAT and pay VAT. Generally, businesses who struggle to understand how to do this hire a competitive personal tax accountant, if not done correctly, this can cost you a fortune.
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 profit share.
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 to make timely delivery of tax returns.
In some cases, it is also feasible to opt for a ‘Limited Partnership.’ A limited partnership is different from a General Partnership that one must understand before starting.
Instead, there are two roles: the ‘general partner’ and the ‘limited partner.’ The general partner is liable if the partnership runs into any debt. The contribution of a limited partner is financial. Hence they will not have the duty to pay any debts incurred by the other partner.
The third type of partnership is the Limited Liability Partnership or LLP, which has its own liabilities, and advantages. It is better to understand all these through our guide on how to run an LLP if you are trying to pursue this type of partnership. To set up an LLP, you need an address, an LLP agreement, and, of course, to register the partnership with Companies House.
Setting up a partnership can be as complicated as your situation; you can hire a competent partnership accounting firm whose online accountants are experts with partnership structures and can help you set up one.
If you decide to proceed with a UK company formation, then setting up a limited company in the UK is your best option. Registering a company as a limited company offers you the greatest legal protection as your finances will be treated separately from the company’s finances. There are, however, differences in the tax and savings of a limited company as compared to a sole trader.
Moreover, there are additional reporting responsibilities that, if not done, can result in severe consequences. You will probably want to get the support of an accountant in the UK company formation process and thereafter with Accounting Services.
When you are opening a business as a limited company, you need to register as an incorporated company with Companies House. Moreover, you will have to file annual accounts and returns in the UK. A good UK formations agent or a good Accounting Firm in London can ease the process of starting a new company in the UK. Moreover, they can help to fulfil the compliance requirements of a limited company structure.
Requirements that need to be fulfilled by a limited company
- Every company has a unique name to stand out in the crowd. It is necessary that you use a name that has not already been taken. The name could end with Ltd,‘Limited’, 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 setting up a business. It is crucial to know about the various types of businesses to identify the most compatible structure with the business idea you want to set up.
What are the various types of Businesses?
When it comes to business, there are various kinds of businesses. However, Let’s take a look at the three major types of businesses: service businesses, merchandising businesses, and manufacturing businesses.
As the name suggests, service businesses provide services to potential customers. Services are also known as intangible products or products which do not possess a physical form. Examples of service businesses include salons, schools, banks, law firms, accountants, and so on.
Merchandising businesses buy products from wholesalers at wholesale prices. They then resell these products at retail prices. Simply put, they profit by selling products at higher prices than the purchase costs. Examples of merchandising businesses include grocery stores, convenience stores, distributors, and so on.
Businesses that have been a traditional brick and mortar businesses are adapting to selling online in order to remain relevant or to grow their business faster.
Manufacturing businesses buy products to use as materials to manufacture a new product. These businesses deal with the transformation of purchased products. Raw material, labour, and factory overheads are combined by a manufacturing business to produce a new product. Goods manufactured in this way are then sold to customers.
The fourth type of business exists, which is known as a Hybrid Business. Hybrid Businesses refer to businesses that can be classified into more than a single type of business. However, when push comes to shove, hybrid businesses are classified into one of the three types of businesses based on their main business interest.
Number of Businesses in the UK
As per data released by the UK Parliament, there were 5.7 million private sector businesses in the UK in 2018. In 2017, there were 27,000 more private sector businesses than there were in 2018. The data shows that the UK has experienced its first year on year fall when it comes to the number of businesses since they began recording the current series of data in 2000. Some of these businesses had unique and innovative start-up ideas that left us in awe.
2018 had more than 2.2 million more businesses than in the year 2000, which is 63 percent more of businesses. When you look at the data, you will notice that the proportion of businesses with employees has fallen from close to a third in 2000 to around a quarter. The rise of self-employment has led to a decline in the proportion of employers to employees.
Start-up 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 start-up business advice of an accountant. Before starting out, having an expert on board will help to cover all bases of the target market, venture capital, and dealing with financial conduct authority.
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.
Other factors to consider when starting a business in the UK
You must decide on the location for starting your own business as it plays a vital role in overall success. Location with the best resources and maximum target audience will help you reach your maximum potential quickly. However, there would be few other things to consider if you are starting up your own business in the UK.
Where will your business be running from?
There would be few things to consider if you are deliberating on how to start your own business in the UK. Whether you decide to start a business from home or office space, it is important to comply with certain rules and regulations. Being in touch with a good London Accountant 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. These allowances include internet, lighting, and phone line. This can save you some money and will become part of your tax return.
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. These can be the smallest details, like making sure the working environment is comfortable, providing clean toilets, and access to drinking water.
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. A business owner needs to be very clear from day one about where the business will get its funds.
You might have savings or pursuing bank loans, or there might be angel investors who want to help you with the finances. Nonetheless, a business will need a decent amount of cash flow to have a strong foundation.
Will you be hiring staff?
Hiring staff has implications in relation to health and safety considerations along with other crucial factors. However, you will also have other requirements placed on you, whether your hiring agency workers, freelancers or full-time employees.
In addition to understanding these areas, you’ll be required to check that anyone you employ is legally entitled to work in the UK. Make sure to 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. In addition, there would be some compliance requirements to process payroll, if for the first time. Having a professional start-up accountant in London will help you avoid payroll penalties and will save time and money.
Once the staff is hired, retaining them is also important for the growth of a new business. EMI schemes can be an amazing incentive you can offer employees to keep them interested and to reduce employee turnover.
How will you Insure your business?
No matter what the size of your business is, there may be certain unexpected difficulties that you 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.
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.
Alternatively, speak to an insurance broker; they will be your middleman. The insurance broker should be able to guide you through the dos and don’ts of insurance planning.
Opening a Business Bank Account
If you are intended to register your business, it is very important to keep your personal and business finances separate. 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. Learning about the best business bank accounts can help you to open the most suitable 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 need space to run your business.
Budgeting is an important aspect of running a business. We always recommend speaking to a startup Accountant to help you with the business plan. It is important to contact local accountants to achieve better results.
For instance, if you have chosen London as the prime location for your business, you must contact a recognised London based Accountant. The local accountants are technically capable and strategically located to help you prepare a better business plan.
It is better to have a detailed budget plan to avoid any surprises in the future. Moreover, it is also best to be well prepared to attract investors or other stakeholders on board when required. Investors generally want to see a business that can survive their cashburn. Learning about the cash flow forecast will help you manage your cash burn in order to have sufficient funds to survive the initial few months.
General Costs to be Considered
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 social media advertising cost
- Customer services
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 required capital. Moreover, 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 a 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 set up a business in the UK successfully. You’ll also need to consider where your major strengths and 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. 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. The worst mistake is not to hire one if you do not know how to start-up a business and manage it later on. An expert can guide you through tough times and difficult decisions of the initial stages of a start-up business.
It would be highly advisable to hire an expert accounting firm if you have the funds. Small businesses have several reasons for needing an expert accountant to start on correct foundations while saving money and time.
To hire an accountant, you first have to know about the need and structure of your business. There are various job roles of a professional accountant and expertise in the different fields to help you out precisely. By understanding the structure and the need of your business, you would be able to identify when to hire an accountant and why.
Why do new businesses fail?
Since around 30% of new businesses fail during their first two 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 the lack of marketing advice on compatible approaches and leadership failure.
To prevent this, make sure you conduct in-depth research before starting so that you understand the market area you are getting into. Write a business plan and make sure your financing has wiggle room. A decent marketing strategy is a must for a successful business plan.
However, a decent marketing and ideal business model is not the only answer for a successful business start-up. The most important thing is to be prepared for the worst-case scenario as starting a business in the UK can be a risk. Therefore, a business continuity plan is a must before you start your own business in the UK.
Accountants have access to a strong network of capable professionals that you can use to build a strong business foundation. Finding a good accountant could be the perfect way to begin your planning phase for starting a company.
The Importance of a Business Exit Strategy
It may seem unnecessary to think of an exit strategy when starting a small business in the UK. However, having a business exit strategy in place is a crucial component of any business plan to help ensure long-term growth. This will enable a better objective setting, better conversations with investors and better planning to maximise the tax efficiency when selling your business rather than ending it on loss.
What’s the Quickest Way to Start Strong? – Use a Lean start-up Business Model
The lean start-up business model is all about finding new ideas in the quickest and most efficient way. Furthermore, it refers to bringing that service or product to market using techniques that get rid of redundant processes.
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 procedure is also known as the development of a Minimum Viable Product (MVP).
It is all about learning from these failures and giving your start-up a chance to refine processes to develop the start-up as quickly as possible.
Five tips before starting a business
If you’re keen on starting a business, have a look at these tips based on previous and further information.
Figure out which business works right for you
There are tonnes of opportunities for successful businesses in the world. The thing that you should concern yourself with is finding a need which you can fulfil; something that you want to do. The next step would be to figure out the financial aspects of your business for it to be profitable. Hiring a good Business Accountant from the start can set a strong foundation for your business.
Make sure there are demand and the market for your product
Never assume that people will want to buy your product or service before doing your research. Research and ask people who are not your family or friends about their eagerness to buy the product you want to sell. It is important to have as many opinions with several potential buyers also to have a clear vision. A good Accountant in London will be able to help you design a great business plan and also carry out a pricing strategy.
Plan for success
You don’t need to figure out all the details of your project; however, you do need to set an end-goal. In addition to an end-goal, you also need to figure out what you’ll need to achieve to get there.
Think of the things that you’ll need to accomplish as mini-goals; your plan can change as time flows. However, you need a plan so that you can stay focused and head in the right direction.
Procrastination is the enemy
Many people will advise you not to move ahead with your plans until you’re sure about every little detail about the business they’d like to start. The problem with this approach is that it results in procrastination.
There will never be a perfect time or situation for you to start your business. The best time was yesterday, or the next best time for a new start-up is now. The benefits of being self-employed cannot be enjoyed until tomorrow. You have to face the pain points as a self-employed today so that you can relax tomorrow.
Don’t go down with your mistakes
Mistakes are all a part of being human, and you will make mistakes. No one has built a lucrative business without making massive mistakes. Do not dwell on failures but learn from these mistakes to further implement the changes. Don’t let your failures demoralise you as every great self-employed business person has got there by making a tonne of mistakes.
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, some careful planning, and consideration, we’re sure you can make your business a success!
Clear House Accountants are specialist start-up Accountants in London. We have built processes and systems for start-ups 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 that 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. Moreover, when you expect to pursue an aggressive growth plan, 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?