How to Set Up a Business in the UK

In the UK, setting up a business is the stage of choosing a legal structure, registering it correctly with Companies House and HMRC and then submitting your first filings. A fair bit of planning precedes this. If you are still working out what you want to sell and to which paying customers, see our companion guide on starting a business in the UK. It covers thinking up an idea, doing the research and finding the money to get started.

Choosing the Legal Structure

There are three main routes open to founders: registering as a sole trader, as a partnership (including a limited liability partnership) or as a limited company. Founders will need to consider:

• how much paperwork they want to take on
• the most cost-effective way to pay taxes on their profits
• how much personal liability they are willing to bear if things go wrong.

Setting up as a sole trader keeps accounting simple but puts your personal assets at risk if the business runs into debt. A limited company keeps the business legally separate from its owner, though at the cost of more reporting and more formal governance. Our guide to the advantages and disadvantages of a limited company sets these out in full.

A small business with a relatively small initial expected turnover might decide on the sole trader option. It offers a low administrative burden, but involves carrying a higher level of personal risk.

At the start, you choose between setting up as a sole trader and forming a limited company. You can still switch from one to the other later if this makes sense.

Setting Up as a Sole Trader

Setting up as a sole trader is the simplest route into self-employment. You register with HMRC to file a Self Assessment return, and pay Income Tax and National Insurance on your profits. There is no separate company to form.

You can start trading straight away, but need to register for Self Assessment if you earn more than £1,000 in a tax year. You have until 5 October to do this, after the end of that tax year.

There is no incorporation fee, and there will be no accounts to file at Companies House. As a sole trader, your finances are reported through Self Assessment rather than company accounts.

As a sole trader, you also need to use Making Tax Digital (MTD) for your Income Tax once you hit a certain qualifying income. This threshold has been £50,000 since 6 April 2026 (for income earned in the earlier 2024-25 tax year). It will fall to £30,000 from April 2027 (for income earned in the 2025-26 tax year). It drops further to £20,000 on 6 April 2028 (for income earned in the 2026-27 tax year). A newly established sole trader is therefore not caught straight away.

This means a growing number of sole traders will have to keep their accounting records digitally in MTD-compatible software. Anyone over this threshold will also need to file quarterly updates about their income and expenses. They then complete and submit their tax return through their software by 31 January after the end of the tax year.

Setting Up a Partnership or LLP

Partnerships are simple to set up. An ordinary business partnership shares profits between two or more people. They also share liability in that their personal assets are exposed to the partnership’s debts.

Every partner is liable jointly with the others for all the firm’s debts. A creditor can pursue one partner for more than their share of debts: they can even pursue one partner for all the partnership’s debts. (In Scotland, the liability is several as well as joint.)

A nominated partner manages the partnership’s tax returns. A partnership is set up when the partners choose a nominated partner, and register the partnership with HMRC. The partnership has no separate legal existence from the partners, and each partner registers individually for Self Assessment. Each year the partners file a partnership return showing how the profits were split. (The position is different in Scotland, where partnerships are a separate legal person distinct from the partners.)

Limited Liability Partnerships (LLPs)

A limited liability partnership (LLP) is a different legal entity from the partners. It is registered with Companies House, and limits each member’s liability to what they have invested, much like a limited company does for each of its shareholders.

Setting up an LLP requires at least two designated members, a registered address and an LLP agreement. You also need a registered email address, and every member of an LLP must verify their identity with Companies House.

An LLP structure is well suited to professional partnerships, like firms of solicitors or accountants. A small trading business might find the extra filing obligations that come with the separate legal personality too much paperwork for the amount of benefit it brings.

Setting Up a Limited Company

You form a limited company by registering with Companies House. In this step you will confirm the company name. The name normally needs to end in “Limited” or “Ltd”, and cannot be the same as an existing company or it will be rejected. (If it is too similar to one, you may have to change it if someone complains.) A company name cannot contain sensitive or restricted words (like “bank” and “royal”) without prior approval, and offensive names will be rejected.

You will need to appoint at least one director. Directors need to be at least 16, but there is no upper age limit and no UK residency requirement. At least one director needs to be a natural person (meaning not another company).

You need to record the people with significant control over the business. You need to issue shares, and each subscriber must take at least one share. There is no minimum amount of share capital: you can incorporate a private limited company with a share capital of £1.

A limited company exists as its own legal person from the moment it is registered, which is what gives its owners liability protection.

Our guide on how to set up a UK limited company covers each of these steps in practical detail. GOV.UK’s guide to limited company formation sets out the minimum requirements for each step.

What You Will Need to Set Up a Limited Company and How Long It Takes

The standard online registration service takes 24 hours or less, and there is also a faster same-day option on offer (though only through software filing). You can also apply by post, which takes eight to ten days.

You will need the right information to hand. This includes the proposed company name, a registered email address and a registered office address that counts as an “appropriate address”. You cannot use post office boxes, and the physical registered address needs to be in the same part of the UK where the company is registered. A company registered in Scotland needs a registered address in Scotland.

You will need between one and four Standard Industrial Classification (SIC) codes identifying your company’s primary economic activity and industry. They help the Office for National Statistics keep track of economic activity.

You will also need the articles of association, details of directors and their personal codes, the company’s shareholders and guarantors and people with significant control. (People with significant control, or PSCs, own more than 25 per cent of a company’s shares or voting rights. Alternatively, they can appoint or remove the majority of the board, or have “significant influence or control” over the company.)

Our guide to information required to set up a company goes into more detail about what information to have ready.

Companies House Personal Codes

When a new company is registered, the filing must include each director’s Companies House personal code. This is a unique 11-character identifier issued after you verify your identity for UK company roles. A PSC, though, can give their code when first added to the register or within 14 days. 

Identity verification became a legal requirement in the Companies House registration process on 18 November 2025 for directors and PSCs. (Please see our identity verification guide for more.)

Current Companies House Fees

Currently, for limited companies, standard online incorporation costs £100, paper incorporation costs £124 and the same-day service costs £156. Annual confirmation statements afterwards cost £50 if you file them online, or £110 if you do this by hard copy.

LLPs cannot use the GOV.UK online service, but can register the same day with commercial filing software for £156 if they apply before 3 pm. (You can also pay a cheaper £100 using the software and forgo the same-day registration, or £124 and register on paper only.)

Fees change from time to time, so it is worth checking GOV.UK’s current fee schedule. Sole traders and ordinary partnerships do not have to pay anything to Companies House, because neither registers there.

Tax Registrations After Setting Up a Business

A company set up online with Companies House is generally registered for Corporation Tax at the same time.

If you register a company using third-party software, by post or with an agent, you will need to add Corporation Tax services to your business tax account.

You need to do this when you start doing business, which includes buying and selling, employing people, renting a property or advertising.

This is when your first accounting period begins. You need to notify HMRC no later than three months after this, for Corporation Tax.

You also need to register for VAT once your taxable turnover for the preceding 12 months exceeds £90,000 for the first time. You then have 30 days from the end of that month to register. If you expect your taxable turnover to go over £90,000 in the next 30 days, you must register by the end of that 30-day period. You can also choose to register sooner if it suits your business.

Registering as an Employer

Once you take on staff, you also have the obligation of registering as an employer with HMRC. You should do this before the first payday, but no earlier than two months before you start paying employees.

A company also needs to register even if it only pays its sole director – an important point for people setting up one-person companies.

As an employer, you will now need to understand PAYE. It is the pay-as-you-earn system through which Income Tax and National Insurance are deducted from employees’ pay before it reaches them.

You pay these deductions, and any employer National Insurance contributions, to HMRC by the 22nd day of the following month. You also need to use compliant payroll software to report pay and deductions to HMRC on or before every payday.

Each of these registrations runs on its own deadline from the date you begin trading or employing new staff, and not from the date you incorporate. A VAT deadline runs from when taxable turnover goes over the threshold, or you realise it will do so in the next 30 days.

Employers’ Liability Insurance and Workplace Pensions

Once you employ people, you will also need to get employers’ liability insurance, with a minimum £5 million cover. Sole traders with no employees do not need this. A limited company will generally be exempt if its only employee is a director owning at least half the shares.

Finally, automatic enrolment duties start on the day the first employee goes to work. You need to put certain staff into a workplace pension, and pay into it. You also need to complete an online declaration of compliance with the Pensions Regulator.

Business Banking

A separate business bank account is a legal requirement for a limited company, as its money is legally distinct from the owner’s. It is strongly advisable for a sole trader too, if only to keep records straightforward and to make Self Assessment easier when the time comes.

Banks at this stage ask for proof of identity, proof of address and confirmation of the business’s registration. That could be a Companies House certificate or an HMRC Self Assessment registration.

Annual Filings

After the first year, limited companies file a confirmation statement and its fee, annual accounts and a Company Tax Return. Sole traders and partners file a Self Assessment return. Our summary of the annual filing requirements for a company sets out what is due each year after set-up.

For a new limited company, the first accounts are due within 21 months of the date of incorporation. This applies if they cover more than twelve months. That is often the case if they run from incorporation to the first Accounting Reference Date assigned by Companies House. The first Company Tax Return is due twelve months after the end of the Corporation Tax accounting period.

The Corporation Tax payment is due nine months and a day after the end of the Corporation Tax accounting period. The first confirmation statement is due twelve months and two weeks after the incorporation date.

For sole traders and partners, the Self Assessment return follows the standard UK tax year (6 April to 5 April). It applies to the first year when you start trading. You have to pay the balancing tax due by 31 January following the end of the tax year.

Common Mistakes When Setting Up a Business

Registering under the wrong structure is a common early error for founders who have not thought through what structure offers the best fit, or their future plans.

Before you register, weigh up your personal risk tolerance. (A sole trader faces unlimited personal liability, but a company offers limited liability.) You should also think about your expected profits and tax position. (A sole trader’s profits are taxed as personal income, and paying personal income tax on your profits can lead to a higher overall tax bill than Corporation Tax and dividends.) Decide whether you need to raise outside investment. (It can be harder to raise outside investment without shares to sell). You should also think about how much paperwork you are willing to handle, and your growth plans over the next few years.

Leaving identity verification until the last minute is another common error. If new company directors are not prepared to verify their identity and supply their Companies House personal code, an incorporation filing will be rejected or delayed.

Mixing Finances and Missing Deadlines

Mixing personal and business banking not only makes bookkeeping harder, but also blurs the separation a limited company depends on and undermines the liability protection it is meant to provide. Money taken from the company can be treated as a director’s loan. If it is not repaid within nine months and a day of the year-end, a section 455 charge applies. For loans made on or after 6 April 2026, this Corporation Tax charge is 35.75 per cent. (This is under the Corporation Tax Act 2010.) Banks can close or freeze a personal account used for business activity, and an HMRC enquiry can lead to expensive accountant fees.

There are penalties for missing deadlines to submit Corporation Tax returns or register for VAT. If you file your Company Tax Return late (after 1 April 2026), this attracts an immediate £200 penalty, with another £200 after three months. Then 10 per cent of unpaid tax follows at six months and a further 10 per cent at twelve months. With late VAT registration, you still owe VAT from the date you should have registered, plus interest. There is also a failure-to-notify penalty of up to 30 per cent of that potential lost revenue for non-deliberate cases.

Our company formation packages can handle the registration itself for you, and we have a fuller range of other support available through our UK company formation services.

Licences, Insurance and Other Obligations

Other things you may need to address in setting up a business include the following:

Data protection fee	This is an annual fee to the Information Commissioner’s Office (ICO) for organisations that handle personal data, unless they are exempt. For most small businesses (with turnover up to £632,000 or no more than ten staff), it is £52, with a £5 direct debit discount. Resources: The ICO’s self-assessment tool.
Trading name rules	A sole trader or partnership may trade under a name that is not just the owner’s surname (with or without forenames and initials). It then needs to show the owner’s full name and contact address on letters, invoices, receipts and the website. The address must be one where the owner can be contacted and served legal documents. Resources: the Trade Mark Register, to make sure you are not planning to trade under someone else’s registered trade mark.
Licences and permits	Some activities need permission, ranging from selling alcohol to offering financial services. Resources: the GOV.UK Licence Finder includes 451 licences (and notes it may not include all the licences you might need).
Food business registration	Anyone involved in food, even in a home kitchen, needs to register with the local authority. Resources: your local council, at least 28 days before you begin trading.
Business rates	A property tax on non-domestic premises, including shops, offices and warehouses. You normally do not pay business rates if you use a small part of your home (a bedroom as an office) or sell goods by post. You may have to pay both business rates and Council Tax if: customers visit you employ people to work there you live above a shop (the property is part business and part home) you have altered your home for the business. In England, small business rate relief means you pay no rates on your only property if its rateable value is £12,000 or less, tapering to nothing at £15,000. Scotland, Wales and Northern Ireland run their own schemes. Resources: your local council.
Professional indemnity insurance	This covers claims from clients for loss from negligent advice or services. It is not a legal requirement, but many professional bodies and regulators require it, including for solicitors, financial advisers, accountants, architects and some healthcare professionals. Resources: an insurer or broker.
Public liability insurance	This covers injury to customers and other members of the public, or damage to their property. It is not a legal requirement, but some landlords, clients and event venues will ask for it. Resources: an insurer or broker.

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