Starting a business in the UK is straightforward — you can register as a sole trader for free or incorporate a limited company for £12. Here’s how to go from idea to trading.
Business Structures
| Structure | Setup Cost | Personal Liability | Tax Efficiency | Best For |
|---|---|---|---|---|
| Sole trader | Free | Unlimited | Lower (under £30K) | Freelancers, small services |
| Partnership | Free | Unlimited (shared) | Same as sole trader | Two+ owners, simple setup |
| Limited company (Ltd) | £12–£50 | Limited to investment | Higher (above £30K) | Growing businesses |
| LLP | £12–£50 | Limited | Flexible | Professional services |
Step-by-Step: Sole Trader
| Step | Action | Timeline |
|---|---|---|
| 1 | Choose a business name | Day 1 |
| 2 | Register with HMRC for Self Assessment | Day 1 (free, online) |
| 3 | Open a business bank account | Week 1 |
| 4 | Set up record-keeping (income + expenses) | Week 1 |
| 5 | Register for VAT if revenue exceeds £90,000 | When applicable |
| 6 | File Self Assessment tax return by 31 January | Annually |
Step-by-Step: Limited Company
| Step | Action | Timeline |
|---|---|---|
| 1 | Choose a company name (check availability) | Day 1 |
| 2 | Register with Companies House (£12 online) | Day 1 (incorporated in 24 hours) |
| 3 | Register for Corporation Tax with HMRC | Within 3 months |
| 4 | Set up PAYE if paying yourself a salary | Before first payroll |
| 5 | Open a business bank account | Week 1 |
| 6 | Get business insurance | Week 1 |
| 7 | Set up accounting software | Week 1 |
Tax Comparison: Sole Trader vs Ltd
| Annual Profit | Sole Trader Tax | Ltd Company Tax | Annual Saving |
|---|---|---|---|
| £20,000 | £1,486 | £1,700 | -£214 (sole trader wins) |
| £30,000 | £3,486 | £3,150 | £336 |
| £40,000 | £5,486 | £4,600 | £886 |
| £50,000 | £7,486 | £5,800 | £1,686 |
| £75,000 | £13,736 | £9,500 | £4,236 |
Ltd assumes salary at NI threshold + dividends. Actual savings depend on personal circumstances.
Funding Options
| Source | Amount | Details |
|---|---|---|
| Start Up Loans | £500–£25,000 | Government-backed, 6% fixed rate |
| Small business grants | Varies | Check local council + Innovate UK |
| Business credit cards | £1,000–£15,000 | 0% intro periods available |
| Angel investors | £10,000–£500,000 | Equity-based, SEIS/EIS tax relief for investors |
| Bank loans | £1,000–£250,000 | Traditional lending, need business plan |
Bottom Line
For most first-time entrepreneurs in the UK, start as a sole trader (free, simple) and switch to a limited company when profits regularly exceed £30,000. Register for Self Assessment immediately, keep personal and business money separate, and set aside 25–30% of profit for tax from day one.
See our self-employed tax guide UK for detailed tax advice or small business grants for funding options.
Sources
- Office for National Statistics. “UK Statistical Data and Analysis.” ons.gov.uk
- HM Revenue & Customs. “UK Tax Information and Guidance.” gov.uk/government/organisations/hm-revenue-customs
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