How to start a business in the UK

The administrative part of starting a UK business takes about a week and costs very little. Most guides spend all their time here, which gives a misleading impression of where the difficulty lies.

Do the administration properly, then spend your attention on the part that actually decides the outcome.

Before the paperwork: one question

Who has already paid you, or told you they would?

The most reliable predictor of a new business surviving is whether anybody wanted it before it existed. Not a survey response, not encouragement from friends, not a waiting list of people who said it sounded interesting. Somebody who has paid, or who has committed to pay.

If you can name three, you are starting from a genuinely different position from somebody who cannot. If you cannot, the most useful thing you can do is find one before registering anything.

That figure is not a reason not to start. It is a reason to be clear-eyed about what the first years involve, and most of what sits behind it is cash running out before the business reached the point of paying for itself.

Step one: choose a structure

Three common options.

Sole trader. You and the business are the same legal person. Simple, cheap, private: no accounts on the public record. You are personally liable for the business's debts, which is the significant trade-off. You register for Self Assessment with HMRC and pay Income Tax and National Insurance on your profits.

Limited company. A separate legal person that owns its own assets and owes its own debts. Your liability is generally limited to what you have put in, subject to important exceptions including personal guarantees, which lenders and landlords routinely require from new companies. You register with Companies House, and the company's accounts, directors and persons with significant control become public.

Partnership. Two or more people trading together. An ordinary partnership carries joint liability, so you are exposed to your partner's decisions. A limited liability partnership sits between the two. If you are going into business with somebody, the partnership or shareholders agreement matters far more than the structure, and it should be written while you all still agree about everything.

Step two: register

If you are a sole trader: register for Self Assessment with HMRC. Do it in good time, because the registration deadline falls after the tax year in which you started trading and missing it has consequences.

If you are forming a company: register with Companies House. Online formation is inexpensive and usually same day. You will need a company name that is available and not too similar to an existing one, a registered office address that is a real address where post is received, at least one director, details of the shareholders and of anyone with significant control, and a SIC code describing what you do.

Two points worth care.

Your registered office is public. So is your service address as a director. Many people use their home, and then discover it is on a public register that is indexed by search engines. A registered office service costs little and solves it.

Check the name properly. Companies House will refuse names too similar to existing ones. Separately, check the trade mark register and check that the domain is available, because a company name is not a trade mark and registering one gives you no rights over the other.

Step three: tax registrations

Corporation Tax. A new company must tell HMRC when it starts trading. The accounting periods, the filing deadline and the payment deadline are all different dates, and they catch people out in the first year.

PAYE. If you will employ anybody, including yourself as a director taking a salary, you need a PAYE scheme before the first payment.

VAT. Registration is compulsory once your VAT taxable turnover for the previous twelve months exceeds the threshold, or when you expect it to be exceeded in the next thirty days alone. The threshold is set by HMRC and changes, so check the current figure rather than a number from an article.

Voluntary registration below the threshold can be worth it if your customers are VAT registered businesses, because you recover input VAT and your customers do not care about the VAT on your invoices. It is usually a poor idea if you sell to consumers, because you either absorb it or raise your prices.

Making Tax Digital. Digital record keeping and submission obligations now apply to VAT and are being extended to Income Tax Self Assessment on a phased basis by income level. Check where you fall, because it affects what software you need.

Step four: a bank account, and keeping the money separate

A limited company must have its own bank account, because the company's money is not yours. A sole trader is not legally required to, and should anyway: separating business and personal transactions from day one saves considerable time and accountancy fees later.

Step five: insurance

Employers' liability insurance is a legal requirement as soon as you employ anybody, with limited exceptions, and the penalties for not holding it are significant.

Public liability is not generally compulsory but is expected by most commercial customers and many landlords.

Professional indemnity is required by several regulators and professional bodies, and is commonly a contractual requirement for consultancy and professional services work.

Check what your sector requires before you quote for work, not after you win it.

Step six: the things that are easy now and expensive later

• Register the trade mark if the name matters to you. Doing it at the start is cheap; discovering in year three that somebody else has it is not.
• Own your domain and your accounts yourself. Not your web developer's personal account. This causes real problems when businesses are sold, and it is trivially avoided.
• Keep records from transaction one. Accounting software costs a modest monthly sum and prevents an expensive reconstruction exercise.
• Write down what you agree with anybody you go into business with. Before there is anything to argue about.
• Set up terms of business. Payment terms, what happens when somebody pays late, what is in scope. A new business that has not thought about payment terms discovers the problem when cash is already tight.

And then the actual work

The administration above is about a week of effort. Here is what the five-year survival figure is really measuring.

Cash flow, not profit. Most failed small businesses were profitable on paper at some point. They ran out of money because customers paid in ninety days and suppliers wanted thirty. Model the cash cycle, not the profit and loss, and know your lowest point before you get there.

Customer acquisition cost. How much does it cost, in money and in your time, to win one customer, and what is that customer worth? A business where that arithmetic does not work does not become viable through effort.

Pricing. New businesses price too low, almost universally, because it feels like the safest way to win the first customers. It is the hardest thing to correct afterwards, and the customers won on price are the ones who leave on price.

Concentration. The first big customer is a relief and a risk. Businesses that reach one large client and stop selling are fragile in a way that is invisible until the client leaves.

The alternative worth knowing about

There were 5.7 million private sector businesses in the UK at the start of 2025. A substantial number of their owners are approaching retirement, and many of those businesses will be sold or will simply close.

Buying one that already trades means starting with customers, revenue, staff and a track record rather than with none of those. It costs more up front and it is a different set of risks rather than an easier one. We have set out the honest comparison in start a business or buy one, including the cases where starting is clearly the better answer.