Before you start selling your first products, you’ll want to consider how you need to register your new business. There are a variety of business structures to choose from when you start a business, each with its own advantages and disadvantages.
Whether you register as a sole trader, partnership or limited company (Ltd.), they all have their own obligations when it comes to when and how to register your business.
Business registry can be a confusing process, so to help ease that confusion, we’ve looked at the different types of businesses and how you register them.
How do I register a new business and which business structure is right for me?
If you’re running a low-risk small business from home, you’ll likely be registering as a sole trader or a partnership with HMRC.
Sole traders run their business as an individual and are self-employed. To register as a sole trader, you’ll need to tell HMRC that you pay tax through a Self-Assessment.
You can keep all your business’ profits after you’ve paid tax and National Insurance, but you’ll have to manage your own taxes every year and submit a VAT return if your turnover exceeds £85,000.
As a sole trader, you’ll need to keep records of your sales and expenses and submit a Self-Assessment tax return every year. HMRC offers a calculator to help you budget for your tax payments as a sole trader.
If you're ready to get started, download our free guide to setting up as a sole trader.
In a partnership, you register with HMRC, however, you are also required to choose a nominated partner for the business.
The nominated partner is responsible for managing the partnership's tax returns and business records. The partners of a business split the profits between themselves and are responsible for paying their own tax on their share.
A partnership could ease some of the burden through each partner having their own skillset - creating a well-balanced team – or through providing a larger amount of financial support, which is sometimes known as a sleeping partner.
Registering your business as a Limited Company can seem complex but it doesn’t have to be. If you register a limited company, your business is a separate legal entity, and your personal and business assets are also separate. Because of that separation, you must register your business with Companies House alongside registering with HMRC.
The additional information you will need to register as a limited company includes:
- Your company name
- Registered office
- At least one named director of your business
- Details of shares, and at least one shareholder
- Your Standard Industrial Classification (SIC) code, which determines the nature of your business (details can be found on Companies House website).
All shareholders – even if there is just one – need to agree and sign a memorandum and articles of association, which states your agreement to run a business and sets out rules for how the company is run. The final step is to register for corporation tax within three months of starting to do business.
If you are also a shareholder in your company, you can choose to pay yourself a smaller salary but pay dividends from company profit. As dividends are taxed differently to salary, you may pay less tax overall.
The second major benefit can be taken from the name: limited company. Broadly speaking, if any significant debt is incurred, or large claims made against your company, your personal assets are safe.
Get started on your business journey
Visit our start up hub for free resources covering business law basics, finance fundamentals and how to secure your first sale.
FSB members have access to an online library of over 1,200 legal documents, factsheets and templates via the FSB Legal Hub, as well as a 24/7 legal advice line. Tax queries can be directed to the FSB tax and VAT advice line which operates during office hours.