
A version of this article was first published here in August 2022.
Before you start selling your first products or signing new clients, you’ll need to know how to register your business. There are a few different business structures to choose from when you start a business.
Which business structure is right for me?
Whether you register as a sole trader, partnership or limited company, 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, our experts from FSB Legal and Business Hub explain what you need to know.
When do I need to register my business with HMRC?
If you’re starting a business, knowing when to register with HMRC is crucial. Sole traders must register as soon as they earn more than £1,000 from self-employment in a tax year (this is because of the trading income allowance, a tax exemption which lets small business owners earn up to £1,000 a tax year before they have to register their business). Partnerships and limited companies need to register before commencing operations. Early registration ensures compliance with tax obligations, avoids penalties, and gives you access to essential tools like Self Assessment or Corporation Tax filing. Even if your income is below the threshold, keeping accurate records and registering voluntarily can help establish your business for future growth.
Legal recognition is another critical aspect of registration. It not only establishes your business as a legitimate entity but also ensures compliance with tax obligations. Post-Brexit, the processes for registering businesses in the UK remain unchanged, offering continuity and reassurance to entrepreneurs. For businesses involved in import/export, obtaining an EORI number is vital for smooth operations.
How to register your business
Here are three common business structures and important things to think about.
Sole trader
If you’re running a low-risk small business from home, you’ll likely be registering as a sole trader with HMRC. Sole traders run their businesses 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’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. It’s also a good idea to open a business bank account to make managing your finances simpler.
You can keep all your business’ profits after you’ve paid all the relevant taxes and National Insurance, but you’ll have to manage your own taxes every year. New Making Tax Digital rules are already in force for VAT-registered businesses, and from April 2026 this will also apply to self-employed people with a turnover above £10,000.
We’ve created an in-depth guide to setting up as a sole trader which covers all the important information you need to know when you’re new to the world of working for yourself.
The table below highlights the pros and cons of sole traders:
Pros | Cons |
---|---|
Simplicity: Registering as a sole trader is straightforward. Inform HMRC and enrol for Self Assessment to report profits and pay tax. |
Unlimited Liability: Sole traders are not a separate legal entity, meaning personal assets are at risk if the business incurs debts. |
Full Control: As a sole trader, you make all business decisions independently. |
Taxation: Sole traders pay tax on all profits as personal income, potentially resulting in higher tax liabilities compared to limited companies. |
Lower Administrative Burden: Annual requirements like submitting a tax return are less complex than company filings. |
Perception: Some clients or partners may view sole traders as less established or secure. |
Flexibility: Ideal for just one person managing a business with minimal overheads. |
Partnership
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.
Find out more about setting up a partnership.
The table below highlights the pros and cons of partnerships:
Pros | Cons |
---|---|
Shared Responsibility: Partners share business decisions, workload, and risks, making operations easier to manage collaboratively. |
Unlimited Liability: Traditional partnerships are not separate legal entities, leaving personal assets at risk for business debts. |
Combined Resources: Allows pooling of personal finances, skills, and networks, enhancing business capabilities. |
Profit Sharing: Profits must be divided among partners, even if contributions of time or resources are unequal. |
Simpler Taxation: Profits are taxed as personal income, avoiding Corporation Tax and simplifying the tax process. |
Potential Conflicts: Disputes over management, finances, or roles can disrupt the partnership and harm the business. |
Ease of Formation: Setting up a partnership is straightforward, with fewer registration requirements than a limited company. |
Continuity Risks: If a partner leaves or passes away, the partnership may need to be dissolved or restructured. |
Diverse Expertise: Partners bring unique skills and perspectives, fostering innovation and problem-solving. |
Shared Accountability: Each partner is legally responsible for the actions and decisions of others, increasing personal risk. |
Limited company
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 need to be registered with Companies House in addition to HMRC.
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. Another 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.
To set up your limited company, you’ll need to consider the following:
Your company name
Companies House has a company name availability checker that you can use when thinking about what name to register with. Don’t forget, you can use a different name than the one you use at registration. This is known as a trading name.
Registered address
Remember that your company address will be publicly available. If you want to keep your home address private, you might consider using the address of your accountant, for example.
Your Standard Industrial Classification (SIC) code
Your SIC code determines the nature of your business activity and a description of your trade. You can find a list of SIC codes on Companies House.
Appoint a named director
Your company will need at least one named director. They will be legally responsible for the business, for example organising company accounts.
Details of shares
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.
Register for Corporation Tax
You must do this within three months of starting to do business.
The below table highlights the pros and cons of limited companies:
Pros | Cons |
---|---|
Liability Protection: As a separate legal entity, limited companies protect personal finances by limiting liability to the company’s assets. |
Administrative Complexity: Forming and running a limited company involves legal documents, annual returns, and detailed record-keeping. |
Tax Efficiency: Corporation Tax is often lower than personal income tax rates, making this structure tax-efficient for higher profits. |
Costs: Formation fees, potential use of a company formation agent, and accountancy fees can increase operational costs. |
Professional Perception: Limited companies are often perceived as more credible and stable, attracting clients and investors. |
Disclosure: Limited companies must publicly disclose financial information and company directors’ personal details. |
Ownership Flexibility: Shares can be issued, making it easier to bring in investors or partners. |
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Registration options: Online vs. Postal
The company registration process offers two primary methods - online and postal. Each comes with unique benefits and limitations.
Online registration
- Cost: Lower fees (typically £12).
- Processing Times: Registration is usually completed within 24 hours.
- Convenience: User-friendly portals simplify the process, often with additional services such as digital copies of legal documents.
- Ideal For: Most businesses, especially those with straightforward structures.
Postal registration
- Cost: Higher fees (around £40).
- Processing Times: Takes up to 10 days for approval.
- Complex Cases: Suitable for businesses with unique requirements, such as extensive share allocations or complex structures.
- Considerations: Offers an alternative for those without reliable internet access or specific needs that cannot be accommodated online.
Additional registration requirements
Once the initial registration is complete, there are additional steps to consider based on your business structure and activity:
- VAT Registration: Mandatory for businesses exceeding £85,000 turnover in a tax year; optional for smaller businesses.
- PAYE: Register as an employer to manage National Insurance and income tax for employees.
- ICO Registration: Required for businesses processing personal data.
- Licensing: Check with your local authority for any necessary licenses, especially if you sell food or operate in a regulated industry.
- Trade Marks: Protect your business name and brand to prevent misuse by competitors.
VAT considerations for all business structures
Whatever your business structure, if your business’s total turnover (subject to UK VAT at zero, reduced or standard rate) exceeds £85,000 in any rolling 12-month period (or in the next 30-days alone) you will need to register for VAT and submit a VAT returns. Some businesses benefit financially from being VAT registered and therefore choose to voluntarily register in advance of hitting the VAT threshold.
Making Tax Digital rules apply to VAT-registered businesses and impact how records are kept, figures prepared and returns submitted for VAT.
Choosing your name
You must try to choose a unique name. If you are not careful and tread on a pre-existing business’ toes, you could have legal claims bought against you both for money and to force you to change your name. Whilst there are various businesses in the UK with the same name (for example The Red Lion, A Cut Above, etc.) this is generally best avoided.
You need to do as much research as you possibly can into your name before proceeding with it. This includes but is not limited to extensive Google searches, Companies House searches (this can be done online), and Intellectual Property Office searches (again online).
Business names are protected by the law of passing off. This allows another business with the same or a similar name to bring legal action against you if what you are doing is causing or is likely to cause confusion.
Business logos are protected by the law of copyright. If your logo is the same or similar to somebody else’s you could be sued for copyright infringement.
You could consider obtaining a Trade Mark. It’s generally rare for a new start-up to do so, as it can be time-consuming, complicated, and expensive, plus it’s not really known at that point to what extent the name/logo will need protection over and above the laws of passing off and copyright.
Certain names are either not allowed by law or require prior approval. These are listed at Companies House and include things for example that suggest a connection to the government, or certain professions.