In order to register a business in the United Kingdom, you have to determine which type of business, where do you plan to work, and if you need to hire any employees to help out in the business. Typically, most businesses are registered either as sole trader, limited company, or partnership.
If you are personally responsible for your company’s debt, then you will have to register your business as a sole trader. In addition, a sole trader will also have to be responsible for the accounting of his or her company including keeping records of the business’s sales and expenses, provide a self-assessment tax return every year, pay income tax based on your profits, and budget for Class 2 and Class 4 National insurance. Value Added Tax (VAT) registration is also compulsory for a business that has more than 83,000 British Sterling Pounds turnover or you can register for VAT on a voluntary basis if your business nature is suitable for reclaiming it. For companies that are working or providing services in the construction industry, Construction Industry Scheme (CIS) registration is also mandatory.
When it comes to naming your business, you can either use your real name or choose a different name. However, it is compulsory to fill up your real name and business name, if you have one, in the official documents including letters and invoices. Business names must not contain words that include limited, ltd, limited liability partnership, LLP, public limited company, and plc. The name must also not also sound offensive, sensitive, and must be the same name as the existing trademark. Unless permission is given, the name is not allowed to suggest a connection with the United Kingdom Government and local authorities. For more information in choosing the correct and suitable business name, kindly refer to the Incorporation and Names section in the GOV UK official website.
By forming a limited company, your personal finances are separated from the company’s finances and unlike sole traders, you do not have to be personally responsible for your company’s debt but you have additional responsibilities in the reporting and management area. Some of these responsibilities are Director’s responsibilities, withdrawing money from the limited company, report on company changes, manage company and auditing accounts, prepare confirmation statement or annual return, and to ensure that your business trademark is on all signs, stationery, and promotional materials.
In relation to Director’s Responsibilities, a Director of a limited company must comply with the company rules as stipulated in the articles of association, keep company records, report changes, file accounts, file company tax return, inform shareholders if you benefit from a transaction done by the company, pay corporation tax, register for self-assessment, and send personal self-assessment tax return on a yearly basis. Although you can hire employees to handle some of these responsibilities on a daily basis, you are still ultimately responsible for the company’s records, accounts, and performance. Penalties in the form of fines, prosecution, and disqualification may be meted out should you fail in your responsibilities as a limited company’s Director.
Prior to making the decision to withdraw some company from the company, you have to determine what the money will be used for and the amount that you are planning to withdraw. To pay yourself and/or your employees a salary, you will first have to register yourself as an employer with the HM Revenue and Customs (HMRC). Registration must take place before the first payday and the whole registration process will take close to 2 weeks. In addition to that, you are also not allowed to be registered for more than 2 months before you start to pay yourself and/or your employees.
Income Tax and National Insurance Contributions must also be taken from these salary payments and contributions need to be paid to the HM Revenue and Customs together with the employer’s National Insurance Contributions. In the event where an employee uses a company’s belonging for his or her own benefit, the Director needs to report it as a benefit and pay a tax due.
Dividends, a payment that a company makes to its shareholders based on its profits, are also given by certain limited companies. Dividends are not allowed to be considered as business costs when calculating the Corporation Tax. Before paying a dividend, you, as the Director, have to call for a Director’s meeting to declare the dividend and keep the meeting minutes even if you are the only Director. Dividend paperwork with information including date, company name, names of the shareholders being paid a dividend, and the amount of dividend must also be prepared and a copy of the voucher must be given to the recipients and a copy must be kept in the company as a record. Dividend payments are not taxable but if an individual shareholder makes more than 5000 British Sterling Pounds in dividends, he or she may need to pay for income tax. To take a Directors loan, a situation where you withdraw more money than your deposit, you have to keep a record of the loan and there are some specific and detailed rules that you need to follow in relation to taking Director’s Loan. For more information on the rules, kindly refer to Director’s Loans section in the GOV UK official website.
To change your business registered address, business contact details, or to appoint a tax adviser or an accountant, you have to report the changes. Change of business registered address must be reported to the Companies House while the other changes must be reported to the HMRC. For other changes that you need to report to HMRC and changes that shareholders need to approve and vote, refer to the Running a Limited Company section in the GOV UK official website.
Companies and accounting records with information on records on the company itself and financial and auditing records must be kept for a minimum period of 6 years from the end of the last company financial year. You are also allowed to hire an accountant to keep track of things. For more details on which records to keep, kindly refer to Running a Limited Company section in the GOV UK official website.
It is important to check with the Companies House on a yearly basis to confirm if they have the correct information about your company. This is known as confirmation statement. Kindly refer to Running a Limited Company section in the GOV UK official website for which details to check.
Your company signage must also be easy to read and be displayed at all times at the registered company address. However, if you are operating from home, you are not required to put up signage. Additionally, it is mandatory to put the company’s name on all business letters, order forms, website, stationeries, and promotional materials. Certain rules will also need to be applied for including information on the invoice.
If sole trader or a limited company is not your cup of tea, you can opt for partnership, a simple way for at least 2 or more people to start up a business together, by choosing a nominated partner and register it with the HMRC. In this case, the company’s debt and responsibilities are shared among the shareholders. The profits are also shared between all shareholders and each shareholder has to pay his or her own tax. The rules for naming a partnership company are similar to the ones mentioned in sole trader company.
Licenses and Permits
Check if you need any license or permits to operate your business. There are also additional rules to follow if you are selling goods online, buying goods overseas, selling goods overseas, store or use personal information. For detailed rules for each of these, kindly refer to Set up a business section in the GOV UK official website.
Are you operating your business at a registered address or from home? You may need to pay additional business rates if you do rent or buy a property to operate your business. While some business may pay nothing, a small business can apply to enjoy discount rates on business rates. In addition, check if you can claim any of the office, property, and equipment as an expense.
Employees and Freelancers
Some of the responsibilities that an employer has over his or her employees include running payroll, paying for their National Insurance, and providing workplace pensions. You can also claim an allowance in order to reduce your bill while paying for your employee’s National Insurance.
You can get additional support and advice in how to register a business in the United Kingdom from the helplines listed below:
Business Support Helpline (England)
Telephone: 0300 456 3565
Textphone: 0191 581 0052
Monday to Friday, 9am to 6pm
Business Support Helpine is also available in web chat, Twitter, Facebook, and YouTube
Offshore company formation
Guide on offshore formation
Business Gateway (Scotland)
Telephone: 0845 609 6611
Textphone: 0141 952 7053
Monday to Friday, 8am to 6pm
Business Wales Helpline
Telephone: 0300 060 3000
Monday to Friday, 8:30am to 5:30pm
Invest Northern Ireland
Telephone: 0800 181 4422
Monday to Friday, 8:30am to 5pm