Start Up Business
Start Up Business: How to Start a Business in the UK
Starting a business involves more than registering a name. Learn how to choose the right business structure, register correctly, organise your tax and bookkeeping and build solid financial foundations from day one.
Test your business idea, choose between sole trader, partnership or limited company status, complete the relevant HMRC or Companies House registrations, then organise your banking, bookkeeping and tax requirements.
How do you start up a business in the UK?
To start up a business in the UK, first test your business idea and work out how it will make money. You then need to choose a business structure — usually sole trader, partnership or limited company — register with HMRC or Companies House where required, organise your banking and bookkeeping, understand your tax obligations and check whether you need VAT, PAYE, insurance or any industry-specific licences.
Identify your customer, demand, competition, pricing and likely costs.
Compare sole trader, partnership and limited company status.
Complete the appropriate HMRC or Companies House registrations.
Organise banking, bookkeeping, tax planning and accounting software.
What is a start-up business?
A start-up business is a newly established business created to sell a product or service. It could be anything from a self-employed consultant, tradesperson or freelancer to an e-commerce business, property venture or limited company intending to employ staff and grow.
There is no single legal structure called a “start-up”. Your new business must operate through an appropriate structure. For many UK entrepreneurs, the first major decision is whether to operate as a sole trader or limited company.
Sole trader vs limited company vs partnership
Choosing your business structure affects your tax, personal liability, paperwork and how money can be taken from the business. It is therefore one of the most important decisions when starting a business.
| Structure | What it means | Tax | Liability | Administration |
|---|---|---|---|---|
| Sole trader | You operate the business personally. | Business profits are generally subject to Income Tax and applicable National Insurance. | You are personally responsible for business debts. | Usually the simplest structure. |
| Limited company | The company is a separate legal entity from its owners. | The company pays Corporation Tax. Tax may also arise when directors/shareholders extract money. | Shareholders normally have limited liability. | More reporting and Companies House obligations. |
| Partnership | Two or more people operate a business together. | Partners are generally taxed on their share of partnership profits. | Partners in an ordinary partnership can have personal liability. | Partnership and individual reporting requirements apply. |
A sole trader structure can be attractive because it is straightforward, while incorporation may be appropriate where limited liability, investment, multiple shareholders or longer-term growth are important. Tax should be considered, but it should not be the only factor.
How to start a business in the UK: step by step
There is more to starting a business than simply registering a name. These are the main steps to consider before and immediately after you begin trading.
How do I register a start-up business?
Register with HMRC
If you need to register as a sole trader, this is normally done by registering for Self Assessment. The £1,000 trading allowance means that not everyone with a very small amount of trading income necessarily needs to register, although individual circumstances matter.
GOV.UK sole trader registration →Register with Companies House
A limited company must be incorporated before it trades as that company. You will need information including the company name, registered office, directors, shareholders and appropriate SIC code.
GOV.UK company registration →Register the partnership
An ordinary business partnership has separate registration and tax requirements. The nominated partner is responsible for managing the partnership's tax return and certain records.
GOV.UK partnership guidance →What taxes does a start-up business pay?
There is no special “start-up tax”. The taxes that apply depend mainly on your business structure, profits, turnover, employees and how money is extracted from the business.
| Tax / obligation | Sole trader | Limited company |
|---|---|---|
| Income Tax | Generally payable by the individual on taxable business profits. | May apply personally to salary, dividends and other income received by directors/shareholders. |
| National Insurance | May apply according to the self-employed NI rules. | PAYE/Class 1 National Insurance may apply to salaries. |
| Corporation Tax | Not applicable to sole trader profits. | Payable by the company on taxable profits. |
| VAT | Registration may be compulsory or voluntary depending on circumstances. | The same VAT registration principles generally apply. |
| PAYE | May be required if the business employs staff. | May be required for employees and directors receiving salary. |
Corporation Tax for start-up companies
For the 2026 financial year, the Corporation Tax small profits rate is 19% for qualifying companies with profits up to £50,000 and the main rate is 25% for profits above £250,000. Marginal Relief can apply between these limits. The thresholds can be reduced where there are associated companies or shorter accounting periods.
When does a start-up need to register for VAT?
The compulsory UK VAT registration threshold is currently £90,000 of taxable turnover. Registration can also become necessary if you expect taxable turnover to exceed the threshold within the relevant forward-looking period. Some businesses choose to register voluntarily below the threshold.
Bookkeeping and accounting for a new business
Good bookkeeping should start with your first business transaction. Leaving everything until the tax return or year-end accounts are due makes it harder to understand whether your new business is actually making money.
Cloud accounting packages such as FreeAgent, Xero and Sage can make record keeping easier and provide a clearer picture of how your start-up is performing.
Making Tax Digital and start-up businesses
New sole traders should now consider Making Tax Digital for Income Tax (MTD) when choosing their bookkeeping system. MTD for Income Tax began applying from 6 April 2026 to qualifying sole traders and landlords whose qualifying self-employment and property income exceeded £50,000 in the relevant earlier tax year.
The qualifying-income threshold is scheduled to extend to those over £30,000 from April 2027 and over £20,000 from April 2028. Those within MTD must use compatible software for digital records and provide the required information to HMRC.
If you expect your start-up to grow quickly, adopting suitable accounting software from day one can be much easier than changing systems later. Read our Making Tax Digital guide.
Does a start-up need a business bank account?
A limited company is legally separate from its owners, so company finances should be kept separate from personal finances. For sole traders, a separate business bank account is not universally a legal requirement, but keeping business transactions separate can make bookkeeping, tax returns and cash-flow management significantly easier. You should also check the terms of your bank account.
How much money do you need to start a business?
There is no standard amount. A consultancy or freelance business may require relatively little initial capital, while a retail, manufacturing, hospitality or stock-based business may need considerably more.
Before launching, estimate:
Government-backed Start Up Loans and other sources of business finance may be available, but borrowing should be based on a realistic business plan and cash-flow forecast rather than simply the maximum finance available.
What expenses can a start-up business claim?
Many genuine business costs can potentially be deducted when calculating taxable profits, although the rules depend on whether you are a sole trader or limited company and on the nature of the expenditure.
Typical categories can include:
Some expenditure incurred before the business formally starts trading may also qualify for tax relief under pre-trading expenditure rules, subject to the relevant conditions. Keep invoices and receipts for start-up costs rather than assuming costs incurred before launch cannot be claimed.
See our detailed guide: What is tax deductible?
Insurance, licences and other start-up requirements
Tax registration is only part of starting a business. Depending on what you do, you may also need licences, registrations, insurance or industry-specific permissions.
Employers generally need Employers' Liability insurance as soon as they become an employer, subject to limited exceptions. The required cover is at least £5 million.
You can use the GOV.UK licence finder to check whether your business activity may require a licence.
Common start-up business mistakes
Some problems are much easier to prevent at the beginning than correct several years later. Common mistakes made by new businesses include:
Your first-year start-up business checklist
| Task | Why it matters |
|---|---|
| Choose the right structure | Affects tax, liability and reporting. |
| Complete registrations | HMRC, Companies House, VAT and PAYE requirements depend on your circumstances. |
| Separate finances | Makes bookkeeping and financial control easier. |
| Use accounting software | Helps maintain records and monitor performance. |
| Save for tax | Avoids tax liabilities becoming an unexpected cash-flow problem. |
| Monitor VAT turnover | Fast-growing businesses can cross the registration threshold sooner than expected. |
| Track profit and cash | High sales do not necessarily mean a business is profitable or cash-positive. |
| Review regularly | Your original structure, pricing and systems may need changing as the business grows. |
Start-up business FAQs
How do I start up my own business in the UK?
Start by testing your idea and researching your market. Prepare a basic business plan and financial forecast, choose between structures such as sole trader, partnership or limited company, complete the necessary HMRC or Companies House registrations, organise banking and bookkeeping, check your tax and VAT obligations and make sure you have any required insurance or licences.
Should I start as a sole trader or limited company?
It depends on factors including expected profits, commercial risk, administrative preferences, whether there will be other owners, how you intend to take money from the business and your longer-term plans. A sole trader is generally simpler administratively, while a limited company is a separate legal entity and normally provides limited liability to its shareholders.
Can I start a business before registering with HMRC?
A sole trader can begin trading before completing Self Assessment registration, provided the relevant registration requirements and deadlines are subsequently met. A limited company, however, must first exist legally through incorporation before it can trade as that company.
When does a sole trader need to register for Self Assessment?
Registration requirements depend on your circumstances. Generally, a sole trader whose gross trading income exceeds the £1,000 trading allowance will need to consider registering for Self Assessment. HMRC normally requires notification by 5 October following the end of the relevant tax year where a return is required and you have not already notified HMRC.
How much can a small business earn before paying tax?
There is no single tax-free amount that applies to every small business. For sole traders, tax depends on taxable profits and the individual's wider income and allowances. Limited companies are subject to Corporation Tax rules. Turnover, profit and taxable income are different concepts, so the answer depends on the business structure and the owner's circumstances.
When does a start-up need to register for VAT?
Compulsory VAT registration will generally be required when taxable turnover exceeds the current £90,000 threshold on the applicable test, although other circumstances can also create a registration requirement. Businesses below the threshold can sometimes register voluntarily.
Do I need a business bank account?
A limited company's money should be kept separate because the company is a separate legal entity. Sole traders do not universally have a statutory requirement for a separate business account, but using one can make bookkeeping and tax reporting easier. Always check the terms imposed by your bank.
Do I need accounting software when starting a business?
Not every new business is legally required to use accounting software immediately, but digital bookkeeping can make it much easier to record income and expenses, monitor cash flow and prepare tax information. Some sole traders are now required to use compatible software under Making Tax Digital for Income Tax.
Do I need an accountant to start a business?
There is generally no legal requirement to appoint an accountant simply because you start a business. However, professional advice can be particularly useful when deciding between sole trader and limited company status, setting up bookkeeping, registering for taxes, planning remuneration and understanding your filing obligations.
What records should a start-up business keep?
Keep clear records of sales, business income, purchases, expenses, invoices, receipts, bank transactions and other information needed to calculate your tax position. Limited companies have additional statutory company and accounting record requirements.
Starting a new business?
Getting the structure, bookkeeping and tax position right at the beginning can save considerable work later. The Online Accountants can help UK start-ups with business structure, registrations, accounts, tax returns and ongoing online accounting support.