How to start a business in the United Kingdom

15.05.17
5 minute read

There are over 5 million businesses registered in the UK, of which some 76% don't employ anyone other than the owner. In fact, 99.3% of the businesses in the UK are small and medium enterprises (SME), accounting for 60% of all private sector employment. These small businesses are really what keep the British economy moving, and the UK government looks to support new business founders whenever possible.

Thousands of new businesses open in the UK every year. If you want to join them and open your own new enterprise in Britain, you need to know how. Here's a quick guide to get you on the way.

What types of corporate entities are there in the United Kingdom?

The UK has three main legal forms of corporate entity. They are:

  • Sole proprietorship (also known as sole trader)
  • Limited companies
  • Partnerships

The most common business structure is sole proprietorship, accounting for 60% of the total number of businesses registered in the UK. This legal structure tends to be used by ‘one man’ or micro businesses with very few employees. To open this type of business you must register with the UK tax authorities as self employed. You're taxed together for both your personal tax liabilities as well as those incurred through your work.

Additionally, there are 1.8 million companies (32% of British businesses), and 421,000 ordinary partnerships. Partnerships are the least common structure, making up a diminutive 8% of all corporate entities registered. If you want to open a limited company in the UK you must have a registered office in the country, although it's not necessary that all of the directors live in Britain. Registering a limited company in the UK is more complex than setting up a sole trader arrangement, but the tax is then managed separately to your personal liabilities.

Things to know before getting started

You can compare the administration needed to start a business in the United Kingdom, with that in other countries, on the website of the World Bank's 'Doing Business' report. This helpful site summarises some of the main legal and bureaucratic steps you'll need to take when starting your new venture.

The good news is that there’s no minimum capital requirement to start your business here. Aside from the cost of registering with Companies House, the other steps such as registering for tax are free. All processes can usually be completed online, and shouldn't take more than a few days in most cases.

What’s the company registration process in the United Kingdom?

The UK Government website offers a wealth of information about how to register different types of business. The process varies according to the type of business you wish to create.

The most straightforward registration process is to open for business as a sole trader. In this case you only need a National Insurance number, and to register with the tax authorities as self employed.

The process to set up a limited company in the UK requires a little more time. You need to:

  • Select a name, and set up a UK address for the company
  • Register your business with Companies House
  • Provide proof of identity for at least one director and at least one shareholder
  • Set up your company for Corporation Tax

The documents you'll be asked to provide include:

  • Articles of association
  • Memorandum of association
  • Statement of capital
  • Standard industry classification coding

Business partnerships effectively means that you’re running a business as an individual but share responsibility for the business with all the named partners. To get started you must register with the tax authorities as self employed. You can then run the business while being taxed as an individual, with an agreement made among the partners about profit sharing.

Registering your UK company with Companies House can be done online and usually takes only 24 hours. If you register online it costs only £12. Alternatively, there are postal registration routes (at an increased fee), and a ‘same day’ service for which you pay a premium.

Legal obligations and responsibilities

Once you’ve registered your business you must also register for corporation tax within three months of starting trading. This can be done online. Your company accounts can also be posted online once you're up and running.

You also need to register if you start employing people. This can take up to two weeks and must be done before you pay your employee for the first time. The British government’s guide on how to register as an employer is very helpful in this process. From here, you can also register your employees easily online.

As soon as you start to employ people, you need to get employers liability insurance. In addition to this, you have a duty as employer to pay above minimum wage, prepare a contract of employment, and check the individual's legal right to live and work in the UK. A full list of employer responsibilities can be found on the government website.

Where can I find help to start my business in the United Kingdom?

The UK Government website has a range of information and links to organisations offering support for your business. Business support such as grants and financing is also available. Many of these schemes are run regionally, so you should check which are available in your area.

Another useful resource is the Great Business website. This government backed site offers information and support, such as connecting new business owners with mentors.

Once you’re in the United Kingdom and ready to get going, look for local networking events on sites such as Meetup, Eventful and Eventbrite. Here you can meet like-minded people, and build your customer and business contact book.

There’s plenty of help out there for people looking to start their new enterprise in the UK. With adequate preparation and some help from your new network and friends, your business will get off to a flying start.

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