Setting up a business in the UK can be done in several ways, but all of them require registration of some sort. The level of registration and general legal admin depends on factors such as the size of your business and number of legal owners or shareholders.
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Why Should I Register my Business?
Starting a business in the UK is now a popular choice for entrepreneurs, with start-up companies being a common sideliner for those in full-time work, or a way to escape the corporate office for the 192,000 employees currently working for the country’s small creative businesses. With increasing numbers of people interested in how to start a business, it’s arguably even more important to know how to register a business – that is, making sure you’re setting up a business in a legal way.
Companies must be registered in order to be legally recognised as a business in the UK. At the very least you will need to register with Her Majesty’s Revenue and Customs (HMRC) to ensure you are paying your taxes to the correct amount and deadline. Other forms of registration for licences may be required depending on the size of your business, or should be considered as you grow. These could include registering as an employer (76% of businesses in the UK are non-employing, that means the only employee on the payroll is the owner), registering as an at-home business or branching out into street trading.
What Types of Business Need to Register?
Every new business in the UK must register, though the process may vary depending on what type of business you have. Here we will explain the features and responsibilities of different business structures. Remember, this information is for educational purposes only; you should consult an expert to meet your specific needs.
How to register as a sole trader
The most common form of small company registration is as a “sole trader”. All you need to get off the ground is an National Insurance (NI) number. Sole traders get to keep all business profits following tax, but remain personally responsible for any loss of profit the business may incur. Sole traders also count as self-employed, and must register as such, while ensuring that they pay tax and National Insurance. If you register as a sole trader, you must do the following:
- Record your expenses and sales
- Pay income tax on your profit and the national insurance rates applicable to you
- Register for value-added tax (VAT) (mandatory for turnover over £85,000, though you can voluntarily register if your turnover is below this, allowing you to reclaim VAT on your purchases)
- Pay any business rates that may be applied to the property you operate from
- Include your name and business name on all official paperwork. You do not need an official business name to be a sole trader, nor do you need to register the name you select
A partnership structure is similar to a sole trader set-up, but is shared between several people. Partners must be collectively responsible for losses the business incurs and any bills for stock, equipment, etc. Partners do not have to be individuals; limited companies can also serve as partners in a business. Profit is shared between partners, but each separate partner must pay tax on their personal share. Partnership company registration requires the following:
- Register a ‘nominated partner’ who is responsible for sending tax returns of the company, other partners must be registered separately and send in their own individual tax returns
- Choose a business name – this does not need to be registered, but it must not violate copyright, be offensive, include words that imply it is a limited company or use words that require official permissions such as ‘accredited’
- Register your business name as a trademark. This is not compulsory but it will stop others trading under the same name either deliberately or otherwise
- Include your name(s) and business name on all official paperwork
- Register for VAT (optional for businesses with a turnover under £85,000)
Business partnerships must be registered by 5 October in the second tax year since the partnership started trading. Failure to register a business may result in a penalty.
A limited company exists as a separate legal entity to the individuals who own and run it. As such, finances of the business are not tied to the personal finances of owners or partners. Setting up a limited company requires ‘incorporation’ i.e. having the business registered with Companies House. Limited companies must:
- Pick a company name – limited company names must end in “Limited” or “Ltd” and not duplicate or closely resemble the name of another company
- Choose a business name if you do not wish to trade under the registered company name, this name cannot include “Limited” or “Ltd” in the title, or be the same as another existing company, this can be checked on the Companies House register
- Register their name as trademark to prevent other companies trading under the same title
- Be aware of when and how their name should be displayed
- Ensure they have a UK company location to nominate when registering a business address
- Appoint at least one director whose name and address will be publically available at Companies House
- Appoint a company secretary if you wish
- Decide on shareholders – this information must be available when you register, there must be at least one shareholder, there is no maximum number
- Draw up ‘prescribed particulars’ outlining your business structure and precisely what each shareholder is entitled to, including their influence on business decisions
- Create a ‘memorandum of association’ – a legal declaration in which all shareholders agree to start the limited company, this cannot be updated following registration
- Create ‘articles of association’ – the rules about how the company will run, as agreed by all shareholders and directors
- Register for corporation tax within 3 months of starting business
Limited companies must register at Companies House. The cost of business registration with Companies House depends whether you complete it online or by post, or if you require a same-day service. This must be completed before registering for corporation tax and requires the following:
- A selected company name (which does not copy or resemble other trademark business names or include sensitive or offensive words)
- A company address
- The name of one or more directors
- Nominated shareholders and details of their entitlement
- Your SIC code
- Your ‘memorandum of association’ and ‘articles of association’
- Details of PSCs (people with significant control) of your company, such as those with relatively large shares in the business
Following registration, limited companies will be given a ‘certificate of incorporation’ confirming that the business is legally recognised.
Are there any changes to registering a business in the UK Post-Brexit?
While Brexit has fundamentally changed our trading terms with the European Union and taken us out of the single market, it should not create extra red tape for most people looking to register a business in the UK.
Companies House has listed a series of changes that now apply following the end of the Brexit transition period on 31 December 2020. However, these largely relate to European entities, so you are unlikely to be affected if you are UK-based.
The UK’s robust legal system will continue to oversee contracts and business registrations, offering further peace of mind for small business owners.
Get your business started with Square
Congratulations if you are one of the thousands of ambitious entrepreneurs who start up exciting new companies each year. But after you come up with a great idea and register a business with the likes of HMRC and Companies House, what comes next?
Square can offer a helping hand as your business evolves from fledgling start-up to booming success story, supporting your growth while keeping day-to-day operations running smoothly.
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