How to start your own business in the UK

The foundations for starting a business

It’s exciting when you set up a company. But do your tax and legal groundwork – your success depends on it.

Sort your legal requirements

Here are some essential steps to start a business on firm ground.

1. Choose the right legal structure for your business

The legal structure of your business affects the tax you pay, your degree of personal liability if your business runs into trouble, and the amount of admin you do. Here are the main business structures.

A sole trader has full control over their business but also full responsibility – if the business is sued or becomes insolvent, you’re personally liable for the damages.

A partnership involves two or more people who share both the profits and the losses of their business. Again, they’re personally responsible for any financial problems – and that includes responsibility for the other partners’ behaviour, too.

A limited liability partnership is like a standard partnership, except each partner’s liability is limited to the amount of money they invest. Admin is complicated because you have to comply with partnership rules and corporate laws.

A limited company gives you some financial protection if things go awry, and you have more control over the personal income you take. But it’s more expensive and admin-heavy to run your business this way.

2. Trademark your business name

To protect your brand, trademark its unique name so nobody else can legally use it. (This is different to registering your business name at Companies House, which doesn’t offer legal protection.) Here's more info about trademarks.

3. Get a unique tax reference from HMRC

If you’re self-employed or own a limited company, you’ll need to get a UTR for your self-assessment tax returns. Apply for your UTR on HMRC’s website.

4. Comply with planning restrictions in your area

Check the restrictions on the kind and size of business you can start in your location. For example, some residential areas limit the height of buildings and the materials you can use. You’d need to ask the local authority for permission to exceed these limits, and have a backup plan if the answer is no.

Know the taxes you’ll have to pay

You’ll need to pay various taxes, depending on your business structure and activities. These include corporation tax, value added tax (VAT), capital gains tax, and National Insurance contributions. HMRC collects these taxes.

By law, you need to send your tax returns to HMRC and pay your taxes by the deadlines.

And remember: tax professionals can help you comply with tax regulations, and to decide whether to apply for a loan and to strengthen your finances. Find an accountant or bookkeeper near you.

There are also many government resources, such as this guidance on starting a business.

Key industries in the UK

When starting a small business, look at the leading industries and those likely to grow. The UK economy is mostly based on services, so look at the service sector first.

Banking and finance

Major shifts are expected in banking over the next decade or so. Consumers want personalised solutions, which AI technology, open banking, and data analytics can help provide – so professionals with digital skills will be in demand. According to the Bank of England, we need a new financial system with better digital payment technology, world-class ‘regtech’, and improved data strategy. Here’s a government review of financial services in 2023.

Hospitality

The hospitality sector has suffered from the pandemic, staff shortages, and economic uncertainties. Businesses are using technology to adapt to these realities and to enhance their customers’ experience while maintaining enough human interaction to entice people through their doors. Here’s a government strategy for hospitality.

Retail

Like hospitality, the retail sector is using technology to boost its prospects, such as with AI-powered customer service, immersive shopping with augmented reality, and automation to improve efficiency. And like hospitality, retailers must introduce changes to the shopping experience at a comfortable pace for their consumers. Check out this article on navigating retail trends.

Want more general info on the business landscape? Check out Xero's 2024 report for more insights for small businesses.

Understand differences between regions

Where you choose to open a business will affect things like:

• Your rent or mortgage and other startup costs
• The talent pool of employees available to you
• The taxes you pay
• Local regulations and planning laws
• Your ability to find investors (who might not want to trek to the Outer Hebrides to visit you)

Don’t overlook regional differences in your business plan. A move might make all the difference to your success, especially if you have a bricks-and-mortar shop or other premises.

Know what your consumers want

When starting a business, do your market research! It’s worth directly approaching consumers about your business and how you can meet their needs. Do they prioritise low prices? Or do they value a personalised customer experience?

Then build your research results into your business model. If your consumers are changing how they spend money (in response to changing trends and technology, say), do market research more often and consult other industry-specific resources like reports on market trends, white papers, and conferences.

Case studies: life as a small business owner

What’s it actually like to run a business? Here’s what three business owners think.

Richard Fishenden’s passion was to become a professional blacksmith. At first, he just produced ironwork for people he knew. But once he collaborated with his accountant on the business’s financial viability, he developed a real confidence in his numbers.Read more about Richard’s business insights.

Ade Hassan started her skincare business, Nubian Skin, after she spotted a gap in the market for skin-tone lingerie for women of colour. Her drive to empower and represent women through her fashion brand has seen her products sell around the world.Here's more about Ade’s business insights.

Laura Jackson got hooked on gourmet popcorn on a trip to the US. She began experimenting with recipes in her mum’s kitchen and launched Popcorn Shed, which brings a fun, youthful brand image as part of its business strategy.Read more of Laura’s business wisdom.