Starting a small business in the UK is more straightforward than many people expect. The Government has simplified registration, most businesses can be set up within a day, and the initial running costs are often minimal. The key decisions involve legal structure, registration and tax — getting these right from the start saves significant administrative headaches later.
Choosing your legal structure
Most new small businesses choose between two structures. A sole trader is the simplest: you register as self-employed with HMRC, pay Income Tax and National Insurance on your profits through Self Assessment, and take on personal liability for business debts. A limited company is a separate legal entity: it pays Corporation Tax on profits, you pay yourself a salary and/or dividends, and your personal liability is limited to your investment in the company. Sole trader is simpler and cheaper to run; limited company provides personal liability protection and can be more tax-efficient at higher profit levels.
Registering your business
As a sole trader, register for Self Assessment with HMRC by 5 October of the tax year in which you start trading. This is free and done online via GOV.UK. As a limited company, register with Companies House (around £12-£50 depending on method) and HMRC. You will also need to register for VAT once turnover exceeds the registration threshold — check GOV.UK for the current threshold, as it is updated periodically.
Tax and National Insurance
Sole traders pay Income Tax on profits (above the Personal Allowance) and Class 2 and Class 4 National Insurance. Class 2 NI counts towards your State Pension — do not opt out without understanding the long-term consequence. Limited companies pay Corporation Tax. Directors pay Income Tax on salary via PAYE and dividend tax on dividends.
Set aside money for tax from day one. A practical rule: put 25-30% of every invoice payment into a separate savings account and treat it as untouchable until your tax bill arrives. The most common financial crisis for new small business owners is an unexpected tax bill caused by not setting aside money as you earn.
Opening a business bank account
Sole traders are not legally required to have a separate business bank account, but it makes accounting significantly easier and more professional. Limited companies must have a separate business account. Several UK challenger banks (Monzo Business, Starling Business, Tide) offer free or low-cost business accounts with good accounting integrations for small businesses.
Getting your first customers
Your existing professional and personal network is almost always the fastest route to first customers — faster than social media, advertising or platforms. Email or message people you know, tell them clearly what you are offering and ask them to refer you if they know anyone who needs it. One referral often leads to another, and word of mouth remains the most reliable source of early business for most sole traders and small businesses.
General guidance only — not regulated financial advice.