How to start a business in the UK

Starting a business in the UK is genuinely more straightforward than most people expect, once you strip away the noise. This is the complete version: every step that actually matters, in the order it actually happens, with an honest note on where you can spend nothing and where a small spend is worth it.

The quick answer: decide whether you're a sole trader or a limited company, register accordingly, open a business bank account, sort basic accounting, understand which taxes apply to you, get the insurance your work genuinely needs, then focus everything on your first customer. Registration can be free, and most of the early setup costs less than people fear.

Before the steps: is your idea actually ready?

The steps below are the mechanics of setting up. None of them matter if there's nobody willing to pay for what you're planning to sell. Before you register anything, it's worth being honest with yourself about three things: who specifically would buy this, why they'd choose you over the alternative (including doing nothing), and whether you've had any genuine signal that they will, a pre-order, a paying pilot client, a waiting list, anything beyond friends saying it sounds nice.

You don't need a formal business plan unless you're seeking funding that requires one. You do need a clear enough answer to those three questions that you're not spending money registering and setting up a business nobody has asked for. Validation first, infrastructure second. If you want an honest check on where you actually stand, our free startup readiness score takes two minutes and points you straight at whatever's genuinely missing.

Step 1: Decide sole trader or limited company

This is the first real decision, and the internet is full of advice that quietly assumes you should incorporate, often because someone earns a fee when you do. The honest answer is that it depends on your expected profit and how much admin you're willing to take on.

A sole trader is the simplest setup: you and the business are legally the same person, you register with HMRC, and you file one Self Assessment tax return a year. A limited company is a separate legal entity that protects your personal assets in most circumstances, but comes with more admin, public filings, and usually an accountant.

At modest profit, sole trader is often simpler and leaves you with more in your pocket once accountancy costs are factored in. As profit rises, or if your work carries real financial risk, a limited company starts to make sense. Don't guess at the tax side, our sole trader vs limited company calculator runs your real numbers both ways, and the full sole trader vs limited company guide walks through liability, privacy and admin alongside the tax.

Step 2: Choose and check your business name

Whether you're a sole trader with a trading name or a limited company, your name needs to be available and appropriate. For a limited company specifically, it can't be identical or too similar to an existing registered company, and can't include certain restricted words without permission.

Check availability before you commit to anything, printing cards, buying a domain, building a site. Our free name checker on the homepage searches the Companies House register in seconds, which avoids the single most common cause of a rejected company registration. It's also worth checking domain and social handle availability at the same time, and remembering that a company name and a registered trademark are two different kinds of protection.

Step 3: Register with HMRC or Companies House

Sole traders register with HMRC for Self Assessment. It's a quick online process, and you're then responsible for reporting your income once a year.

Limited companies register with Companies House. You can do this directly for a small filing fee, or free by opening a business account with a provider that bundles formation in, Tide, ANNA, Revolut or Wise all do this, covering the fee in exchange for you banking with them. Both routes end up on the same public register with identical legal status. Our full how to register a company guide covers exactly what to have ready (directors, shareholders, registered office, SIC code, people with significant control) and what slows an application down.

Step 4: Open a business bank account

If you've formed a limited company, keeping the company's money separate from your personal money isn't optional in practice, the company is a separate legal entity and its money is legally its own. If you're a sole trader, it's not legally required, but mixing personal and business transactions makes your tax return and bookkeeping considerably harder, so a separate account is still strongly recommended.

Several genuinely free accounts exist, including fully licensed banks, so cost is never a good reason to skip this. Which one fits depends on how you'll actually use it: free and simple, formation bundled in, or multi-currency for international trade. Our best business bank accounts guide breaks it down by situation, and the full reviews cover each option in detail.

Step 5: Sort accounting and bookkeeping

Set up how you'll track income and expenses before your first invoice, not three months in once receipts have piled up. This doesn't need to be expensive, a genuinely free tool like Wave covers the basics for a new small business, with paid options like Xero, QuickBooks or FreeAgent worth considering as things grow or if you want deeper features.

Good bookkeeping isn't just admin hygiene, it's what makes your tax return accurate, shows you how the business is actually performing, and stands up if HMRC ever asks a question. Connecting your accounting software to your business bank account so transactions flow in automatically is the single biggest time-saver here.

Step 6: Understand your tax obligations

Which taxes apply depends on your structure. A sole trader pays Income Tax and Class 4 National Insurance on profit, reported through Self Assessment. A limited company pays Corporation Tax on its profits, and you're then taxed personally on whatever salary and dividends you take out. VAT applies to either structure once your turnover crosses the registration threshold, and PAYE applies if you employ anyone, including paying yourself a salary through a limited company.

The mechanics matter less than the habit: know roughly which taxes apply, when they're due, and set money aside for them as you go rather than scrambling at year end. Our what taxes does a new business pay guide covers each one, and the VAT registration guide covers the threshold and schemes in detail. The VAT, salary vs dividend and take-home calculators turn the theory into your actual numbers.

Step 7: Get the right insurance

Match cover to your actual work rather than buying everything just in case. If you meet clients or work on-site, public liability matters. If you give advice or provide a service a client could dispute, professional indemnity matters. If you hire anyone, employers' liability is a legal requirement, not optional. If you sell physical products, product liability comes into play.

Plenty of purely digital, low-risk businesses need very little insurance on day one, and there's no need to over-insure before you've proven the business works. When you're unsure, a broker conversation is usually free and will tell you plainly what your specific work actually needs.

Step 8: Your first 30 days

Once you're registered and set up, the first month has a short, concrete list. If you've incorporated, register for Corporation Tax with HMRC within the required window, this is a separate step that doesn't happen automatically. Note your filing deadlines (a limited company's confirmation statement and annual accounts are dated from incorporation and carry automatic penalties if missed). Get your invoicing ready. And have an early conversation with an accountant if a limited company is involved, particularly about how to pay yourself.

Our UK startup checklist lays this out week by week, from before you register through your first 90 days and beyond.

Getting your first customer

Every step above is infrastructure. The business only genuinely begins once someone pays you, and that first customer is disproportionately the hardest one to win. A few things consistently help.

Start with people who already know and trust you, former colleagues, your existing network, people a step removed from you, rather than trying to build an audience of strangers from nothing. Tell them plainly what you're doing rather than assuming word will spread on its own. Go where your ideal customers already spend time, online or in person, and be genuinely useful there before you sell. And make your first offer easy to say yes to, a smaller, lower-risk first engagement removes the biggest barrier for someone who hasn't worked with you before: uncertainty about whether you'll deliver.

Don't wait for everything to be perfect before you start selling. Plenty of successful businesses landed their first client with nothing more than a clear conversation and a fair price, long before the website or branding was finished.

What it actually costs to get started

The numbers frighten people more than they should. Registration itself can be completely free through a bank-bundled formation, or a small fixed fee if you register directly. A business bank account can be free. Accounting software can be free (Wave) or a modest monthly subscription. The genuinely variable costs are an accountant (a few hundred to over a thousand pounds a year depending on complexity, and often optional for a simple sole trader) and insurance, which depends entirely on what your business does.

For a straightforward service business with low overheads, the real cash cost of getting properly set up is often in the low hundreds, not the thousands people brace for. The cost that people most underestimate isn't a setup fee at all, it's having enough personal runway to cover a slow first few months without forcing bad decisions. Our startup cost calculator shows sole trader and limited company costs side by side, so you can see the actual figure either way.

How people actually fund the start

Most UK businesses start on personal savings, and there's nothing wrong with that, it keeps you in full control and out of debt. Beyond that, the realistic options are a Start Up Loan or other lending, and, far more rarely than people hope, grants. Grants are genuinely competitive and sector-specific, and they're not the free-money shortcut they're often imagined to be. Treat them as a bonus to chase if one genuinely fits, not the plan your business depends on.

The more important funding question for most new founders isn't where to raise money, it's how little you actually need to start. A great many businesses, especially service businesses, can start on very little and grow from revenue, which is almost always healthier than borrowing to fund an idea that hasn't proven it can sell yet. Our startup costs breakdown goes into the realistic numbers.

Common mistakes first-time founders make

Incorporating too early. A limited company sounds more serious, but at modest profit the extra accountancy cost can outweigh the tax saving entirely. Run the numbers first.

Mixing personal and business money. The single most common bookkeeping headache, and entirely avoidable with a free business account from day one.

Ignoring the VAT threshold until it's too late. VAT applies to turnover, not profit, so faster-growing and higher-volume businesses cross it sooner than they expect. Watch it before you hit it.

Over-building before finding a customer. A perfect website, polished branding and business cards don't get you paid. A clear offer and a first customer do.

Not setting money aside for tax. Tax bills feel abstract until they arrive. Setting aside a rough percentage of profit as you go turns a nasty surprise into a non-event.

Business type variations

The core steps above apply to almost everyone, but different business types have their own specifics. We've written dedicated guides for freelancers and consultants, ecommerce stores, agencies, property companies and several others, each covering the licences, insurance and risks specific to that trade.

FAQs

How long does it take to start a business in the UK? Registering as a sole trader or forming a limited company online typically takes well under a day, often just minutes once you have your details ready. The wider setup (banking, accounting, insurance) can be done within a week.

How much does it cost to start a business in the UK? Registration can be free (bank-bundled formation) or a small fixed fee. The larger costs tend to be ongoing, accounting, insurance, and your own time, and for a straightforward service business the real cash cost of setup is often surprisingly low. Our startup cost calculator gives you a specific figure, sole trader or limited company.

Do I need a business bank account? Strongly recommended for sole traders, and essentially non-negotiable for a limited company, since company money is legally separate from yours.

Can I start a business alongside a job? Yes. You can be employed and register as a sole trader for separate self-employed income at the same time, see our full answer.

What's the difference between self-employed and a sole trader? "Self-employed" describes how you work (for yourself, not an employer). "Sole trader" is the specific legal and tax structure most self-employed individuals use. Being a sole trader is one way of being self-employed.