So you’re thinking about starting a new business? Congrats.
Whether you’re aiming to go self-employed, create a limited company, or enter into a partnership, there are key steps and considerations to keep in mind.
In this guide, we’ll walk you through the basics, from choosing the right business structure to understanding tax obligations, and a little more.
p.s. this article isn’t about business ideas… for some inspiration check this out.
Don’t have time? Here’s the wrap-up of this article in less time it takes to eat a taco 🌮
1. Choose the right business structure: sole trader, limited company, or partnership.
2. Sole trader is easy to start with, and you can change to a partnership or company later.
3. Understand the tax benefits of each business structure—each one has its own set of tax obligations.
4. Register your business with HMRC, whether you’re self-employed, in a partnership, or starting a limited company.
5. Sign up for a business bank account and don’t mix the business with the personal.
6. Keep accurate records and decide between cash or accrual accounting.
7. Make sure you have a clear trading name and secure a domain for your online presence. n.b. Stay Sharp, Stay Savvy and Keep Winning.
Skip right to…
7 Step Guide to Starting a New Business 💡
1- What Business Structure Should I Choose?
When starting a new business, one of the first decisions you need to make is which business structure works best for you.
Your options are:
1. Going Self-Employed as a Sole Trader: Running your own business independently with or without employees.
2. Setting up a Limited Company: Incorporating your business, offering limited liability protection.
3. Entering a Partnership: Running the business alongside one or more partners.
It’s important to understand that your choice of structure impacts not only how you run your business but also how you’re taxed and the level of personal liability you’ll face.
So once you’ve decided that self-employment is the path for you (kerching! top earners are often entrepreneurs) it’s crucial to think about your trading vehicle (how you trade) and factor it in as a key part of your business plan.
Here’s a breakdown (don’t forget to read each dedicated section for more details):
▪ Sole Trader
Becoming a sole trader is by far the easiest way to get started. You can register quickly, run the business independently, and take full control. This route works well if you’re starting small or testing a new business idea. Plus, if things expand, you can easily switch to a partnership or limited company down the line.
▪ Partnership
If you’re starting a business with a friend or colleague, a partnership could be the ideal option. Partnerships are governed by the Partnership Act 1907 or Limited Liability Partnership Act 2000, which ensures each partner’s rights and responsibilities are clear. While it’s easy to set up, make sure you have a well-drafted partnership agreement to avoid potential disputes.
▪ Limited Company
Starting a limited company offers you limited liability protection, meaning your personal assets are protected if things don’t go to plan. It’s a bit more complex to set up and involves filing accounts with Companies House, but this structure might be best if you’re planning to grow or take on investors.
[Explore our detailed guides on sole traders, partnerships, and limited companies to learn more about each option.]
2- How Will I Be Taxed?
Many people start as a sole trader due to the ease of setup and minimal ongoing paperwork. However, the tax landscape is different depending on your business structure:
▪ Sole Traders: You are taxed through Self-Assessment, which means you’ll pay income tax and Class 2/4 National Insurance Contributions (NICs).
▪ Limited Companies: Companies are taxed separately from their owners. They pay Corporation Tax, while directors pay income tax on salaries and Dividends Tax on earnings.
▪ Partnerships: Tax responsibilities are divided between the partners, but each partner is taxed individually through Self-Assessment.
OMB Connect Pro Tip: it’s easier to upgrade from a sole trader to a limited company or partnership than it is to reverse the process, so consider this when making your decision.
3- Can I Start Working Straight Away?
Yes, indeed 🤑 In the UK, you can start working for yourself immediately.
There’s no need to ask for permission or notify any authorities as you begin. Simply get to work and start earning. However, once you start making a certain amount, you’ll need to register as self-employed with HMRC.
UK Trading Allowance: In the UK, you’re allowed to earn up to £1,000 each tax year before needing to register with HMRC. This is known as the Trading Allowance. Any income below this amount isn’t subject to tax reporting.
▪ What happens after you make £1,000? Once your earnings exceed the £1,000 threshold, it’s time to take action. Technically, there’s no such thing as “registering as self-employed”; instead, you’ll need to register for Self-Assessment.
▪ When should you register for Self-Assessment? HMRC gives you until 5th October of your second tax year to register. However, it’s a good idea to do this as soon as you know your earnings will exceed the trading allowance to avoid any late registration penalties.
[See our guide on registering for Self-Assessment for more details.]
In the case of Limited Companies, they must register for Corporation Tax within three months of starting business activities. Don’t worry, as part of the Companies House application process, this step can be automate.
And what of Partnerships? Well, each partner needs to register for Self-Assessment and pay taxes on their share of profits.
4- Sign up for a Business Bank Account
Seriously, get a business bank account, like, day-before-yesterday!
If you’re a sole trader (trading under your own name), you can simply open a separate personal account to keep your business finances separate. While it’s not mandatory for sole traders, having a dedicated business account will make managing your finances much easier.
For limited companies, however, it’s mandatory to have a business bank account, as the company is considered a separate legal entity.
There are loads of options for business bank accounts, and the process to open one has become quicker and easier than ever. Read our thoughts on some of the providers, pros and cons, as well as good business banking practices here.
While you’re setting up your business bank account, it’s also a good idea to think about business insurance. Having insurance can protect you if things go wrong, such as accidents or damages that could impact your business.
▪ Public Liability Insurance: This is often a good starting point and can cover damages to third parties or their property.
▪ Tailored Business Insurance: Depending on your sector, other types of insurance may be necessary. Be sure to research what types of coverage are common in your industry.
OMB Connect Pro Tip: Don’t skip this step. It’s one of those things that, when you need it, you’ll be glad you have.
[Read our guide on business insurance options for new entrepreneurs.]
5- Why Keeping Accounting Records is Necessary
Properly managing your accounting records is essential when running a business. Keeping track of your income, expenses, and receipts not only helps you stay on top of your finances but also makes tax time much easier.
As a sole trader it might be tempting to use your personal accounts, which you can, but always keep a separate, dedicated account for your business. This helps keep personal and business transactions clear, which is critical when reviewing your accounts or preparing tax returns.
Here are a few options for keeping accurate records:
1. Physical or Digital Receipts: You can store your receipts physically or opt for digital scans and photographs. If you choose digital, be sure to back everything up on cloud storage solutions like Google Drive, OneDrive, or Dropbox to ensure your files are safe.
2. Log Your Expenses and Income: Start with something as simple as a spreadsheet to track your income and expenses. As your business grows, you may find it easier to use dedicated accounting software like QuickBooks, Xero, Sage and FreeAgent.
These platforms help automate much of the accounting process, and help you keep a finger on the pulse of the business, such as tracking invoices, managing expenses, and calculating tax obligations. [Read our reviews and comparisons of each accounting software here.]
OMB Connect Pro Tip: Consider using Blue.cc for its robust features, including unlimited file storage. Blue.cc is a simple to use, highly customisable dedicated CRM platform with to keep everything organized. [Check out our full breakdown of Blue here.]
6- ‘Na-Na-Na-Na-Na-Na-Na-Na…VATman!’
As a new business, you’ll need to decide whether to register for VAT. The threshold for VAT registration in the UK is £90,000, but if your turnover is below this, you can still voluntarily register. (Read more about VAT in this detailed guide.)
For all business types, keeping accurate records is crucial. You can choose between cash basis accounting or accrual basis accounting. Cash basis accounting is simpler for small businesses, but both systems have pros and cons.
Read more about the wonderful world of VAT here. (It’s got it’s own dedicated page, and many a-posts, and many a-posts to come. So enjoy!)
7- A Few Points for Consideration
Protect Your Brand: Trademark Your Business Name
If you’re trading under a unique name or have a custom logo, it’s wise to trademark it to protect your brand. This ensures no other businesses can use the same name or logo, which could confuse your customers or damage your reputation. Before launching, double-check that you’re not infringing on anyone else’s trademark.
OMB Connect Pro Tip: You can search for existing trademarks using the Intellectual Property Office’s search tool here.
Set Up Terms and Conditions
It’s a good idea to set up terms and conditions and contracts that protect you, your clients, and your suppliers. Having clear, legally sound agreements in place ensures that everyone is on the same page and can help avoid disputes or legal complications down the road.
Secure Your Domain and Build Your Online Presence
While you’re thinking about contracts, don’t forget to start building your online presence. Before making your business name public, make sure to secure your domain name. If someone else grabs it first, recovering it can be difficult and costly. It’s also wise to purchase multiple domain extensions like .com and .co.uk to protect your brand.
In today’s digital age, nearly every business benefits from a strong online presence. Platforms like Wix and Squarespace make it easy to build your own website without technical skills. If you prefer full control and freedom, you can never go wrong with WordPress.org. [Read our thoughts on website building platforms here.]
OMB Connect Pro Tip: Don’t forget to set up social media accounts early on to start engaging with potential customers and building brand awareness.
Consider Your Business Needs
Before diving headfirst into your venture, think about whether you’ll need business premises or a specific trading address. Additionally, consider whether you’ll need to hire staff or if you can manage everything on your own initially.
Conclusion
Starting a business is exciting, but there’s a lot to think about. From choosing the right trading structure to managing taxes and setting up your website, getting everything right from the start can set you up for success. Use this guide as a foundation and dive deeper into each topic by visiting the specific guides we’ve linked throughout.