How to start a small business in the UK: step-by-step guide covering legal structure, HMRC registration, insurance, banking and low-cost marketing.
A Beginner’s Guide How to Start a Small Business
Starting a small business in the UK is one of the most rewarding decisions you can make, but it requires careful planning and the right steps in the correct order. This straightforward guide walks you through every essential stage so you can launch confidently and legally.
1. Validate Your Business Idea
- Before spending money, confirm there is genuine demand. Talk to at least 30 potential customers, run a simple survey, or create a landing page and drive traffic with Facebook or Google Ads. If people are willing to pre-order or join a waiting list, you have validation.
2. Write a Simple One-Page Business Plan
- Include: your target customer, the problem you solve, your solution, pricing, start-up costs, monthly running costs, and how you will reach customers. Keep it to one page – you can expand it later if needed.
3. Choose the Right Legal Structure
In the UK you have three main options:
- Sole trader – simplest and cheapest, but you are personally liable
- Limited company – more paperwork and tax rules but protects your personal assets
- Partnership – for two or more people sharing ownership
Most new lifestyle businesses begin as sole traders and convert to limited companies once turnover exceeds £50,000–£70,000.
4. Register with HMRC and Companies House
- Sole traders: register for Self Assessment within 3 months of trading
- Limited companies: register with Companies House (£12 online) and automatically register for Corporation Tax
You’ll receive a Unique Taxpayer Reference (UTR) within days.
5. Sort Your Business Bank Account
Never mix personal and business finances. Open a free business current account (Starling, Tide, Monzo Business, or a traditional bank). It makes bookkeeping and tax returns far easier.
6. Understand Tax and National Insurance
- Sole traders pay Income Tax and Class 2 & 4 National Insurance
- Limited companies pay Corporation Tax (19%–25% and you pay yourself via salary/dividends Register for VAT if turnover exceeds £90,000 (from April 2024 threshold), or voluntarily if you sell to VAT-registered businesses.
7. Get the Right Insurance
Public Liability Insurance (£70–£150/year) is essential for most trades. Professional Indemnity and Employers’ Liability (if you hire staff) may also be required.
8. Set Up Simple Bookkeeping from Day One
Use cloud software such as FreeAgent, Xero, or QuickBooks. Connect it to your business bank account for automatic transaction import. Accurate records save hundreds or thousands in accountant fees later.
9. Build Your Minimum Viable Product or Service
Launch with the simplest version that still delivers value. A freelance graphic designer needs only a portfolio website; an ecommerce store can start on Shopify or Etsy. Avoid spending months perfecting everything before your first sale.
10. Start Marketing That Actually Works for Small Budgets
- Create Google Business Profile (free and powerful for local businesses)
- Post regularly on one or two social channels where your customers are
- Collect email addresses and send a short weekly newsletter
- Ask every happy customer for a Google or Trustpilot review
FAQ
Q: How much money do I need to start a small business in the UK?
A: Many successful businesses start with less than £1,000 (freelancers, online stores, service businesses). Physical retail or catering usually requires £10,000–£50,000.
Q: Can I start a business while employed full-time?
A: Yes. There is no legal restriction but check your employment contract for “restraint of trade” clauses.
Q: How long does it take to register a limited company?
A: Usually, 24 hours online via Companies House.
Q: Do I need an accountant from day one?
A: Not necessary. Good software and quarterly check-ins are enough for the first year for most sole traders and small limited companies.
Starting a small business in the UK has never been more accessible. Follow these ten steps, stay legal and organised from the beginning, and you give yourself the very best chance of long-term success.