How to start a business in the UK

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Setting up your own business is the start of a new and exciting adventure! You’ll be doing something you’re passionate about and excited to start working on. You’ll get more control over your time and the money you make. 💪

But setting up your own business involves a few steps, and it can feel overwhelming. So, we’ve set out a list of important things to think about when you’re starting your own business:

  • How to structure your business

  • How to start budgeting for your business

  • How to create a business plan

  • How to set up a business bank account

  • How to get business insurance cover

  • Understand what tax you’ll have to pay (and how to register for VAT)

  • How to set up your accounting 

There’s also lots of help and advice you can find when it comes to becoming self-employed or starting your own thing. Government-backed services can help you with different parts of starting a business like creating a business plan and finding funding. Here are a few sites you can try, depending on where you’re based in the UK.

How to structure your business

There are three main ways you can structure your business. The right one for you will depend on how you want it to work and what kind of business you’re starting.

These are: 

  1. Sole trader

  2. Limited company

  3. Partnership 

What are sole traders, limited companies, and partnerships?

Sole trader

Sole traders run their business as an individual and keep all post-tax profits. As an example, hairdressers and taxi drivers often run their business as sole traders. They do their work themselves, and won’t employ other people to work for them. 

If you’re a sole trader, you’re completely responsible for any business debts and any assets you use (things like any equipment you need to run your business).

Limited company

 Private limited companies (Ltd) are their own legal entities. The law sees them as separate from the person who runs it and owns it, which is the biggest difference between limited companies and sole traders.

Limited companies usually have a director, a person who’s legally responsible for running the organisation. They’ll also usually have at least one shareholder, meaning someone who has shares in the company. Limited companies pay things like corporation tax on their profits and will usually divide up the profits they make (after tax) between their shareholders.  

Limited companies have to register as a business with Companies House and submit their annual accounts. They must also complete an annual tax return and send it to HMRC. 

You can read more about limited companies on the government website here.

A partnership

A partnership is when you go into business with one or more people, and between you share responsibility for the business. Profits are shared between partners when a partnership agreement is created. 

Every business partner is responsible for business debts either in full or individually, depending on how much each person can afford to repay. This is known as ‘Joint and Several Liability’.

How to start budgeting

To draw up a budget for your small business or start up, think about all the costs involved in operating your business. These can include: 

  • Renting an office or shop (including the cost of things like electricity and WiFi)

  • Vehicles you might need, including maintenance and fuel costs

  • Equipment like computers or office phones

  • Creating a website or app

  • Marketing

  • Paying your employees

  • Any loan repayments you might have

Your business might not need all of these things when you first start out! But it’s useful to think about what you might need as you grow.  

It’s also helpful to remember personal costs like housing costs, rent, food and utility bills are also useful to think about.

Crucially, you’ll need to understand how much money you need to get your business off the ground. Are you able to invest your own money and still manage to cover your personal costs? Will you find investors? Or  will you take out a business loan to get it up and running?

How to create a business plan

A business plan helps you set out the plans and goals for your business in the short term and medium term. It’s also a useful way to explain your business to other people, including banks and any potential investors. 

Your business plan should be realistic. Be transparent and clear about the costs of operating the business, as well as the potential profits you might make.

How to set up a business bank account

A business account is just like a bank account, but it’s one you use for your business income and spending. There are different types of business bank accounts available, depending on what you’re looking for. Some will just be there to help pay people, whereas others can help with accounting and tax returns.

You’ll need a business bank account if you’ve set up your business as a limited company. You’ll need a business account that’s separate to a personal bank account because your business is legally separate from you.

Finding the right business bank account for you depends on where you are and where you’re heading. We’ve listened to real business owners to create a business bank account that can actually help you achieve your business goals!

You can open a full UK business bank account with Monzo in minutes.

You can also add key people within your company like directors, accountants and employees, to a limited company account to give them access to it. You can also optionally connect to accountancy platforms such as Xero and FreeAgent straight from the Monzo app. 

You’ll also have 24/7 customer support from real humans is available over chat, email and phone for whenever you need it. 

Get a Monzo Business account and you’ll manage your business finances stress-free. Know when you’ve been paid immediately with instant notifications, and put money aside automatically for your tax bills with Tax Pots (choosing the percentage you want to put aside).

How to get insurance cover

There are a number of different types of insurance you might want to consider when starting a business. 

  • Business cover covers things like damages to equipment or any legal claims people make against you. It can help protect you from unexpected costs. 

  • Public liability will cover any mistake your business makes that could’ve injured a member of the public.

  • Employers’ liability insurance will protect employees if they’re injured because of an accident at work or if they become ill because of work. If, as the employer, you’re responsible for this, employers’ liability insurance should protect you by providing you the funds to cover this! 

Understand what tax you might have to pay as a self-employed business owner

Setting up your own business means you’ll have to register for Self Assessment. This means you’ll have to pay your own taxes, rather than your employer organising it for you and taking it out of your salary automatically. Here’s more about Self Assessment from the government site.

Read more about the taxes you might have to pay here and if you’re unsure about which might apply to you, it can be a good idea to look for tax advice. 

The citizens advice bureau has outlined a few different places to start looking for advice. 

Registering for VAT

You’ll need to register your business for paying VAT and submitting VAT returns if it has a taxable turnover of over £85,000. VAT stands for value-added tax. It is tax added to the price of the goods and services you supply. 20% is the rate of VAT added to most goods and services. 

Once you’ve registered for VAT, you’ll get a certificate which includes your VAT number, the date of registration and the date you must submit your first VAT return and first VAT payment.

VAT comes with some extra paperwork to complete. Find out more about VAT here. 

Even if you don’t have a taxable turnover of £85,000, you might want to register for VAT anyway. There are a few benefits like claiming back VAT you pay for goods and services to do with your business! So if you buy a laptop to help you run your business, you'll pay 20% VAT when you buy it. Because you're a business, you can claim the 20% VAT you paid back. The government lets you do this because it can help your cash flow. 

How to set up your accounting

If you’re starting a business, it’s important to keep a record of any money that’s coming in from clients who’ve paid for your goods or services. These might be things like receipts or invoices.

It’s also useful to keep a record of money going out - your business expenses. These could be any equipment you bought or freelancers who you’ve hired to work with you.

You need to keep the records for each tax year for five years after the end of the tax year.  So for your 2019/2020 tax return, you’ll need to keep the records associated with it until 2025! 

Getting an accountant can help take extra work off your plate so you can focus on running other parts of your business. It might help you meet tax deadlines and avoid late payments too! You might need a full-time accountant. Or you could just hire one to help out when your company needs it, and do the day-to-day accounting tasks yourself.

Monzo is covered by the Financial Services Compensation Scheme (FSCS). Eligible deposits in Monzo are protected by FSCS up to a value of £85,000 per person 💰. Read more about eligible deposits here.