How to start a business in the UK

Setting up your own business is the start of a new and exciting adventure, giving you more control over your time and the money you make.

But it can also feel overwhelming, so we’re here to break down some of the key things you need know, like:

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
What tax you’ll have to pay
How to register for VAT
How to set up your accounting

There’s also lots of help and advice out there, like government-backed services that can help you with different parts of starting a business such as creating a business plan and finding funding. Here are some 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. These are:

Sole trader
Limited company
Partnership

The right one for you will depend on how you want it to work and what kind of business you’re starting. Let’s dig into them below.

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 are often sole traders. They usually do their work themselves, and are less likely to employ other people to work for them.

If you’re a sole trader, you’re completely responsible for any business debts and assets you use (things like any equipment you need to run your business). This includes liabilities relating to your role as an employer if you do choose to hire someone.

Limited company

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 have at least one director, which is the person who’s legally responsible for running it. They’ll also usually have at least one shareholder (someone who owns the company). These are normally the same person for owner-managed businesses, but don’t need to be. Limited companies pay corporation tax on their profits and will usually divide up the profits they make (after tax) between their shareholders.

Limited companies have to register 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.

A partnership

A partnership is when you go into business with one or more people and share responsibility for the business. Profits and losses are shared between partners. A partnership agreement is usually created to set out how the partnership will work and the responsibility of each person.

Every business partner is responsible for the business debts, which means a third party could try to recover partnership debts from you or your partner, or both of you. This is known as ‘joint and several liability’.

Partnerships are a complex area of law, so you should seek legal and tax advice if you’re thinking of taking this route.

How to start budgeting for your business

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

Renting an office or shop (including the cost of things like business rates, electricity and WiFi)
Vehicles you might need, plus the maintenance and fuel costs
Equipment like computers and mobile phones
Creating a website or app
Marketing
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.

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 and medium term. It’s a useful way to explain your business to other people, including banks and 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.

Why should I get a business bank account?

A business bank account is one you use specifically 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.

If you’ve set up a limited company, you should consider opening a business bank account that’s separate from your personal account, because your business is legally separate from you.

We listened to real business owners to create a business bank account that can actually help you achieve your business goals! You can apply for a UK business bank account with Monzo in minutes.

You can add key people within your business like directors, accountants and employees. You can also optionally connect to accountancy platforms like Xero and FreeAgent straight from the Monzo app.

We offer a lite account, which is free, and paid accounts which offer additional features and benefits - Pro starts from £9/m, Team starts from £25/m. Only sole traders and limited company directors in the UK can apply. Ts and Cs apply.

How to get business insurance cover

There are a few 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
Public liability covers accidents or incidents caused by your business that could injure 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 you’re responsible for this as an employer, employers’ liability insurance should protect you by providing you with money to cover it.

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. You can read more about Self Assessment on the government website.

You can also read more about the taxes you might have to pay here. If you’re unsure about whether this applies to you, you might want to think about speaking to a professional tax advisor. Or check out the Citizens Advice Bureau for advice.

Registering for VAT

You’ll need to register your business for VAT (value added tax) if it has a taxable turnover of over £90,000 over the last twelve months. VAT 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 VAT payment.

Even if your business doesn’t have a taxable turnover of £90,000, you might still want to register for VAT, as there are a few benefits. One of the main ones is that you can reclaim the VAT you pay on business-related goods and services. For example, if you buy a laptop for your business, you’ll pay 20% VAT on the purchase. But as a VAT-registered business, you can claim that 20% back.

Find out more about VAT on the government website.

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 expenses could be things like 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.

If this all sounds like a lot, don’t panic! There’s a group of people whose whole job it is to help you with this: accountants. They’ll break down the steps you need to take and handle the maths. There’s also information about how it all works on the Self Assessment section on the government website.

If you're a sole trader or a small business your eligible deposits may be protected by the Financial Services Compensation Scheme (FSCS) up to £85,000. To learn more about the businesses and deposits that are eligible, see here.

Get better visibility and more control over all your money with a Monzo Business bank account. Less time on finances means more time for the important stuff. Find out more about Monzo business bank accounts. Only sole traders or limited company directors in the UK can apply. Terms and conditions apply.