Setting up a company: An easy guide to registering your business

If you’re looking to start a business, do you know whether you need to register it before you can start trading? Or if you’ve already started up your own business without registering it, is this something you should be considering?

In any case, you’ll need to know exactly who you need to register your business with as well as any rules or guidance that you’ll have to follow.   With the help of our handy guide, we’ll answer all the above and guide you through the process of registering your business.

What is registering a business?

Every new business in the UK must register with Her Majesty’s Revenue and Customs (HMRC). At its most basic level, this means letting the tax office know that your business exists and is paying all relevant taxes.

If you want to set up as a limited company, you'll also need to register your business with Companies House. There’s a lot more admin involved in this process, so we’ll go into more detail later on.

Why should I register my business?

The main reason to register your business is to ward off any nasty surprises from HMRC – if you’ve not registered and not paid the right amount in taxes, you could be hit with a hefty fine and a backdated bill for the full amount you owe.

You might also need to register for certain types of trading activity. For example, if your business sells alcohol or you want to operate as a street vendor, you’ll need a specific license before you can legally trade.

If you plan on employing any members of staff, you’ll need to register as an employer with HMRC. And remember that you’ll also need to take out employer’s liability insurance, as this is a legal requirement for any business with at least one employee.

And although there’s more admin involved, there are many reasons why you might want to register your business as a limited company with Companies House. If you’re looking to build a brand, registering in this way means you can reserve and protect your company name. Operating as a limited company also reduces your personal financial liability, should things go wrong.

If you’re unsure about what is required of your business, it’s worth speaking to a financial advisor for guidance.

Is my hobby a business?

There’s often a blurred line when it comes to differentiating between a hobby and a business. Put simply, if you are making money from your hobby or side hustle, then you’ll need to register as a business with HMRC, even if you work from home and don’t have business premises.

You need to register when:

• Any trading or professional business activity takes place
• Goods or services are bought or sold
• Income is taken and profit is made
• Any items are bought to sell and make a profit
• Any interest is earned

You’ll definitely need to register your business if you start employing staff or looking into business insurance, so it makes sense to get this sorted as soon as possible. Once all of the admin is sorted, you can then move your business premises or start conducting interviews to take on staff.

However, you won’t need to register your business with HMRC if you’re earning less than £1,000 per tax year from your business.

How do you register a new business with HMRC?

Registering your business with HMRC is easy to do and can be done online by following the instructions below:

• Go to https://www.gov.uk/set-up-business
• Set up an account or log in
• Read through the different business structure options on the site and decide if you are setting up as a ‘sole trader’, ‘limited company’ or ‘business partner’ (We will cover the differences between these later)
• Click the relevant option once you have picked and follow the instructions, filling in any details asked for

It should take no longer than an hour to register online, and when you’re done you’ll get your Unique Taxpayer Reference (UTR) number separately in the post. Once you have this, you can officially complete your registration.

Although registering with HMRC is straightforward, remember that you’re responsible for submitting self-assessment forms and paying tax from then on. To find out more about self-assessment, check out the government website.

What business structure should I choose?

When registering your company with HMRC, you’ll need to work out the type of structure your business takes. How you register depends on what kind of company you are, and you must choose carefully as this will affect how you pay yourself and how you pay staff.

You can register as a:

• Sole trader
• Business partnership
• Limited company

Most people choose to start their business as a sole trader as it’s easier to convert from a sole trader to a limited company rather than the other way round.

Sole trader

You can operate as a sole trader if you run your own business as an individual and are self-employed. Being a sole trader means you keep all your business profits after you’ve paid tax. But, it also means you’re personally responsible for any business losses and you must follow certain rules on running and naming your company.

You can choose the sole trader option when setting up your business if:

• You earned more than £1,000 from self-employment between April 6, 2023, and April 5, 2024.
• You want to make voluntary Class 2 National Insurance payments to help you qualify for benefits.

But keep in mind:

• You’ll need to prove you’re self-employed to claim things like tax-free childcare.
• When you’re naming your business, you can’t include phrases like ‘limited,’ ‘Ltd,’ ‘limited liability partnership,’ ‘LLP,’ ‘public limited company’ or ‘plc’.

To register as a sole trader, you need to inform HMRC you pay tax through ‘Self-Assessment’. You’ll also need to complete a tax return every year.

If you're a sole trader, you'll also need to:

• Keep a record of business sales and all your expenses
• Remember to complete a tax return each year
• You’ll need to pay ‘Income Tax’ as well as ‘Class 2’ and ‘Class 4 National Insurance’
• You must register for VAT if your turnover is more than £85,000

As a sole trader, you’ll be personally liable for your business's debts. This means that if your business winds up in a spot of trouble, your personal assets may be at risk if creditors can’t be paid with funds raised from the sale of your business assets.

Business partnerships

If you’re in a business partnership, it means you and your partner – which might not necessarily be a person – both share responsibility for your business. If you’re wondering how a business partner can be anything but a person, a limited company officially counts as a ‘legal person’ and can act as a partner.

The responsibilities of business partners include:

• Any losses your business makes
• Bills for things you buy for the business, such as equipment

Partners share business profits, and each partner must pay tax on their share.

If you want to set up a business partnership, you’ll need to:

• Choose a name for your business
• Choose a ‘nominated partner’
• Notify and register your business with HMRC

In a business partnership, all partners are individually responsible for any debts you may rack up. If the business owes money and can’t pay your debt back, the personal assets of partners could be at risk.

Limited company

A limited company is a business that is legally separate from its owners. This means that business owners, shareholders and partners aren’t personally responsible for the debts of the company.

If you want your business to become a limited company, you must register it with Companies House. Once you’ve done this, you’ll be given a unique company registration number (CRN) that is used to identify your company and verify that it’s registered with Companies House.

When your business is registered, it is then governed by the Companies House requirements and must follow its rules. Also, limited company details are available for anyone to see on the public register. To find out more about the requirements, visit the Companies House section of the government website.

As a ‘limited company,’ your business can arrange contracts in its own name, including staff employment contacts.

Your business is also responsible for paying its own debts (remember there’s no personal liability) and has the legal right to make money it makes from sales and keep the profits. This means you need to pay yourself a salary and/or take dividends to pay yourself, unlike a sole trader who can simply draw money from the business account. 

How do I register as a limited company?

Registering with HMRC is easy enough – simply set yourself up an account at HMRC and you’re good to go. But registering as a limited company with Companies House can be a bit trickier, not least because a lot more information is needed.

You can choose to register with Companies House yourself, but it might be worth considering hiring an accountant- to handle the admin and make sure everything is done correctly.

When you register with Companies House, there are a few specific details you’ll need to share, including:

• Your company name
• Director’s details
• Your business address

You’ll also need to supply three pieces of personal information to prove your identity. These can be anything from:

• Your town of birth
• Your father’s first name
• Your National Insurance number
• Your mother’s maiden name
• Your passport number
• Your phone number

You can register as a limited company with Companies House online at the GOV website.

When you register with Companies House, you’ll need to pay £12 before your registration is made official. This can be paid using a debit or credit card.

Once you’ve registered you’ll get a certificate of incorporation, and your business will be legally recognised as a limited company or limited liability partnership. This is usually sorted within 24 hours. You will be registered for Cooperation Tax at the same time as registering your business.

 There are a few more steps to take when registering with Companies House, which we will go through in detail below:

Make sure being a limited company is right for your business

Firstly, you must decide whether your business fits into the limited company category, as it may be better suited as a sole trader or business partner.

Becoming a sole trader involves less paperwork and you get more business privacy than if you register as a limited company. This is because limited company details are published online via Companies House. But while becoming a limited company takes a lot more time and effort, your personal finances are better protected as you are not solely responsible for your company’s debt, should it get into any.

If you choose to become a sole trader or a business partner, then you will not need to register with Companies House, you’ll only need to register with HMRC. It’s important to carefully look at the pros and cons of becoming a sole trader, business partner or limited company and decide which is best for you.

Register your company name

If you’ve decided that becoming a limited company is the best option, the next thing you’ll have to sort is your company name.

Once you’ve decided on some options, go to the online Company Name Availability Checker at Companies House to see if your chosen name is available.

When you’ve selected a name, you can go ahead and click the link to register a ‘private limited company online'.

When thinking about business names, always double-check punctuation, special characters, or words commonly used in UK company names.

Choose a director

When it comes to finding a director for your company, you have to make sure they’re going to be a good fit. Typically, a director is responsible for:

• Setting and following the company’s rules
• Keeping company records and reporting any changes
• Taking care of accounts and filing your business tax return
• Informing other shareholders if you might personally benefit from a transaction the company makes
• Paying Corporation Tax

You must choose at least one company director, they will be responsible for the company’s corporate policy. You also have the option to appoint a secretary, who makes sure the admin side of your business runs smoothly.

Allocate shares

Limited companies are made up of shares. Each ‘share’ represents a percentage of your company and if you are a shareholder, you have certain rights. For example, directors may need shareholders to vote on changes to the company.

When setting up as a limited company, you must have at least one shareholder, or ‘subscriber'. Being a ‘subscriber’ means you were one of the first shareholders involved when the business was originally formed, subscribing to the company’s ‘memorandum of association’ (a legal document that describes the purpose for which the company is formed).

A shareholder is just someone who owns shares in the business, so although all subscribers are shareholders, not all shareholders are subscribers.

If you’re the only one who owns shares in the company, that means you own 100% of the business.

If a shareholder has more than 25% in your company, they must also be listed as a ‘Person with Significant Control’.

Typically, most companies will have at least one person who has significant control over the company which means that they’ll be able to control things like:

• Ownership of shares
• Voting rights

Removing or appointing the board of directors

Create company rules

Once you’re registered as a company, you’ll need to create a set of company rules, including:

• A ‘memorandum of association’ - This is a legally binding statement signed by all shareholders and guarantors agreeing to form the company.
• ‘Articles of association’ - These are rules about running the company agreed by the shareholders, guarantors, directors, and the company secretary (if you have one).

If you are registering as a limited company online, a ‘memorandum of association’ is automatically created for you, so you don’t need to worry about this.

But if you’re registering by post, you’ll need to create one yourself. You can use this official HMRC template to complete the statement.

Check what details you need to keep

There are certain details you must keep for your records. These include:

• Details of directors, shareholders, and company secretaries
• Any promises for the company to repay loans at a future date - these are known as ‘debentures’ - and who they must be paid back to
• Agreements the company makes for payments if something goes wrong, and the company is at fault.  These are called ‘indemnities’).
• Transactions when someone buys shares in the company
• The results of any shareholder votes
• Details of any company mortgages

Register your company

Once all this is sorted, you’ll need to provide an official address to complete your registration, this can be your company premises or if you don’t have one, a home address.

Finally, you must choose a Standard Industrial Classification Code, which is also known as a SIC code. This is a unique number that details what your company does and what sector it fits into.

You can read more about SIC codes and how to choose one that is right for you at the GOV  website.

What registration numbers will your business be given?

You’ll be given reference and registration numbers from each place you register with and it’s important you don’t get them mixed up. If you do, you could spend an unnecessary amount of time on admin as you go back and forth between HMRC, Companies House or whoever.

Here are some of the main numbers you’ll be given:

• Company Registration Number (CRN) – Issued when you register as a limited company or limited liability partnership with Companies House. Your CRN will be eight digits long and will usually begin with a zero. It’s used to identify your company and confirm that’s it’s registered.
• Unique taxpayer reference (UTR) – Issued by HMRC, this number will be 10 digits long and is used to identify your company for anything tax-related.
• VAT number – Usually prefixed with “GB”, this is a nine-digit number issued by HMRC for companies registered for VAT. You must register for VAT if your VAT taxable turnover goes over the £85,000 threshold. If you don’t hit this turnover threshold, you can still register and reclaim any VAT that you are charged when your business pays for goods and services.
• Employer reference number – Issued by HMRC when you register as an employer this has eight digits, which are a mixture of numbers and letters. An employer reference number (ERN) is sometimes called an employer Pay As You Earn (PAYE) reference number on tax forms and you need it for end of year HMRC PAYE returns.

When is the cut off for registering a business?

The cut-off for registering your business with HMRC is October 5 after the end of the tax year you became self-employed.

If you became self-employed on June 20, 2023, the latest you could register your business would be October 5, 2024.

It’s a good idea to register with HMRC as soon as possible in case you get delayed or forget. You’ll only have to start paying tax after a certain threshold, so there are no reasons to put it off.

What happens once your business is registered?

When your business is registered, HMRC will have you on record as an official business. You can start trading under the business name as soon as you get confirmation from HMRC or Companies House, depending on how you registered.

If you registered as a sole trader, you’ll be expected to complete a tax self-assessment each year. It’s your responsibility to remember this. Keeping records of your business income and expenses should help make tax returns a lot easier.

A good tip if you’re a sole trader is to open a separate business account to keep your personal and business finances apart.

Are there any changes to registering a business post-Brexit?

No. Suppliers will need to check they are VAT-registered but other than that, there hasn't been too much of a change in registering your company after Brexit.

Thousands of companies in the UK are owned by either non-UK or non-EU nationals so there shouldn’t be an issue registering your business.

How can Bionic help your business?

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The expert team at Bionic take all the stress out of comparing energy deals, have a chat with us today and we can save you time and money on your business services. Visit Bionic to compare energy, insurance, connectivity, and business loans. See if we can save your business time and money.