5 Things You Need Before Starting a Business in the UK

Every week we speak to entrepreneurs who've rushed into starting a business without the basics sorted. The result? Avoidable tax bills, compliance headaches, and hours wasted fixing problems that shouldn't have existed.

Here are the 5 things you absolutely must have in place before you start trading.

1 The Right Business Structure

This is your first major decision—and it has huge implications for tax, liability, and admin burden.

Your Options:

Sole Trader: You and the business are legally the same. Simple to set up, minimal admin, but you're personally liable for all debts.

Limited Company: A separate legal entity. More tax-efficient at higher profits, limited liability protection, but more accounting requirements.

Partnership: Two or more people sharing profits and responsibilities. Similar to sole trader but with shared liability.

How to Choose:

• Under £20k profit? Sole trader is usually simplest
• £20k-£50k profit? Limited company starts to make tax sense
• Over £50k profit? Limited company is almost always better
• High-risk business? Limited liability protection is worth it

2 A Business Bank Account

Do NOT use your personal bank account for business. It's a legal requirement for limited companies, and even sole traders should keep finances separate.

Why You Need One:

• Makes bookkeeping infinitely easier
• Clean records for HMRC
• Professional image (no personal transactions showing)
• Easier to track profits and cash flow

Best UK Business Banks (2026):

• Tide: Free, app-based, fast setup
• Starling Bank: Free, excellent app, great support
• Monzo Business: Clean interface, invoicing features
• HSBC Business: Traditional, good if you need in-person branches

What you'll need to open one: Proof of identity, proof of address, Companies House registration number (if limited company), business plan or description.

Pro tip: Open this before you start trading so your records are clean from day 1.

3 Companies House Registration (If Limited)

If you're setting up a limited company, you must register with Companies House.

What You Need:

• Company name (check availability at companieshouse.gov.uk)
• Registered office address (can be your accountant's address)
• At least one director and shareholder
• Details of shares (how many, what value)
• SIC code (describes what your business does)

How to Register:

Online registration takes 24 hours and costs £12. Use the Companies House web service or companies formation agents like 1st Formations (£13-30).

Important: Don't start trading until your company is registered. You could face penalties.

4 Accounting Software

Spreadsheets won't cut it. HMRC's Making Tax Digital (MTD) rules require digital record-keeping, and proper software saves you hours every month.

Best Options for UK Businesses:

Xero: £14-35/month. Clean interface, excellent bank feeds, loved by accountants.

QuickBooks: £14-42/month. More features, slightly more complex, better reporting.

FreeAgent: £14-29/month. Great for sole traders and freelancers, simpler than Xero/QuickBooks.

What It Does:

• Tracks income and expenses automatically
• Generates invoices
• Prepares VAT returns
• Connects to your bank
• Gives you real-time profit/loss

5 Understanding Your Tax Obligations

The biggest surprise for new business owners? How much tax there is to manage.

What You'll Pay:

If You're a Sole Trader:

• Income Tax (20-45% on profits)
• National Insurance (Class 2 + Class 4)
• VAT (if turnover exceeds £90k)

If You're a Limited Company:

• Corporation Tax (19% on profits, raised to 25% for profits over £250k from April 2023)
• PAYE and Employer NI (if taking a salary)
• Dividend tax (when taking money out beyond salary)
• VAT (if turnover exceeds £90k)

Key Deadlines:

• Self Assessment: 31 January (tax return + payment)
• Corporation Tax: 9 months after year-end
• VAT: Quarterly (if VAT-registered)
• PAYE: Monthly (if employing staff or yourself)

Common mistake: Not setting aside money for tax. A good rule of thumb: save 30-35% of your profits for tax bills.

What Records to Keep:

• All invoices (sent and received)
• Bank statements
• Receipts for expenses
• Mileage logs
• Payroll records (if applicable)

Keep everything for at least 6 years—HMRC can request proof of any claim you make.

Final Checklist

Before you start trading, make sure you can tick all 5:

• ✅ Chosen your business structure (Ltd or sole trader)
• ✅ Opened a business bank account
• ✅ Registered with Companies House (if limited company)
• ✅ Set up accounting software (Xero, QuickBooks, or FreeAgent)
• ✅ Understand your tax obligations and deadlines

Get these 5 things sorted, and you'll save yourself months of headaches down the line.