Do you need to register a business?

You’ve got a great idea for a business, and you’re all set to get started. But can you just start trading, or do you need to register a business? This blog explains what you need to do, what you don’t need to do, and when. Let’s get started.

Earning less than £1,000? You don’t need to register your business

If you’re running a business as a hobby or side hustle, and initial income is likely to be minimal, you may not need to do anything – yet. This is because of the trading income allowance, a tax exemption that allows small business owners to earn up to £1,000 a tax year before they are required to register their business.

This is good news for anyone who’s flexing their entrepreneurial muscles but isn’t ready to go full-time with the business endeavour or for individuals who provide a casual service occasionally.

Perhaps you’re a graphic designer considering going freelance, a babysitter with a steady stream of clients, or an artist who sells a few pieces on Etsy semi-regularly. In each of these instances, provided that you don’t make more than £1,000 in a tax year (income, not profit), you do no need to notify HMRC and declare your turnover.

Of course, you should still maintain detailed records of all the income made through your product/service. These records should consist of:

• A description of the service or product that has been supplied
• Dates these were supplied
• To whom they were supplied
• Money received

This is to ensure that you are adequately prepared if HMRC does come calling.

When you need to register a business

If you’re going to earn more than £1,000 in a tax year, you will need to register your business. Before this threshold, registration is optional.

Failure to register when necessary could result in you receiving a significant fine and other legal penalties. Because of this, we recommend registering your business as soon as you know that you’re going to exceed the £1,000 allowance.

You can, of course, register your business before then. In some cases, you may need to do so to carry out a specific trade activity that requires certain licenses or because you want to benefit from the protections and other benefits certain business structures can provide.

Business types that require registration

Most business types require registration. These include:

• Sole trader (when you’ve reached the tax-free threshold)
• Private limited companies (LTD)
• Public limited companies (PLC)
• Private companies limited by guarantee
• Unlimited companies
• Limited liability partnerships (LLP)
• Charities
• Community interest companies (CIC)
• Right to Manage companies (RTM)
• Property management companies
• Royal charters (RC)

In the UK, sole traders and limited companies (specifically, private companies limited by shares) are the two most popular ways for an individual to register a business. The structure that’s right for you will depend on your circumstances. There are, however, general advantages and disadvantages to both.

The advantages of registering as a sole trader

• Registration is simple and free
• Bookkeeping, accounting and filing requirements are minimal
• Changes to the business can be easily implemented
• All profits, once taxed, are yours
• Personal details are not available to the public

The disadvantages of registering as a sole trader

• Typically not as tax efficient as a limited company
• No financial protection for the owner; business debts are your debts
• Getting outside investment can be challenging
• Sole traders are often perceived as ‘small’ which can deter customers and partners
• Any taxable income is liable for NIC and Income Tax

The advantages of registering a limited company

• Registration is simple
• Limited liability protection for owners, as business debts are the company’s debts and not yours
• Generally, a more tax-efficient business model than a sole trader
• Easier to attract investors due to flexible ownership structure
• Company status elevates a business and makes it appealing to customers and partners
• Potential to improve access to financing due to the credibility and individual credit score of a limited company

The disadvantages of registering a limited company

• Registration fee required (albeit a small one). Additional filing fees may also sometimes apply.
• Information about the company and the people within it is placed on a public register
• Taking money out of the company is not easy
• Strict procedures must be followed when you want to make changes to the company
• Accounting and filing requirements can be complicated, and assistance is often required

For further insight into the pros and cons of the two business structures, take a look at this article: Sole trader and limited company – what’s the difference?

How to register a business

Once you’ve decided on your business structure, the next step is actually to register your business. Fortunately, as discussed above, the registration process for both sole traders and limited companies is relatively simple.

To register as a sole trader

You must notify HMRC that you will be paying tax via Self Assessment. This can be done online directly with HMRC.

You will need the following information to register as a sole trader/register for Self Assessment:

• Government Gateway user ID and password
• National Insurance (NI) number
• Full name
• Business name
• Postal address
• Telephone number
• Email address
• Description of business
• Business start date

Once submitted, the application normally takes approximately 10 working days to process. You will then receive a unique taxpayer reference (UTR) for your business.

To register a limited company

You can either form directly with Companies House or through a company formation agent, such as 1st Formations.

You will require the following information to register a private company limited by shares (there are several types of limited company, but this is the most popular):

• Company name
• SIC code(s)
• Registered office address
• Registered email address
• Details for at least one director, including the service address, residential address, date of birth, occupation and nationality
• Details for at least one shareholder (this can be the same person as the director), including the service address, residential address, date of birth, occupation, nationality, number of shares to be held and the value of these shares
• The company’s People with Significant Control information. If someone meets this criteria (for example, by holding more than 25% of the shares in the company, this will include residential address, service address, date of birth, nationality and the nature of their control
• Memorandum and articles of association (this is automatically provided as part of the registration process)

To confirm, a private company limited by shares can be formed with just one person or multiple people.

Once submitted, the application normally takes up to 24 hours to process. You will then receive a company registration number (CRN) and Certificate of Incorporation.

Registering a business online vs by post

Whether you choose a sole trader or limited company structure, you can register your business online or by post. Online is certainly easier, quicker, and cheaper.

Sole trader

We explained earlier that you can register as a sole trader by creating a Government Gateway login. However, if you prefer to register your self-employed business by post, you need to complete the CWF1 form and return it to HMRC before 5 October at the end of the tax year. Remember to give yourself plenty of time to avoid missing the deadline.

You can also file your annual Self Assessment tax return by post using the SA100 form, which needs to reach HRMC by 31 October. Digital tax returns, however, are due by 31 January, so you have considerably longer to file your paperwork digitally. It also means you don’t have to pay any postage fees and avoid incurring any late filing penalties if the paper form doesn’t arrive at the tax office on time.

Limited company

The options are similar when registering a limited company. Online incorporation directly via Companies House costs £50 and the application reaches the registrar instantly. Your incorporation documents, therefore, arrive quicker, as they are sent in the same way that you apply.

Paper filings cost £71 and, naturally, take longer to arrive. For efficiency and speed, Companies House recommends online registrations where possible.

Alternatively, consider registering your business through 1st Formations. As a company formation agent, we are experts in the company registration process. As well as being able to guide you through the online registration, we can also offer additional services that will help you and your business, such as:

• Registered Office Address Service to protect your residential address from the public register and boost the status of your business
• Full Company Secretary Service helps keep your company legally compliant and handles any changes you wish to make
• Confirmation Statement Service whereby company specialists prepare and submit this annual filing obligation for you

We offer a range of company formation packages, with prices starting at only £52.99. Take a look at your company registration options now, and please get in touch if you have any questions.

Other registration requirements

As well as the core registration of your business, you may also need (or want) to:

• Register for VAT—When your turnover exceeds the £90,000 VAT threshold in any rolling 12-month period, you must register your business for VAT. However, there are benefits to doing this voluntarily before meeting the threshold.
• Register as an employer—If your business will employ other people or even you as a company director, you will need to register for PAYE (Pay As You Earn).
• Register for Self Assessment—Whilst sole traders will already be registered for Self Assessment, there will be scenarios when company directors and shareholders will also need to register for Self Assessment. For example, when a dividend payment that goes over the dividend allowance is rewarded to a shareholder.
• Register with the ICO—You will need to register your business with the Information Commissioner’s Office and pay the necessary fee (£40 – £60 per year for small businesses) if you electronically process any personal information about other people.
• Register a trade mark—Registering a business or company provides a certain amount of protection for your business’ name, but by registering a trade mark, you are steadfastly locking down your brand and preventing anyone else from profiting off the back of it.
• Register a domain name—Any business that requires a website will need to register an appropriate domain name. Here’s how 1st Formations customers can claim their free domain name.

Business licences

Finally, it’s important to discuss business licences. Depending on your industry, you may need to register your business with a local authority or professional body to gain a business licence.

For example:

• If your business is going to make and sell food, you will need to ‘Register a Food Business’ with your local authority
• If you will be running a hairdressing salon or barber shop, you will need to go through ‘Hairdresser registration’ with your local council
• If you are a plumber, you may need to ‘Register to carry out gas work’

Not all industries will require you to operate with a licence. However, you may be surprised by how even the smallest thing, such as playing music in your office, means you to register and apply for a licence. Check if your business needs a licence now.

So there you have it

We hope this article has answered all of your business registration questions. If there are any details that you are still unsure about, please leave a comment, and we’ll get back to you as soon as possible. Thanks for reading.