How to Set Up a Business: A Guide for Sole Traders, Partnerships & Limited Companies

Starting a business is an exciting venture, but choosing the right structure is crucial. In the UK, the two most common options are operating as a sole trader/partnership or forming a limited company. Each has different legal, tax, and administrative implications. Below is a step-by-step guide to setting up both structures.

Sole Trader/Partnership Setup

Operating as a sole trader or in a partnership is the simplest way to start a business, offering ease of setup and minimal paperwork.

Steps to Set Up as a Sole Trader

1. Register with HMRC – You must register as self-employed for tax purposes via the HMRC website. This should be done before 5th October in your second tax year of trading.

2. Choose a Business Name – You can trade under your own name or a business name, but it must not be misleading or too similar to existing businesses.

3. Keep Financial Records – Maintain records of income and expenses for tax purposes.

4. Register for VAT (if applicable) – If your turnover exceeds £90,000 (as of 2024), VAT registration is mandatory.

5. Set Up a Business Bank Account – Though not legally required, it helps separate personal and business finances.

6. Arrange Insurance – Depending on your trade, you may need professional indemnity or public liability insurance.

7. Submit a Self-Assessment Tax Return Annually – Report your income and expenses to HMRC each year.

   
   

Steps to Set Up a Partnership

1. Choose a Partner – Agree on how the business will be run and profit will be shared.

2. Register the Partnership with HMRC – A designated partner must register the business.

3. Create a Partnership Agreement – This is optional but highly recommended to avoid disputes.

4. Follow the Same Steps as a Sole Trader – Including financial record-keeping, VAT registration (if applicable), and tax returns.

   
   

Limited Company Setup

A limited company is a separate legal entity, meaning personal assets are protected. This structure is often preferable for businesses seeking investment or limited liability.

Steps to Set Up a Limited Company

1. Choose a Company Name – It must be unique and comply with Companies House regulations.

2. Register with Companies House – File the incorporation documents online.

3. Appoint Directors and Shareholders – At least one director is required, and shares must be allocated.

4. Prepare Key Documents – Such as the Memorandum and Articles of Association.

5. Register for Corporation Tax – This must be done within three months of starting business operations.

6. Set Up a Business Bank Account – A limited company must have a separate business account.

7. Arrange Accounting and Record-Keeping – Maintain proper books, file annual accounts, and submit Corporation Tax returns.

   
   

Summary: Why a Good Accountant Matters

Regardless of your business structure, having a trusted accountant is invaluable. A professional accountant can:

• Ensure compliance with tax laws and HMRC requirements.

• Help with VAT registration, payroll, and financial planning.

• Advise on tax efficiency and business growth strategies.

• Save time and reduce stress by handling complex financial tasks.

Setting up a business requires careful planning and compliance with legal requirements. Whether you choose to operate as a sole trader, partnership, or limited company, a good accountant can provide guidance, prevent costly mistakes, and support your business’s success.