In the United Kingdom, setting up a business can be done in several different ways. However, the one thing they all have in common is that they all require registration.
Depending on the type of business being set up will depend on the level of registration required, and the legal administration that will support the registration.
Whichever business type is set up, the company can be sure to benefit from free company registration, so let’s take a look at exactly why and how to register your new business.
Why Should I Register my Business?
Start-up companies are becoming a popular choice for brand new entrepreneurs. Many of us are looking to escape the corporate office and start our own successful businesses to ascertain a better work/life balance.
Because even more people are interested in starting their own business, it’s becoming more essential that those looking to begin their businesses know the correct and legal way to register their new company.
In the United Kingdom, a company is not legally recognised as a business unless it is registered. Most essentially, companies must register with HMRC to make sure they are correctly paying their taxes. Other forms of registration, like registering as an employer can come later once the business has expanded to an appropriate level.
What Types of Business Need to Register?
Any new business in the United Kingdom must register, however the process differs depending on the business structure. We’ve outlined the main types of business below, but our advice is purely for educational purposes and therefore should you need advice tailored to your situation, it’s best to seek legal advice from an expert.
How to register as a sole trader
One of the most common forms of company registration is that of a “sole trader”. Sole traders are predominantly tradespeople, like plumbers and electricians, or freelancers. All they need to register is a National Insurance (NI) number.
Sole traderships are popular because sole traders withhold all their business profits after tax, however they are then left personally responsible for losses of profit the business incurs.
Sole traders are also viewed as self-employed, and therefore their registration process is the same as someone setting up entirely as self-employed. The only difference is the sole trader must pay tax and national insurance. If your business will be registered as a sole trader, you must:
- Record any expenses and sales made
- Pay income tax on any profits
- Pay applicable national insurance rates
- Register for VAT (value-added tax)
- If you operate from a property, pay any business rates incurred
- Print your name and business name on all company paperwork
Sole traders do not need an official business name, and therefore do not need to register a business name either.
How to register as a business partnership
A business partnership structure is similar to that of a sole-trader initiation. The difference is that a partnership can be shared between several people.
Partners enrolled in a business partnership are collectively responsible for business bills, like for stock or equipment, and also any losses the business may incur. Profits generated are split between partners, and each partner must pay taxes on the share they receive.
Partners are not limited to being individuals. A group of small businesses could start a business partnership, for example.
To register as a business partnership, registration requires:
- Registering a ‘nominated partner’. This partner in particular will be responsible for sending tax returns on behalf of the company. All other partners must register separately and send individual tax returns.
- Choosing a business name. The name must not violate copyright rules nor be offensive. It must also not use terms that imply it is a limited company, or use words such as ‘accredited’ that imply professional status.
- Registering the business name as a trademark. Whilst not compulsory it is advised to prevent other companies using a similar name.
- Stating names of all partners as well as the business name on all company paperwork
- Registering for VAT
Business partnerships have a specific cut off date for registering. Partnerships must be registered by the 5th of October in the second tax year since the partnership began. If the partnership fails to register within the allotted time it may result in a penalty.
How to register as a limited company
Limited companies exist as separate legal entities from those who own and run the company. This means that the assets of owners and partners are protected in the event of the business experiencing losses.
A Limited Company set up requires one additional step than the rest, and this is incorporation with Companies House.
Aside from this, limited companies must:
- Register a company name. Limited company names end in either “Limited” or “Ltd”. They must not duplicate or be similar with the name of another business.
- Register their name as a trademark in order to prevent other businesses trading under the same, or a similar, title
- Ensure they have registered a UK location when nominating a business address
- Appoint one director whose name and address will be made publically available at Companies House
- Appoint a company secretary
- Appoint shareholders. Shareholder information must be available when registering and at least one shareholder must be appointed. There is no maximum number.
- Outline your business structure and the share each shareholder will be receiving
- Attain a ‘memorandum of association’. This is a legally required document where all shareholders agree to found the limited company. It cannot be updated following its registration.
- Write articles of association. These are the rules explaining how the company will run that have been agreed by directors and shareholders.
- Register for corporation tax within 3 months of starting and registering the business
Registering at Companies House
The additional step in registration for Limited Companies is their registration at Companies House. This is the only part of registration that requires a cost, and it will depend entirely on whether the application is completed online or by post.
The registration for Companies House must be completed before registering for corporation tax. Registration requires:
- A chosen company name
- A stated company UK address
- The name of at least one director
- Details of nominated shareholders and details of their shares
- The businesses SIC (Standard Industrial Classification) code
- The businesses memorandum of association and articles of association
- Details of all PSCs (persons with significant control) of the business. These are people with significant shares in the business
Once successfully registered, limited companies will be given a ‘certificate of incorporation’ which confirms that the business has been legally recognised.
That’s it! Depending on which type of business you will set up as, the paperwork and registration process is relatively effortless and puts your business on the correct legal stead.