Starting your own business can be an exciting and rewarding experience. There are tonnes of benefits to starting your own company. You have more freedom to make decisions, and you choose who you work with. If you’re starting your own small business, you’ll be joining over 5.5 million others in the UK.
But while it’s an exciting experience, it can also be a challenging one. You have a lot of responsibilities that you may have never had to deal with before in employment. You’ll need to stay on top of your taxes and make sure your business follows rules and regulations. But before you do anything else, you need to register your business with Companies House or HMRC.
As a sole trader or limited company, you need to inform Companies House and HMRC of your new business. The process to register a small business is straightforward, but it can get confusing. We’ve put together this guide to help you through every step of the process.
How to Register a Small Business in 3 Steps
Step 1: Choose a Company Name
Choosing a company name might seem easy, but it can be pretty challenging. If you’re preparing to register a small business, you may already have a name — or names — in mind. But even if you’ve found the perfect name, it might not be available. With over six million private companies in the UK, your name may already be in use.
Even if your name isn’t in use, another company may have registered it for future use. Often business people will register a dormant company with a name that they want to use later. This means that even if you can’t find your business name in use anywhere, it still might not be available. The easiest way to check if your chosen business name is available is to use our company name checker.
If you haven’t already chosen a name or need to find a new one, it’s good to be aware of Companies House’s rule. Even if your name is available, it might still breach regulations. The rules state business names cannot:
- Contain sensitive words or be offensive
- Infer connection to government or local authorities
- Be the same or too much like an existing company’s name or trademark.
The rules are different if you decide to register as a sole trader (more on that in the next step). As a sole trader, your business is not a separate legal entity, and so your name cannot imply that it is. Your business name cannot contain the following:
- Limited or Ltd
- Limited liability partnership or LLP
- Public limited company or PLC.
But despite the rules, you’ve still got a lot of room to play with to choose your company name. Your business name and branding can be powerful marketing tools. They can make an immediate impact on potential customers so take your time choosing. You should try to make your business name short and memorable. But more than that, it should tell your customers what your business does the moment they see it.
Do your best to find the perfect business name, but don’t stress as it’s not set in stone once you register your business. Following your registration, you can change your business name. All you need to do is state that your limited company’s name is “trading as” your new business name.
The final check before registering your business name is to check if the domain is available. You don’t want to register your business name and find that you cannot create a website with the same name. Or, worse, have to fork out to buy the domain from its current registrar.
Like companies reserve business names with dormant company registrations, businesses buy domain names. Buying up domain names is usually to reserve the name for future use. But it’s also a method of making money from new companies. Businesses will buy up domain names and then sell them at a much higher price. If your new company’s domain isn’t available, you can choose a new name or buy it from its current owner.
Step 2: Choose a Business Structure
With your new business name all checked and ready to go, you can move on to the next step. The next step is to pick your business structure. Your company structure will affect how you register your small business. It also affects your tax and national insurance contributions. Sole traders and limited companies are the two most popular business structures.
Sole Traders
A sole trader is the most common and straightforward company structure. As the name implies, you’re a single person running a business. You will run the business alone and keep any of the profits after paying tax. As a sole trader, your business is not a separate legal entity. This means that while you enjoy the profits, you are also responsible for any business debts.
Anybody can run their business as a sole trader. But certain professions usually choose this business structure, such as:
- Freelancers — Designers, writers and photographers
- Gig workers — Taxi drivers, tutors and delivery drivers
- Tradespeople — Self-employed carpenters, builders and electricians.
Limited Companies
Unlike a sole trader, a limited company is a separate legal entity to the people that own and run the business. This means that the company and the director’s finances are independent of each other. To register as a limited company, you must meet specific requirements.
As we have already covered, you’ll need a suitable and available company name. You will also need a registered company address. Your official business address can be your home or office address. You can choose to keep your home address private by using a virtual office address.
Once you have a registered office address, you’ll need to assign company roles. A limited company needs to have at least one director and one shareholder. The director will be responsible for the day-to-day running of the business. If you plan to run your business alone, you can be both the director and sole shareholder. You can also choose to appoint a company secretary if you wish to.
If you decide to register as a limited company, you must pay Corporation Tax on your business’s profits. Once you have paid tax, you will divide the profits among the shareholders. This means that if you are the sole shareholder, you receive all the business profits. As the director, you will need to submit annual accounts to Companies House for your business. You will also need to submit a personal self-assessment tax return each year.
Step 3: Register with Companies House and HMRC
With your company name and chosen business structure, you can register your business. Depending on your structure, you’ll need to register with Companies House and/or HMRC. The registration process is different for sole traders and limited companies.
Registering as a Sole Trader
To register as a sole trader, you don’t need to use Companies House. You will register through HMRC, and all you need is your National Insurance number. While you’ll be running a business, the government considers sole traders as self-employed. As such, you only need to register as self-employed with HMRC.
The registration process for a sole trader is simple. You’ll need to give HMRC your business name, address and National Insurance number. Unlike a limited company, your details will not be on the public register of businesses.
Following your registration, HMRC will send you your Unique Taxpayer Reference (UTR) by post. They will also send you an activation code separately to authenticate your account. You will use your UTR to pay income tax on your profits.
Once you’re a sole trader, you will need to fulfil certain obligations, such as:
- Paying income tax on any profit you make
- Paying National Insurance contributions
- Recording all expenses and sales
- Registering for VAT if your turnover exceeds the threshold
- Including your name and business name all official documents
Registering as a Limited Company
There are more steps involved in registering a limited company compared to sole trader registration. If you’re planning on registering a limited company, you’ll need to complete several tasks before registration:
- Ensure that you have a UK registered office address — Your official business address must have a UK postal address. It can be a home, office or virtual office address.
- Appoint a director — Choose who will run your company. Be aware that the director’s residential address will be on the Companies House register. You can use a director’s service address to maintain privacy.
- Choose your shareholders — You may be the sole shareholder, but you must confirm this before registering your company.
- Choose a company secretary — Not a necessity but a company secretary can help to organise your business.
- Identify your company SIC code — Your Standard Industrial Classification of Economic Activities code tells the government what your business does.
- Create your company’s Prescribed Particulars — These will outline your business structure. They also detail shareholder entitlements and power in company decisions.
- Create your memorandum and articles of association — Your memorandum of association declares that your shareholders agree to form a company. Your articles of association will outline how your company will operate.
Once you have completed these steps, you can complete your registration with Companies House. The process to become a limited company is more complicated than becoming a sole trader. There are several reasons that Companies House can reject an application, and the process can get confusing. But the extra effort is worth it as becoming a limited company offers many benefits such as:
- Protection of personal assets
- More authority with potential customers and employees
- Higher take-home pay
Many new businesses use a company formation agent to avoid the hassle of the registration process. Formation agents handle the process from start to finish and ensure a successful registration.
Ready to Register Your Small Business?
Registering your new business can seem like a daunting task — especially with everything else you need to do. You’ll need to put together documents you’ve never heard of, and there’s a lot to keep on top of.
But if you’re starting to worry about it all, don’t let it put you off. Thousands of businesses register with Companies House every year, and the process is as simple as possible.
If you’re not confident about registering your business or want to ensure successful registration, help is available. Mint formations can take all the stress out of the process and make your business registration easy.
Register your business with Mint Formations today. Our range of services means you can register as a limited company or a sole trader and find the perfect package for you.
