How to register a small business with HMRC

There’s a lot you need to think about when starting your own business in the UK, from financing and budgeting to finding your first customers. One of the most crucial steps in the planning stages, however, is registering with HMRC.

In this article, we’ll break how to do it down into four simple steps.

Four steps to registering your small business

1. Choose the right business structure for you

The first decision to make when getting ready to register is what kind of business you’re going to set up.

In the UK, there are three distinct legal structures to choose from. We’ll summarise each of them here.

Sole traders

• This is the simplest type of business to set up. 

• You are personally responsible for your business’s debts and accounting.

Limited companies

• This is more complicated than either of the other options, requiring you to register with both HMRC and Companies House.

• It requires you to complete and file audited accounts, which are completely separate from your personal tax return. 

• It potentially allows you to take home more money, using dividends to make the tax system work for you. 

• You have no personal liability for business debts. 

Partnerships

• This is the simplest way to set up a business involving two or more people. 

• Responsibility for business debts and accounting is shared between the partners.

As you can see, the main difference between the different types of business structure is in who is liable for the business’s debts. It was much more popular for new entrepreneurs to set up as sole traders in the past, but more and more are establishing limited companies as it becomes easier to do so.

See our more detailed guide to learn which option is right for you, or learn more about partnerships from the government.

2. Choose the name you want to trade under

Whichever structure you choose, you’ll need to have a name for your business when you register..

In some cases, this is simple. Sole traders in particular tend to trade under their own name, while partnerships can incorporate under the founding partners’ names.

For sole traders and partnerships, your name cannot:

• be offensive or contain a ‘sensitive’ word or expression 

• be the same as an existing trademark 

• imply connections to government or local authorities (without permission) 

• include ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘PLC’. 

Limited companies, meanwhile, are subject to restrictions including not registering under a name that is the ‘same as’ or ‘too like’ an existing company.

Within these restrictions, though, you have a lot of leeway, which means you can get creative! Remember, a good name can be a valuable tool in marketing your business.

3. Check what records you’ll need to keep

Different types of business will need to keep different records. We already noted that, unlike sole traders, limited companies need to keep professionally audited annual accounts.

Anyone who is self-employed, meanwhile, will need to fill out an annual Self Assessment tax return – a process that includes calculating your National Insurance Contributions (NICs).

On top of all this, you’ll need to keep additional records if you hire employees or charge VAT, and many sectors will have additional record-keeping requirements for things like insurance.

At this stage, it’s absolutely crucial that you do a lot of detailed research on the field you’re going into.

4. Register for tax

Finally, you need to actually register. This is to let HMRC know that you’re going to be trading as a business and how you’re going to be doing it.

Luckily, if you already know things like which business structure you’re going with, that process is quite easy. The government’s site will walk you through it quite well; you just need to make sure you have the relevant information to hand.

Registering with Companies House (limited companies only)

In addition to registering with HMRC, limited companies will also need to register with Companies House.

This extra step costs just £12 and your company is usually registered within 24 hours. You must provide at least three pieces of personal information about yourself and your shareholders or guarantors, and you can use the same service to set up Pay As You Earn (PAYE) for your employees.

When should I register my small business?

In general, the answer to this question is simple: you need to register your business with HMRC as soon as possible.

More specifically, HMRC will generally mark your start date in one of two ways:

• the date when you first provide goods and services for sale

• the date when you start marketing your business

If you fail to register within three months of either of these, you’ll have to pay a £100 late fee – and that figure can increase to as much as £1,600 if you continue to put it off. 

You’ve registered your business - what’s next?

We hope you’ve found this short guide to registering your business with HMRC helpful. Be sure to click through to our more detailed explainers or to the government’s own pages to learn more about which structure is right for you and how to get formally set up. And don’t forget to run through our checklist for starting your own business in the UK to get a personalised list of steps that you have yet to run through.