The Legal Requirements of Starting a Small Business in the UK

Starting a new business is a busy time for an entrepreneur. You’re developing a business plan, organizing your finances, and pitching to investors or seeking funding. One vital aspect that can often be overlooked is ensuring legal obligations are met. Failure to do so can result in fines or court proceedings.

This guide will help you navigate the legal aspects of starting a business in the UK, from choosing a business name to employing staff. You can incorporate the relevant legal points into your business plan or create a separate legal plan or checklist to ensure compliance.

While the legal processes discussed here are specific to the UK, the general categories are likely applicable regardless of where your business is located. Let’s dive in.

Naming your business

Choose a unique name for your business to avoid problems. If the name is too similar to existing businesses, it can imply a connection between them and lead to trademark infringement issues. Check if your name idea has already been taken using Made Simple and verify if a similar trademark exists.

Choosing the legal status of your business

The legal status you choose determines whether you need to register your business with Companies House, affects record keeping and accounts, tax and National Insurance (NI) payments, and your financial liability if the business fails. Here are the common legal business structures to consider:

Sole trader

This is the easiest option if you are the only owner. There is no need to register with Companies House, and record keeping is simple. Sole traders have full profit retention and can complete their own tax returns or hire an accountant. However, sole traders have unlimited liability for business debts, making personal assets vulnerable. Getting finance might be challenging.

Partnership

This is suitable when there is more than one owner sharing costs, risks, and responsibilities. Partnerships do not require registration with Companies House, but partners have unlimited liability. To avoid this, you can form a Limited Liability Partnership (LLP).

Limited company

Most limited companies in the UK are limited by shares. Registering a limited company creates a separate legal entity, protecting personal finances. However, there are requirements, such as registering with Companies House and adhering to record-keeping obligations. Seek advice from an accountant to understand financial advantages and financing options.

Paying tax and National Insurance

All businesses must register with HM Revenue and Customs to pay income tax on profits and National Insurance contributions. Keep proper records of business sales and expenses. If you accept cash payments, ensure you have a system to track earnings with receipts or accounting software.

Value Added Tax (VAT)

Register for VAT if your taxable turnover exceeds the current limit in any 12-month period. The standard VAT rate is 20%. Certain goods and services have lower rates or exemptions. Check www.gov.uk/vat-registration for more information.

Insurance

Obtain relevant insurance policies to protect your business from risks. Required insurances include motor insurance for vehicles used for work and employer’s liability insurance for businesses with employees. Other policies to consider are professional indemnity, public liability, and product liability insurance. Consult with a local insurance broker to assess your specific needs.

Acquire industry-specific licensing

Some businesses require licenses from local authorities to trade legally. Contact your local authority’s Local Planning or Building Control Office to determine if you need to register or obtain a license. Also, ensure you comply with Trading Standards regulations relevant to your industry.

Do I need planning permission?

Check with the Local Planning or Building Control Office if your business requires planning permission, particularly if you are operating from home or changing the use of a building.

Employing staff

If you plan to hire staff, ensure compliance with employment legislation. Perform necessary applicant checks, register with HMRC as an employer, pay at least the national minimum wage, and enroll eligible staff into a workplace pension scheme. Provide staff with written statements of employment and contracts detailing rights, responsibilities, and working conditions. Obtain employers’ liability insurance to protect against claims made by employees.

Legislation that may affect your business

Be aware of relevant legislation and ensure compliance. Common laws include Employment Law, Health and Safety at Work Act, Equal Pay Act, Sex Discrimination Act, Race Relations Act, and Sale and Supply of Goods Act. Visit www.legislation.gov.uk for more information.

Develop internal legal documents

Create legal documents to instill confidence in your business. A privacy policy informs customers how their data will be collected, used, stored, and protected. A company handbook summarizes how your business operates and should be available to staff. Include your company’s mission statement, policies, legal information related to employment, and health and safety guidelines.

Retain legal counsel

Consider having a solicitor on retainer to seek advice when needed. While you may not require legal assistance frequently, having access to phone support can be beneficial. Find a local or personalized service to address your specific needs.

Develop a legal action plan

Incorporate a legal action plan into your business plan to present to investors or as a management tool. This plan should cover any specific legal steps required and ensure compliance with laws and regulations.

Don’t get overwhelmed by legal requirements

Though it may seem daunting, with proper planning and understanding, you can meet your legal obligations. Start small but keep the big picture in mind. Consult official UK government resources or legal experts for specific concerns. Good luck with your new venture!

Editor’s Note: This article is for informational purposes only and should not be considered legal advice. Contact your preferred legal counsel for questions regarding specific laws, licensing, or protections.

Andrew Brooks

Hello!

I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.

My career is built on a foundation of helping individuals and businesses thrive financially in an ever-changing economic landscape. At phonenumber247.com, my aim is to demystify the complex world of finance, providing clear, actionable advice that can help you navigate your financial journey with confidence. Whether it’s personal finance management, investment strategies, or understanding the nuances of market dynamics, I’m here to share insights and tools that can propel you towards your financial goals.

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