How to start a business in the UK

By: Dmitry Shabunevich, Redhead Digital Agency

Date: 17 May 2024

The UK is one of the most attractive countries for doing business. Traditionally, it is associated with respectability, good prospects and stability. Opening a business in the UK is not a complicated process, but it is worth knowing about some of the nuances. For example, how to check business name availability in the UK and how to establish a legal, registered business address. You will learn about this in the article.

Pros and cons of doing business in the UK

The UK government have been deliberately attracting foreign investment for many years by providing favourable conditions for doing business. A company registered in the UK automatically has an air of prestige.

There are many important advantages to opening a limited company or operating as individual entrepreneur in the UK:

Stable economy and legal system: These factors attract investors and create favourable conditions for doing business.
This is a factor most often considered by foreigners when choosing a country for relocation.
Access to international markets: Businesses all over the world willingly cooperate with UK companies.
Attractive tax conditions: Although the UK is not a low-tax country, there are many benefits for entrepreneurs.
Low level of corruption: The UK is one of the least corrupt countries in the world where the principles of honesty and integrity in business are supported.

Stages of starting a business in the UK

The advantage of doing business in the UK is that you can open a company remotely, without submitting documents in person. Of course, there can be pitfalls if you're not familiar with all the local laws. Therefore, it is better to take the help of professionals. Here are the main stages of starting a business in the UK:

Choose a legal structure. Decide what form of ownership your company will have: sole proprietorship, partnership, corporation, or other. Each of them has its own characteristics and legal requirements. Therefore, you need to thoroughly study all the options and choose the most suitable one for your business.
Come up with a company name. It must be unique and not similar to others, otherwise it may be challenged. Check the availability of your business name on the UK government website. Keep in mind that provocative and offensive words are prohibited and some can only be used if you meet certain requirements.
Hold a meeting to appoint the company directors and company secretary (if you choose to have one), determine the share capital and establish the company's memorandum and articles of association.
Register your business in the UK with Companies House. Indicate the legal form, chosen name, legal address, and information about directors and shareholders, and upload supporting documents (memorandum and articles of association).
Register your company with HM Revenue & Customs (HMRC) to pay taxes. Depending on the nature of your business, you may need different tax registrations. Within 14 days of registration, HMRC will email you a Unique Taxpayer Reference (UTR).
Open a bank account. It is worth noting that a UK company can open an account in any European country. For example, in Switzerland or Cyprus.
Obtain the necessary licenses and permits if your business activity is licensed. These might be required if you are in medical or financial services, food-based business, education, logistics, and some other areas.
Setting up your accounting and financial reporting. The UK authorities strictly monitor the payment of taxes. Penalties apply if tax reports and payments are late.

If you go through each stage correctly step by step, registering a company in the UK will not be a difficult task. The main thing is to make sure you comply with the requirements of in an accurate and timely fashion.

Competition in the UK

Since the United Kingdom has a developed economy, a high standard of living, and a large market that attracts many companies, it also has some of the highest competition in the world. It is especially tough in the financial sector, retail trade, and tourism. However, this doesn't mean that there's no place for new businesses. You just need to prepare in advance, study the market and competition, and develop a robust business plan.

UK taxes for individuals and companies

The tax system for sole traders and companies is different. There are also differences in how you pay taxes as a resident or non-resident. If a non-resident company registered in the UK is non-profit making, the amount of tax is reduced to a minimum.

The average cost of taxes

Sole traders and the self-employed pay tax as individuals and tax is calculated on the amount of profit generated. The rate of tax payable depends on profit levels on a progressive scale from 20% to 45%. If your annual earnings are below £12,570, you won't have to pay tax, but you still have to declare your profits.

Companies pay several types of taxes:

Corporation Tax is a tax on profits received from its activities. The standard rate is 19%, with large incomes over £1.5 million per year - 30%.
VAT is paid at a standard rate is 20%, although there are also special preferential rates of 5% and 0% for certain types of goods and services.
Capital Gains Tax applies to profits received from the sale of assets - shares, real estate, and securities. For companies, it is taxed at the standard rate of 19%.

In addition to basic taxes, companies are required to pay stamp duty when purchasing real estate, 3-15% of the cost.

Wrapping up

The UK has been attracting international investment for many years thanks to its very favourable business conditions. The UK is one of the top ten countries for encouraging business start ups. When preparing to launch a business, you need to check company name availability in the UK and find a legal address. The Hoxton Mix company can help you with this, which offers several tariffs with a different set of virtual office services.