What does ‘registering a business’ mean?
When you set up a new business the first thing you must decide is what legal structure you will give it. That is to say, will you be a sole trader, a limited company or a partnership? Don’t worry if you’re not sure which you should go for. Here are the basics of each to help you to make your decision as to how you should register your business.
If you’re self-employed and running your own business as an individual then you can become a sole trader. This is the cheapest and easiest way to get set up. As a sole trader you can still have employees if you wish but you will have sole responsibility and personal liability for the business. This means that business debts can become your personal debts and your personal assets can be used to pay them.
Setting up a limited company will involve more admin and red tape but the long term benefits might be worth it. You are effectively separating your own personal finances and assets from those of your business. You will become a director and shareholder in the business and as a director you are an employee so your personal assets are protected against any business liabilities.
As the name suggests, as a partnership you will set up your business with a partner (or partners) and you will each share responsibility for it. Each partner will pay tax on their share of the profits and each will be personally liable for their share of any business debts.
Limited liability partnership
As with a Limited Company, those setting up a Limited Liability Partnership will not have personal responsibility for business debts. Partners pay tax on their share of the profits.
It’s useful to know that once you’ve chosen one structure it’s possible to change to another further down the line if you decide that would be better for your business.”
Who should you register your business with?
Depending on which structure you choose for your business, the way you need to register it will slightly differ. Here’s a breakdown;
As a sole trader you must register with HM Revenue and Customs (HMRC). You will be expected to keep records of your business income and expenses and to complete a Self Assessment Tax Return each year. If your annual turnover exceeds £83,000 then you must also register for VAT. You can register before this point if you choose – for example if you want to reclaim VAT.
To set up a limited company, you must register (or ‘incorporate’) your business with Companies House. You will be asked to provide a number of details, including the name and address of your company, along with the name of at least one director and one shareholder. You will also provide them with articles of association which lays out how the company will be run and a memorandum of association which contains the business details and directors’ signatures.
An ordinary partnership must be registered with HMRC. A Partnership Self-Assessment tax return must be completed each year, and each partner must also complete a Personal Self-Assessment tax return. As with sole traders, once turnover exceeds £83,000 the partnership must register for VAT.
A Limited Liability Partnership should be registered with Companies House. You’ll be asked to provide the business name, registered address, the names of at least two directors and an LLP Agreement which lays out how the business will be run. The partnership must also be registered for self-assessment with HMRC and for VAT once turnover exceeds £83,000.”
When should you register your business?
Limited Companies and Limited Liability Partnerships must be registered with Companies House in order to be incorporated. This should be done before you start trading as a company.
As a sole trader, you must register with HMRC within three months of trading.
Don’t let this process overwhelm you, it may seem complex but there is plenty of help out there. A lot of the registration process can be done online or you can see the advice and help of an accountant who can register your business for you.
Additional Resources for Registering Your Business
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