Business Advice

Do I need to register my business and how do I do it?

Cameron Fleming | 27 August 2021 | 3 years ago

Do I need to register my business and how do I do it

Starting a new business is an exciting time, and there’s a lot to think about, from what you’re going to call your business to how you’ll promote your products or services. One question that you might be left wondering is “do I need to register my business and how do I do it?”

In this article, we’ll explain when you need to register your business with HMRC and Companies House and how to go about doing so, whether you’re trading as a sole trader or a limited company.

When do you have to register a business?

Many people begin trading as a sideline, before deciding to turn their hobby into a business. But when do you need to register as a business?

If you’re making less than £1,000 per year, you are able to take advantage of the trading income allowance. This means that you can earn up to £1,000 per year without informing HMRC. As soon as you reach this £1,000 threshold, you’ll need to register your business with HMRC and start completing an annual self-assessment tax return.

It’s important to remember that this £1,000 annual earnings threshold for trading income allowance relates to income, rather than profit. This means that as soon as your business begins turning over £1,000, you’ll need to register your business with HMRC.

Sole trader or limited company?

Before you register your business, you’ll need to decide on a legal structure for your business. The most popular options in the UK are sole trader, partnership and limited company. Let’s take a look at these options in more detail.

Sole trader

If you own and control a business alone, you may decide to operate your business as a sole trader, on a self employed basis. This means that you have sole responsibility for your business, although you may choose to employ other staff.

From a legal perspective, the business does not have its own legal standing: it is legally attached to the sole trader.  If your sole trader business is successful, all of the profits belong to you as the business owner. However, it’s also important to note that if the business falls into difficulty, you are responsible for the debts of the business.

Partnership

If you are planning to start a business with one of more other individuals, you may decide to run the business as a partnership. This enables two or more individuals to be jointly responsible for the business, sharing profit, loss and decisions between the partners of the business.

Liability in a partnership is similar to that of a sole trader, except the liability is split between the partners, rather than one individual. However, it is possible to create a partnership agreement to establish alternative terms and contractually define the business relationship.

Limited company

If you’re looking to limit your liability, you may be considering forming a limited company. Limited companies have one critical difference when compared to partnerships and sole traderships: a limited company is its own legal entity, meaning that it exists legally in its own right. This means that a limited company holds its own liability, so the directors and shareholders are not responsible for any unpaid business debts, excluding their investment into the business.

When you form a limited company, you can then be a director and/or shareholder of the business. Although any profits belong to the business, you can draw a director’s salary, along with shareholder dividends. This may work out more tax efficient than acting as a sole trader, although it’s always best to consult a qualified accountant to be certain.

How to register a business

How to register a business

Once you’ve decided on the right legal structure for your business, it’s time to register it. The process of registering a business will depend on the legal structure that you’ve chosen. Let’s take a look at the steps you’ll need to follow to register your business officially, whether you’ve chosen to become a sole trader, a partnership or a limited company.

Registering a business as a sole trader

If you’ve decided to set up your business as a sole trader, the process of registering your business is relatively straightforward. You’ll simply need to register online for self-assessment with HMRC before 5th October in your business’ second tax year.

The registration process is simple, consisting of a short online form. After completing this, you’ll then receive a letter containing your Unique Taxpayer Reference (UTR), which you’ll need to file your self-assessment tax return. You’ll receive a second letter containing an activation code which you’ll use to activate your online account. After your account has been activated, you’ll then be able to complete a tax return for your first year of trading.

Registering a business as a partnership

When you begin a partnership, you’ll need to designate one partner as the ‘nominated partner’. This person will be responsible for registering the new partnership with HMRC. You can do this through either an online partnership registration form or by completing form SA400.

Each of the partners will also need to register as self employed with HMRC, following the same process as a sole trader. You’ll be required to submit an annual self-assessment form for the partnership, as well as for each individual partner.

Registering a business as a limited company

If you decide that a limited company is the right legal structure for your business, you’ll need to register your company with Companies House, as well as registering for Corporation Tax. Registering your limited company with Companies House is relatively straightforward and the majority of applications are approved in just a few hours.

Before you can register your limited company, there are a few things you’ll need to ensure that you have. These include:

  • A unique company name
  • A registered address for your business
  • Details of the company’s directors
  • Details of the company’s shareholders
The cost of registering your limited company with Companies House is £12 and must be paid at the time of application.

Once your application to register your company is complete, you’ll receive a letter from HMRC which explains your legal obligations as a limited company. This letter will also contain your Unique Taxpayer Reference (UTR) which you will be able to use to register your limited company for Corporation Tax.

You will also need to register as an employer and set up PAYE (Pay As You Earn) to be able to pay any employees, as well as paying yourself a director’s salary.

When do you need to register your business with Companies House?

Many business owners wonder whether they need to register their business with Companies House. Companies House is responsible for keeping an official register of companies within the UK.

If you are operating as a sole trader or partnership, there is no need to register with Companies House. However, if you plan to trade as a limited company or limited liability partnership, you will need to be registered with Companies House before you can begin trading.

When do you need to register for VAT

When do you need to register for VAT?

Whether you’re trading as a sole trader, a partnership or a limited company, you’ll need to register your business for VAT if your VAT taxable turnover is higher than the VAT threshold, which currently sits at £85,000 in a rolling 12 month period.

To register for VAT, you’ll need to use HMRC’s online VAT registration service. This involves creating a VAT online account which you will then use to submit your VAT returns to HMRC.

Once you are registered for VAT, you’ll need to charge VAT on your products and services. This is usually 20%, although some products and services may incur different rates or be exempt from VAT altogether. You’ll then pay this VAT to HMRC, as well as submitting VAT returns.

Registering for VAT voluntarily

If your VAT taxable turnover is currently under £85,000 per year, you aren’t legally obliged to register for VAT. However, some businesses choose to register voluntarily before they reach this figure. You might be wondering why a business would choose to charge more for their products, but there are actually many benefits of being a VAT registered business.

For example, as a VAT registered business, you are able to reclaim any VAT that you are charged for goods and services that you purchase as a business. The VAT that you pay for goods and services is known as input tax, whilst the VAT that you collect from your customers is called output tax. If your input tax figure is higher than your output tax, you may be able to reclaim the difference from HMRC, saving your business money.

If you’re unsure of whether your business would benefit from voluntary VAT registration, it’s worth seeking advice from a qualified tax accountant who can help you to weigh up your options and make the right decision for your business.

Do you legally have to register a company?

If your business is earning over £1,000 per year, you will need to register your business. How you go about doing this will depend on whether you decide to operate your business as a sole trader, a partnership or a limited company.

Failing to register your business or declare your earnings can lead to hefty fines from HMRC, or even prosecution for tax evasion. That’s why it’s so important to ensure that you’re fulfilling your legal duties when it comes to registering your business.

If you’re unsure of how to go about registering your business or filing your tax returns, we’d always recommend consulting with a qualified accountant to ensure that you don’t get caught out.

Related questions

Can I start a business without registering it?

Wherever possible, it’s always recommended to register yourself as self-employed or to register your limited company with Companies House before you begin trading, to ensure that you remain legally compliant. However, the trading income allowance allows individuals to earn up to £1,000 per year without being declaring the income. If your income exceeds the £1,000 per year threshold, you’ll need to declare the income to HMRC.

Do I need to register my hobby as a business?

Many hobbyists sell to family and friends to earn extra money. If your turnover is under £1,000 per year, you can trade without declaring your income to HMRC. However, it’s important to remember that this limit refers to income, rather than profit. If your income exceeds £1,000, you’ll need to declare your earnings to HMRC by registering as self-employed and completing a self-assessment tax return.

What happens if you don’t register your business?

If you are running a business with a turnover that exceeds £1,000 per year, you have a legal obligation to declare your earnings to HMRC. You can do this by registering as self-employed and completing an annual self-assessment tax return, or by registering your business as a limited company. If you fail to declare your income, you could receive a large fine from HMRC, or even be prosecuted for tax evasion.

Register your business today

Whether you’re trading as a sole trader, a partnership or a limited company, it’s essential to register your business with HMRC. You will also need to register with Companies House if you are operating as a limited company, as well as registering for VAT if your turnover exceeds £85,000 per year.

Although there is an exception for businesses with a turnover under £1,000 per year, it’s always advisable to register your business as early as possible to avoid any fines for non-compliance.

Registering your business with HMRC or Companies House is a straightforward process that can be completed online in just a few hours. Once your business is registered, you’ll need to ensure that you fulfil your legal obligations of reporting and paying any taxes that are due.

If you are unsure of any of the processes involved with registering your business or filing tax returns, we’d always recommend seeking advice from a qualified accountant to ensure that you are meeting your legal obligations.

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