Note: This article covers all the legal requirements of starting a business in England and Wales. If you’re looking to incorporate elsewhere in the U.K., there may be different requirements you need to fulfill.
If you’re thinking of starting a business in England or Wales, you’re at the beginning of an incredibly exciting journey. To ensure you’re fully prepared to embark on incorporating your business, it’s essential to inform yourself about the legal hoops you’ll need to jump through to be able to register your business, as well as the responsibilities that come with running a business in England and Wales. This article will walk you through all the legal requirements for starting a company in England and Wales. so that you can get yourself prepared and save yourself time in the long-run.
Choose your Business Structure
Before you start thinking about what specific processes and documents are required for starting a business in England and Wales, you’ll need to decide what type of business you want to register. What we mean by this is the type of business structure you’re going to register as. You can choose between being a sole trader, a limited company, or a partnership to name just a few. If you want a quick recap of the different business structures in England and Wales, check out our guide.
Register your business
Once you’ve settled on a business structure, make sure that you’re aware of the associated legal responsibilities and administrative duties you’ve undertaken.
Legal Requirements for Starting a Business in England and Wales
The responsibilities you undertake depend on what your business does. This is why it’s essential to know your stuff and become familiar with the legal responsibilities you are undertaking. Since not all businesses are the same, it follows that not all businesses have the same legal responsibilities and requirements. Here are just a few examples:
Register with HMRC or Companies House
Depending on whether you’re a sole trader or a limited company (or other), you’ll have to register with HMRC or Companies House to pay tax. Bear in mind that whilst a sole trader pays income tax, companies pay corporation tax.
Obtain certain licenses or permits
Depending on your business, you may have to secure certain licenses or permits. For example, this could include a license to play music, sell food, or trade-in the street.
Depending on your business, you may be legally obliged to get certain types of insurance coverage.
For example, if you use a vehicle in the course of business, you’ll have to take out motor insurance.
Depending on your profession, you may have to get a professional indemnity policy.
If you have employees, you’ll need to take out employers’ indemnity insurance.
Get familiar with relevant legislation
It’s advisable to become very familiar with exactly what legislation affects you and your business and what exactly it stipulates.
There are also legal responsibilities associated with where you run your business from. This differs depending on whether you’re working from your home or renting a commercial office space.
If you have employees, you’re also taking on responsibilities such as running payroll, paying their national insurance, and providing eligible employees with workplace pensions. You’re also legally obliged to pay at least the national minimum wage.
You’ll need to run checks to make sure potential job candidates have the right to work in England and Wales and you’ll need to inform HMRC that you intend to become an employer.
Once you take on an employee, you’ll need to provide a written statement of terms and conditions of employment to any new employees (this is usually done as an employment contract).
Health and safety requirements
If you employ more than 5 staff, you’ll need to write up a health and safety policy.
Frequently asked questions
1. Do I need a license to start a business in England and Wales?
The answer to this question depends on what industry you’re operating within and what kind of business you’re doing. For most businesses, you can set up and incorporate your business without a license. However, if you’re hoping to sell food, alcohol, do something relating to health and beauty, for example, you’ll need to get a license before you can start doing business.
2. When do I need to register my business?
You don’t necessarily have to incorporate your business, instead, you can operate as a sole trader. However, you may consider registering your business for tax reasons.
3. Can I be a sole trader and be employed in the UK?
Yes, you can. If you’ve got a full-time job but then operate a business on the side, this would count as being employed and a sole-trader simultaneously.
4. What is the tax-free allowance for sole traders?
‘Personal allowance’ refers to how much income you can earn before you start to pay income tax. No tax on this income. This bracket applies to income between £0 – £12,570.
The basic rate income tax is 20% tax on the proportion of income which falls between £12,571 – £50,270.
Higher rate income tax: The part of your income that falls between £50,271 – £150,000 is taxed at 40%.
Additional rate income tax: This is the highest rate. The income you earn above £150,000 upwards is subject to tax at 45%
Remember that sole traders with income in excess of £125,000 lose their personal allowance.
Note these figures are accurate for tax year 2021/22, but subject to change by the government).
Setting up a Business doesn’t have to be Stressful
The process of starting a business in England and Wales should be a time for big ambition and excitement rather than an administrative headache, yet it’s possible to get bogged down in the detail of all the legal requirements for starting a business in England and Wales. So, why not relieve yourself of the stress by consulting one of our expert lawyers. Our expert solicitors will take care of all the legal requirements so that you can focus on what’s important: building your business.
Read more in detail about setting up a company in the UK