In this lesson, we will look at some of the costs and steps involved with registering a business in the UK.
The cheapest way to register a business is through the Companies House, where it costs £20, payable to Companies House. Alternatively, you can get a same-day registration service for £50. If you require witnesses for form 12, this is around £10. See the Companies House website for a full price list.
Next you need to Decide on your company's structure
You need to consider how you wish to structure your company before you go any further. The company's structure has legal implications that affect:
- the tax and National Insurance that you pay
- the records and accounts that you have to keep
- your financial liability if the business runs into trouble
- the ways your business can raise money
- the way management decisions are made about the business
There are a number of different structures to choose from: sole trader, partnerships or limited companies. The two most popular types of business for online sellers are sole trading and limited companies.
If you are unsure of the best structure for your business, BusinessLink.gov.uk have a helpful questionnaire you can fill out, which will tell you the best option based on your response.
Sole trading is a good option if you wish to work from home and don't intend to expand your business beyond yourself. Sole trading is when you are the only owner of the business and have full control over how it is run. The downside is that you are liable if anything goes wrong, meaning you may have to dig into your own pocket if the business accrues debt. If you decide to be a sole trader, you need to register as self-employed with the Inland Revenue within 3 months of starting up. And, if you are going to trade under a different business name than your own, you must display your name (name of owner) and address on all business stationary and at your premises.
Forming a limited company is complex and needs at least one director to manage the business and one company secretary to make sure all the rules are followed and official records maintained (these cannot be the same person). You can either form a public or private limited company.
Private limited companies are owned by their shareholders and are limited by shares. This means that shareholders who paid in full for their shares are not liable for the company's debts. Shareholders who part-paid for their shares are liable for the outstanding amount owing to the company for their shares. Normally a new company has 1000 shares at £1 each. A public limited company public limited company may offer shares for sale to the public, among other differences.
Choosing a business name
Before you can register a business you must first choose a name. If you are operating as a sole trader, you can trade under your own name and you may not use limited, plc or Ltd. On the other hand, a company must choose a name that ends with limited, plc, Ltd or Welsh equivalents, but this must not be used anywhere other than at the end of the name.
All business names must be unique - they cannot be the same as or similar to one already in the register. To find out whether your company name is available:
- Search online using Webcheck Company Names & Address index
- Call the Companies House Call Centre on 0303 1234 500
Names cannot be offensive or include any sensitive words or expressions, unless you have obtained permission to use them. We also advise checking that your proposed name isn't too similar to a word or expression someone else has registered as a trade mark in case you wish to trade mark your name in the future.
Once your name has been given the go-ahead, you must show it on all business stationery as well as on the outside of each place of business. Your letterhead also needs to display the country your business is registered in, your registration number, the registered office's address, and your VAT number. Your Certificate of Incorporation should be displayed prominently in your main place of business.
If you decide to incorporate your business you need to take the following steps:
Step One: Choose a name for your business
Step Two: Check whether any of the proposed directors are disqualified from acting as a director. You can do this online at companieshouse.co.uk
Step Three: Fill out the required forms, all of which can be found online at the Companies House website. The required forms are:
Memorandum of Association - This gives the details of the company's name, location of the registered office, and what it will do (company objectives). You need to include names, addresses, signatures and share allocations for the shareholders/directors of the company. You will also need two witnesses to sign and date the Memorandum and the Articles below and supply their names and addresses.
Location of the registered office: This is the area in which your company's registered office is located (a registered office is often your solicitor or accountant).
Objects of the company: Describe what your company does. This should be a very broad statement, as it limits your business activities. For example "general commercial trading company".
Limiting the liability of the members: This means each owner of the company has to contribute no more than the value of their shares.
Share capital: You must state the amount of capital in the company and how it is divided.
Articles of Association: this describes how the company will be run, right of shareholders and the powers of the company's directors.
Form 10 (Statement of the First Directors, Secretary and Registered Office) : this gives details of the company's registered office and the names and addresses of its directors and company secretary. (In Northern Ireland this is Form 21). The form must be completed and signed and dated by at least one secretary and one director - who cannot be the same person. It must also be signed and dated by an agent on behalf of the subscribers.
Form 12 - Declaration of Compliance with the Requirements of the Companies Act: this states that the company meets all the legal requirements of incorporation. (Form 23 in Northern Ireland).
Moving onto Taxes, when you register a new company, your details will be passed onto HM Revenue & Customs, but you must also contact your own local HMRC office to let them know that your company exists. If you do not do this, you may have to pay a penalty.
You may have heard of corporation tax - Corporation Tax is a tax on your company's taxable income or profits. The current rates are available on the Rates and Allowances page at www.hmrc.gov.uk.
With Corporation Tax, companies:
- work out their own tax liability
- pay their tax without prior assessment by the Inland Revenue
- are liable to penalties if they do not deliver a return by the statutory filing date, normally 12 months after the end of the accounting period.
Visit the hmrc.gov.uk website to learn more about Corporation Tax.
You might also find the following links useful for registering a business in the UK.
Here’s a quick recap on what we have covered in this lesson:
- Carefully consider the structure of your business as how you set it up will affect the records you need to keep and the taxes you have to pay.
- When choosing a business name, ensure that it is not the same or similar to an existing business name.
- Remember to inform HMRC if you register a new business; if you fail to, you could be penalised.
That’s it for this video, thanks for watching!