What Do I Need to Set Up a New Business?

Most people starting a business spend the first few weeks figuring out what they actually need to do. There is no shortage of advice, but much of it is either incomplete or arranged in the wrong order. This guide covers the practical essentials (registration, banking, insurance, accounting, and everything else that needs to be in place before you start trading) in a sequence that makes sense to work through.

Register Your Business

Before you do almost anything else, you need to decide what legal structure your business will operate under. The two main options are operating as a sole trader or forming a limited company.

Operating as a sole trader is the simpler starting point. You register as self-employed with HMRC, file a Self Assessment tax return each year, and pay income tax and National Insurance on your profits. There is no registration fee and no public record of your business beyond HMRC's records. The downside is that there is no legal separation between you and your business. If the business runs into financial difficulty, your personal assets are at risk.

Forming a limited company creates a separate legal entity. Your personal liability is limited to what you have invested, and the company's finances are separate from your own. You pay corporation tax on company profits rather than income tax. There is more administration involved (annual accounts filed at Companies House, a confirmation statement each year, corporation tax returns), and the incorporation costs £100 if you do it online via Companies House directly. Many new businesses form a limited company from day one for the liability protection and tax efficiency it provides.

If you are unsure which structure suits you, a quick conversation with an accountant at this stage is worth the time. The decision is reversible, but switching from sole trader to limited company later involves extra admin that is easier to avoid by starting with the right structure.

Open a Business Bank Account

A dedicated business bank account should be one of the first things you put in place, regardless of whether you are a sole trader or a limited company. For limited companies it is particularly important. Mixing company and personal finances creates accounting problems and undermines the limited liability the company structure provides.

The good news is that the business account market has changed significantly. Digital providers offer free business accounts that can be opened in under an hour, connect directly to accounting software, and cover everything most new businesses need. A free account from a licensed digital bank is not a compromise product. For most early-stage businesses, it is the most practical starting point.

A first business account should offer accounting software integration (Xero, QuickBooks, or FreeAgent), a business debit card, real-time transaction notifications, and no monthly fee until you need features that require a paid plan. FSCS protection covers deposits up to £120,000 at licensed banks, so it is worth checking whether your chosen provider holds a full banking licence.

You can compare business bank accounts on HowMuch to see how the main free and paid options compare on features and eligibility.

Register for Tax

Getting your tax registrations in place early avoids problems later. The requirements differ depending on your business structure.

As a sole trader, register for Self Assessment with HMRC as soon as you start trading. You must register by 5 October in your second year of trading at the latest, but registering immediately means you know your tax reference and can keep records properly from the start.

As a limited company, HMRC automatically issues a Unique Taxpayer Reference once Companies House notifies them of your incorporation. You then need to register the company for corporation tax within three months of starting to trade.

VAT registration is required once your taxable turnover exceeds £90,000 in any rolling 12-month period. Some businesses register voluntarily before that threshold, either because they want to reclaim VAT on purchases or because registering adds credibility with larger customers. If you are not sure whether voluntary registration makes sense for you, an accountant can model the numbers quickly.

If you take on employees, you will need to register as an employer with HMRC and operate PAYE. This includes paying yourself a salary through the company if you are a limited company director.

Sort Your Business Insurance

The insurance you need depends on how your business operates and what risks it is exposed to. A few types are worth thinking about early.

Public liability insurance covers claims from third parties for injury or property damage caused by your business. If you work on client premises, hold events, or have customers visiting your workplace, it is typically essential. Many clients and contracts require it as a condition of engagement.

Professional indemnity insurance covers claims arising from mistakes in your professional advice or services. It is required in some regulated professions and strongly advisable in most service businesses where the quality of your work can have financial consequences for clients.

If your business uses a vehicle, you will need the appropriate insurance. A standard personal car insurance policy does not cover business use. If you are using a car for business purposes, you need cover that includes business use. If you operate a van, van insurance is a separate product from car insurance. 

Set Up Your Accounting

Getting accounting in order before you start generating transactions is significantly easier than trying to reconstruct records after the fact. The fundamentals are the same regardless of business size.

Choose an accounting platform and connect it to your business bank account from day one. Xero, QuickBooks, and FreeAgent all integrate with the main digital business banks, pulling transactions in automatically and categorising them. This alone removes a substantial amount of manual bookkeeping from your month.

Keep records of all income and expenditure, including any personal expenses you incur on behalf of the business. For limited companies, these need to be reimbursed formally through the company rather than informally absorbed into personal spending.

Most new businesses work with an accountant for their first year at minimum, even if they manage their own bookkeeping day to day. An accountant who knows your business from the start will help you avoid the most common mistakes and ensure your tax returns are filed correctly.

Build Your Online Presence

A website and a professional email address are the minimum online presence most businesses need before they start trading seriously. For many businesses, this can be done quickly and cheaply. A domain name typically costs £10 to £20 a year and basic website builders allow you to build a credible site without technical knowledge.

Your domain name should match your business name as closely as possible. Registering a .co.uk and a .com simultaneously is worth doing if both are available, to prevent someone else picking up the .com equivalent of your .co.uk domain (or vice versa).

A professional email address (yourname@yourbusiness.co.uk rather than a personal Gmail account) costs very little and makes an immediate difference to how the business presents itself to clients and suppliers. Google Workspace and Microsoft 365 both provide business email and storage for a few pounds a month.

Consider Whether You Need a Payments System

If your business takes payments in person, whether at a counter, a market stall, or a client's premises, you will need a way to accept card payments. The options range from simple card readers that connect to a smartphone through to integrated electronic point of sale (ePOS) systems that handle inventory, reporting, and receipts alongside payment processing.

For most new businesses, starting with a simple card reader is sufficient. They are low-cost, quick to set up, and straightforward to use. An integrated ePOS system makes more sense for retail, hospitality, and other businesses where stock management and sales reporting are as important as payment processing.

Think About Finance Before You Need It

Many businesses hit a cash flow gap at some point in their growth. A slow payment period, a large upfront cost, or the timing gap between winning a contract and receiving payment are the most common causes. The time to understand your finance options is before you need them urgently, when you have more options and can approach lenders from a position of stability rather than necessity.

If your business invoices other businesses on payment terms, invoice finance can release cash from unpaid invoices within 24 hours of raising them, without taking on traditional debt. You can get an invoice finance quote through HowMuch to see whether it is available for your business.

For businesses that need capital for a specific purpose (buying equipment, funding a marketing push, or bridging a gap ahead of a contract payment), a business loan is worth understanding early. The Start Up Loans scheme offers government-backed loans of up to £25,000 at a fixed 6% rate for early-stage businesses, with a more flexible assessment process than commercial lenders.