Starting a Business in the UK: A Practical Guide
From company formation to first client — the practical steps, the common mistakes, and the decisions that matter most in the first year of a UK business.
About this guide
This guide covers the practical steps involved in starting a business in the United Kingdom. It is written for people who have decided to start a company and want a clear, step-by-step account of the formation process, early operational decisions, and the things that commonly go wrong in the first twelve months.
It is not a legal document and it is not a substitute for professional advice on specific matters. It is a plain-English account of how UK company formation and early-stage business operation works in practice.
Choosing your business structure
Most new UK businesses incorporate as a private limited company (Ltd). This is the most common structure for a reason: it creates legal separation between you and the business, limits your personal liability, and makes it relatively straightforward to bring in investment or sell the business later.
The main alternatives are sole trader, limited liability partnership (LLP), and partnership. Sole trader is simpler administratively but gives you no liability protection. LLPs are typically used by professional services firms where multiple people are sharing ownership and want limited liability. Standard partnerships are rarely the right choice for a new business — they offer no liability protection and are harder to exit cleanly.
Unless there is a specific reason to choose otherwise, incorporate as a limited company.
The formation process
Choose a company name
Check availability on the Companies House name register. The name must be unique and cannot be offensive or too similar to an existing registered name. You can check at find-and-update.company-information.service.gov.uk.
Prepare the Articles of Association
This is the document that governs how the company is run. You can use the standard Model Articles (free, used by most straightforward companies) or create custom articles. Use Model Articles unless you have a specific reason not to.
Register with Companies House
This can be done online via Companies House WebFiling or through a formation agent. Cost is £50 online (2026 rate) or through an agent for £12–£50 typically. The process takes 24 hours online. You will receive a Certificate of Incorporation.
Register for Corporation Tax
You must register with HMRC for Corporation Tax within three months of starting business activity. Do this via HMRC's online portal. You will also need to set up PAYE if you are taking a salary from day one, and register for VAT if your turnover will exceed the threshold (£90,000 in 2026/27).
Open a business bank account
A dedicated business account is not legally required but is strongly advisable. It keeps business and personal finances separate, makes bookkeeping simpler, and is required by many payment processors and clients.
Set up basic accounting
At minimum, you need a way to record income and expenses from day one. Cloud accounting software (Xero, QuickBooks, FreeAgent) is standard for small businesses and costs £15–£40/month. Do not try to manage accounts in a spreadsheet — you will regret it.
Common first-year mistakes
- Not understanding director duties. As a company director, you have legal obligations under the Companies Act 2006 that most new founders do not fully understand when they register. The most important: filing annual accounts and a Confirmation Statement, and acting in the company's interests rather than your own.
- Treating investment as income. Money you put into the company as share capital or a director's loan is not income. Money you pay yourself as salary or dividends is income. The distinction matters for tax and for your company's financial accounts.
- Getting VAT registration wrong. You must register for VAT once your turnover exceeds the threshold. Many new businesses exceed it unexpectedly quickly. Registering late means back-paying VAT on past invoices. Check your trajectory carefully and register early if there is any doubt.
- Not having a written agreement with co-founders. If you are starting the business with one or more other people, a shareholders' agreement is not optional. It needs to cover what happens if someone wants to leave, how decisions are made, and what each person's role is. Do this before there is a problem.
- Underfunding the first year. The standard rule of thumb is to have enough cash to cover at least six months of operating costs before you start, and twelve months is better. Revenue almost always takes longer to materialise than the business plan suggests.
Getting your first clients
The most reliable source of first clients for a new service business is your existing network — people who already know your work. Do not spend money on marketing before you have exhausted this. Send personal messages, not mass emails. Be specific about what you are now doing and what kind of work you are looking for.
The second most reliable source is referrals from the first clients. Make it explicit from the beginning of a new client relationship that referrals are how you grow, and ask for them specifically once a piece of work is going well.
Everything else — advertising, SEO, social media, events — takes longer to pay off and is better as a second-stage investment once you have demonstrated the model works.
