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Not financial advice: this guide is general information to help you understand the basics. It is not financial, tax or legal advice. Rules and figures can change, so check the linked official pages, and speak to an accountant or adviser about your situation.
Before you trade, you need to choose a legal structure and register it properly. For most new UK businesses that means becoming a sole trader or setting up a limited company. This guide explains the difference and the steps for each, with links to GOV.UK.
The main structures
GOV.UK lists the main options as sole trader, limited company, and partnership (including limited liability partnerships). Source: GOV.UK: Business legal structures.
| Sole trader | Limited company | |
|---|---|---|
| What it is | You are the business. You keep the profits after tax. | A separate legal entity with its own finances. Directors run it and shareholders own it. |
| Liability | You are personally responsible for business debts. | Finances are separate from your personal finances, though you may still be liable in some cases, for example personal guarantees. |
| Registering | Register for Self Assessment with HMRC. | Register with Companies House (incorporation), then register for Corporation Tax. |
| Tax | Income Tax and National Insurance on profits through Self Assessment. | Corporation Tax on profits; directors pay personal tax on salary and dividends they take. |
| Admin | Lighter: keep records and file a Self Assessment return. | More: annual accounts, a confirmation statement, Corporation Tax return, and keeping company records. |
| Privacy | Your name is the business owner. | Company details, directors and people with significant control appear on the public register. |
Many people start as a sole trader because it is simpler, then move to a limited company as profits grow. There's no single right answer; an accountant can compare the tax for your numbers.
Setting up as a sole trader
- Check if you need to register. You must register for Self Assessment if you earned more than £1,000 from self-employment in a tax year (or need to prove you're self-employed, for example to claim Tax-Free Childcare). Source: GOV.UK: Set up as a sole trader.
- Register for Self Assessment by 5 October after the end of the tax year in which you started: GOV.UK: Register for Self Assessment.
- Keep records of income and expenses from day one: GOV.UK: Business records if you're self-employed. Consider whether Making Tax Digital will apply; see our accounting & bookkeeping page.
- Know your deadlines. For the 2025 to 2026 tax year, paper returns are due by 31 October 2026, and online returns and payment by 31 January 2027. Source: GOV.UK: Self Assessment deadlines.
Setting up a limited company
- Choose a name that follows the rules: GOV.UK: Choose a company name.
- Choose directors, shareholders and a registered office address (an official address in the UK that will be public).
- Register with Companies House. It costs £100 online and is usually registered within 24 hours, or £124 by post, taking 8 to 10 days. Source: GOV.UK: Register your company.
- Register for Corporation Tax with HMRC once the company is set up.
- Keep company and accounting records: GOV.UK: Company and accounting records.
- Understand how you take money out. A company's money belongs to the company: GOV.UK: Taking money out of a limited company.
Business names
As a sole trader you can trade under your own name or a business name. Business names must not include "limited", "Ltd" or similar, must not be offensive, and some words need permission. A company name must be unique on the Companies House register. Check trade marks too, so you don't use a name someone else owns. Source: GOV.UK: Choose a company name and GOV.UK: Set up as a sole trader.
What to show on paperwork and your website
Limited companies must display their name at their registered office and where they trade (with an exception for a home where the business is run). Letters, order forms and websites must show the company's registered number, registered office address, the part of the UK where it's registered, and that it's a limited company. Source: GOV.UK: Signs, stationery and promotional material.
Other things to sort early
- A separate business bank account: required in practice for a limited company and sensible for sole traders. See separating business and personal money and our banking page.
- VAT: register if taxable turnover goes over £90,000 in the last 12 months, or is expected to in the next 30 days: GOV.UK: When to register for VAT.
- Licences and data protection: see our data protection and licences guide.
- Insurance: employers' liability is compulsory if you employ people. See our insurance page.
- Employing people: see our HR & payroll page.
Free help
GOV.UK's step-by-step guide is at GOV.UK: Set up a business, and the GOV.UK: Business support helpline offers free advice in England.
Official sources
- GOV.UK: Business legal structures
- GOV.UK: Set up as a sole trader
- GOV.UK: Register for Self Assessment
- GOV.UK: Self Assessment deadlines
- GOV.UK: Business records if you're self-employed
- GOV.UK: Choose a company name
- GOV.UK: Register your company
- GOV.UK: Company and accounting records
- GOV.UK: Signs, stationery and promotional material
- GOV.UK: When to register for VAT
- GOV.UK: Set up a business
Free official help and our tools
- GOV.UK: Business and self-employed
- British Business Bank: Business guidance
- Start Up Loans: Support and guidance
- Our card reader fee calculator
- Our Find my card reader quiz
More free guides
- Pricing for profit
- Separating business and personal money
- HMRC deadlines and Companies House basics
- Marketing on a small budget
- Data protection & licences
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Last checked 29 October 2026. Spotted something out of date? Let us know.