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Starting up in business: what you actually need to sort out

Matt Parrett, Chartered Tax Adviser · eTax AI · July 2026 · 9 min read

You've had the idea. You've decided to do it. Now there's a list of practical things to sort out, and most people find out about them in the wrong order — usually after something has gone wrong.

Here's the list I used to work through with clients, updated for where things stand now.

First: how are you going to trade?

There are four main choices, and this decision affects everything that follows.

Sole trader is the simplest. You register with HMRC, you keep records, you file a tax return. Plenty of people manage the whole thing themselves quite happily.

Partnership is two or more people trading together. Slightly more awkward — you file a partnership return as well as your own personal ones, and you can't do all of it through HMRC's free online service, so you'll need software or an accountant.

Limited company is a separate legal entity that you own. More paperwork: accounts filed at Companies House, a corporation tax return, a confirmation statement every year, and payroll if you take a salary. Realistically you need help with this one.

Limited liability partnership sits between the two and is mostly used by professional firms — solicitors, surveyors, that sort of thing.

Which should you pick?

The honest answer for most people starting out is: sole trader, unless you have a specific reason not to be.

Years ago there was a clear tax saving from running a limited company, because you avoided self-employed National Insurance on your profits. Dividend tax has closed most of that gap, and it narrowed again this year when dividend rates went up.

So these days I'd say go limited if you want limited liability — meaning that if the business is sued or fails, your house isn't on the line — or if you need to look like a bigger business, which genuinely matters in some industries when you're bidding for work.

Don't do it purely for tax without running the numbers for your own situation. And bear in mind a company costs more to run, every year, forever.

What it costs to have someone do the paperwork

I'm not going to quote you typical fees, because there's no reliable published data on what UK accountants actually charge — the figures you'll find online are marketing, not research.

What I can tell you is what drives the price: your turnover, whether you're VAT registered, how many transactions you have, whether you run payroll, and how organised your records are. Two businesses with the same structure can pay very different fees. Get two or three quotes and make sure you're comparing the same scope of work — particularly whether quarterly filing is included or charged on top.

Registering

Sole trader: register online with HMRC. It's straightforward, you can do it from the date you started, and your tax reference arrives a week or two later.

Limited company: you can set it up directly at Companies House. The online fee is now £100 — it went up in February 2026, so ignore any guide still saying £50. There's a £50 confirmation statement fee each year after that.

Before you rush at this, think about the shares. Who's going to own what, and are you likely to want flexibility over dividends later? Setting up different classes of share at the start is easy; changing it afterwards is fiddlier. Worth ten minutes' thought or a quick conversation.

Partnership: you register the partnership itself and each partner separately. It's more form-filling than you'd expect and some of it still has to go by post.

Opening a bank account

Get a separate business account. Not optional if you're a limited company — the money isn't yours, it's the company's — and strongly advisable even as a sole trader, because untangling business and personal spending at the year end is where a lot of accountancy fees go.

The thing worth checking before you choose: does the bank connect properly to whatever bookkeeping system you're going to use? Some connect cleanly and the transactions just appear. Others don't, and you'll be typing everything in by hand.

So pick your bookkeeping first, then pick a bank that works with it. Not the other way round.

You shouldn't need to pay for a bank account any longer. Starling, Monzo and Tide are all great banks and should be considered. Rarely do you need to pay cash into the bank these days, so these are ideal.

Bookkeeping — and this is the part that's changed most

When I first recorded this, I told people a notebook was fine. Two columns, income on the left, expenses on the right, receipts numbered. Perfectly legal and perfectly adequate for a small business.

That is no longer true for a lot of people, and this is the single biggest change in years.

Making Tax Digital for Income Tax has started. If you're self-employed or a landlord, it works like this:

The threshold is your turnover, before expenses — not your profit. Add together your self-employment income and your gross rents. That's the number that decides it. A landlord with £55,000 of rent and £4,000 of actual profit is in.

If you're caught, you have to keep your records digitally and send HMRC a summary four times a year, through software HMRC recognises, plus a final declaration after the year end.

Two things people get wrong. HMRC does not give you free software — you file through a commercial product or you don't file. And a paper notebook no longer does the job if you're mandated.

The quarterly deadlines are 7 August, 7 November, 7 February and 7 May.

If you're below the thresholds, or you run a limited company, none of this applies to you yet and a spreadsheet is still absolutely fine. Keep it simple: one tab for money in, one for money out, receipts numbered to match.

VAT

You must register once your turnover passes £90,000 in any rolling twelve months. Not your accounting year — any twelve months. Watch it monthly if you're getting close.

You can also register voluntarily below that, and it's worth thinking about. If your customers are themselves VAT registered businesses, they don't care about the VAT you add because they claim it back — and meanwhile you get to reclaim the VAT on everything you buy. If you sell to the public, voluntary registration usually just makes you 20% more expensive.

Two things to consider if you do register.

Cash accounting means you account for VAT when you're actually paid rather than when you invoice. If your customers are slow payers, this makes a real difference to your cash flow.

The Flat Rate Scheme still exists, but it isn't what it was. If you're a service business that spends very little on goods, you're pushed onto a 16.5% rate that leaves almost nothing in it. Worth checking, rarely worth using for a one-person consultancy these days.

If you take on staff

You'll need to run a payroll, and the moment you do, a workplace pension comes with it.

Anyone aged 22 or over earning more than £10,000 a year has to be automatically enrolled. The minimum contribution is 8% in total, of which at least 3% must come from you as the employer. You can delay it by up to three months, but you can't ignore it.

Take that seriously. The penalties are not the £100 sort you might be used to from a late tax return — there's a £400 fixed penalty and then daily escalating fines on top. It's the kind of thing that quietly ruins a small business's year.

And when you're working out whether you can afford someone, remember the real cost isn't the salary. It's the salary plus 15% employer's National Insurance above £5,000, plus the pension, plus holiday, plus sick pay. Budget for all of it.

If you're in construction

The Construction Industry Scheme catches far more businesses than people expect, and it's unforgiving.

If you pay subcontractors, you must register as a contractor and file a return every single month — even a nil one. If you work as a subcontractor, registering is technically optional, but if you don't, the contractor deducts 30% from your payments instead of 20%. Get gross payment status and it's nothing at all.

The late return penalties start at £100 and climb steeply. If there's any chance you're inside this scheme, find out before you invoice anyone, not after.

Insurance

Public liability — get it. It's cheap and it covers you if you injure someone or damage their property.

Employers' liability — this one is a legal requirement the moment you have an employee, and the fine is up to £2,500 a day without it. There's an exemption for a company with a single employee who owns 50% or more of the shares, so a genuine one-person company is usually fine. Take on anyone at all and you need the policy.

Practical tip: banks and HMRC sometimes ask about your insurance when you're setting up an account or registering for VAT. Having it in place stops awkward questions.

A website and a proper email address

Worth doing early, and it costs very little. A domain-based email address — you@yourbusiness — rather than a Gmail one makes you look like a real business, and in some trades it makes the difference between getting the call and not.

You don't need anything elaborate to start with. A single decent page saying who you are, what you do and how to reach you will do the job.

And before any of it

Write a business plan. Not for the bank — for you. Why are you doing this, who's buying, what does it cost you to operate, and how much do you need to earn before it's worth having?

Most of the businesses I watched fail didn't fail because someone got the VAT wrong. They failed because the numbers never worked in the first place, and nobody had sat down and checked.

This isn't a complete list. But if you work through it before you start, you'll avoid almost all the expensive surprises.

eTax AI handles bookkeeping, VAT, Self Assessment and Making Tax Digital for small UK businesses from £17 a month.