The UK keeps the sole trader route genuinely simple, no registration fee, just a notification to HMRC. Incorporating is only a little more involved, and Companies House processes most online applications within a day. Here's what it takes to start a business in the UK in 2026.
1. Which business structure fits you?
Before you register anything, it helps to know what you're actually choosing between.
- Sole trader. You and the business are the same legal entity. No registration fee, just notify HMRC that you're self-employed. Simple and cheap, but you're personally liable for whatever the business owes, and all profit is taxed at your personal Income Tax rate.
- Business partnership. Two or more people running a business together, with liability generally shared across the partners.
- Limited company (Ltd). A separate legal entity from its directors and shareholders, giving you limited liability and access to Corporation Tax rates that are often lower than higher-rate Income Tax.
The tax difference between the two structures tends to become meaningful once profit consistently clears around £30,000 to £35,000 a year; below that, the extra admin of running a company often outweighs the saving.
2. Register your business
Sole traders
There's no registration fee. You just need to register for Self Assessment with HMRC, generally by 5 October following the tax year you start trading, so HMRC knows to expect a return. You can trade under a different name without registering it separately, as long as it isn't offensive or too close to an existing business.
Limited companies
You register online with Companies House. The fee is £100 online, £124 by post, or £156 for same-day software filing, and online applications are typically approved within 24 hours. You'll need a unique company name ending in "Limited" or "Ltd," a UK registered office address, at least one director and one shareholder (they can be the same person), and a SIC code describing your business activity. Since November 2025, every director also has to complete identity verification with Companies House before they can be appointed. Registering online usually sets up Corporation Tax with HMRC in the same flow, which saves a separate step later.
3. Get your UTR
A Unique Taxpayer Reference (UTR) is a 10-digit number HMRC uses to identify you for tax purposes, and there's no fee to get one. Sole traders receive theirs when they register for Self Assessment. Limited companies receive one automatically when they register for Corporation Tax, which happens either as part of online incorporation or separately within three months of starting to trade, since incorporating with Companies House doesn't automatically notify HMRC that your company exists.
4. Check licenses and permits
The UK doesn't issue a single national business license. What you need depends on your industry and local council: certain trades and premises need council licensing (food businesses, alcohol sales, street trading), regulated professions need their own authorization, and some industries carry additional national permits on top of that. Check with your local council and industry regulator directly.
5. Understand UK taxes
Sole traders pay Income Tax on profit above the £12,570 Personal Allowance: 20% up to £50,270, 40% up to £125,140, and 45% above that. On top of Income Tax, sole traders pay Class 4 National Insurance, 6% on profits between £12,570 and £50,270, then 2% above. Compulsory Class 2 National Insurance was abolished from April 2024; you can still pay it voluntarily to protect your State Pension record if your profits fall below the Small Profits Threshold.
Limited companies pay Corporation Tax instead: 19% on profits up to £50,000, a tapered marginal rate between £50,000 and £250,000, and 25% above £250,000. Directors typically draw a mix of salary and dividends, since dividend tax rates are generally lower than Income Tax rates on salary.
VAT registration becomes mandatory once your taxable turnover exceeds £90,000 in any rolling 12-month period; the standard VAT rate is 20%, with reduced rates for specific goods and services.
6. Stay compliant
Every limited company files a Confirmation Statement with Companies House once a year, confirming your company details are current, for a £34 fee. Separately, you file a CT600 Corporation Tax return within 12 months of your year end, with the tax itself due 9 months and 1 day after year end. Annual accounts also go to Companies House. If you're drawing salary or dividends as a director, you'll file a personal Self Assessment return by 31 January each year, the same deadline sole traders use for their own return.
United Kingdom business costs at a glance
| Item | Cost |
|---|---|
| Sole trader registration | Free (register for Self Assessment) |
| Limited company incorporation | £100 online / £124 post / £156 same-day |
| Confirmation statement (every year) | £34 |
| UTR | Free |
| Corporation tax (profits up to £50,000) | 19% |
| Corporation tax (profits above £250,000) | 25% |
| VAT registration threshold | £90,000 turnover |
| VAT (standard rate) | 20% |
Frequently asked questions
How much does it cost to register a limited company in the UK?
£100 online through Companies House (£124 by post, £156 for same-day filing), plus a £34 Confirmation Statement due every year to stay in good standing.
Do I need a UK address to register a company?
Yes. Every limited company needs a UK registered office address. A sole trader doesn't need one to register, only once actually trading under a business address.
What's the corporation tax rate in the UK?
19% on profits up to £50,000, tapering through marginal relief to 25% on profits above £250,000.
When do I need to register for VAT in the UK?
Once taxable turnover exceeds £90,000 in any rolling 12-month period. The standard VAT rate is 20%.
Is a sole trader or limited company better for a small UK business?
Sole trader is cheaper and simpler below roughly £30,000 to £35,000 in annual profit. Above that range, the lower Corporation Tax rate compared to higher-rate Income Tax usually makes the extra admin of a limited company worthwhile.
Fees and rates above come from Companies House and HMRC as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to a UK-qualified accountant or solicitor about your specific situation.