According to official statistics published by the Department for Business & Trade, at the start of 2024 there were estimated to be around 5.5 million UK private sector businesses. A rising perspective suggests that 2025 could be a year of growth for new businesses – this would give a further boost to the already sizeable sector of 3.1million sole traders, 2.1 million actively trading companies and 356,000 ordinary partnerships in the UK at the start of last year.
The Centre for Economics Business Research (Cebr) for Sage forecasts that the number of new businesses in the UK will increase by 342,000 in the next two years, while figures from QuickBooks’ ‘Entrepreneurship in 2025’ survey of 3,000 consumers and business owners shows that more than half (52%) of survey respondents say they are considering launching a new business in the coming year.
If you are thinking of starting a business, thorough preparation can be the key to long-term success. Here we look at some of the main considerations for those beginning their new business journey.
Preparation and knowledge are key
There are several financial, tax and accounting steps you must take, however there is no one-size-fits-all template. Every business owner and venture is different – the structure of your business; sector you work within; place of work; whether or not you have employees; and the nature of your sales and income.
You might decide to set yourself up as a sole trader, become a partner in a business partnership or register your own limited company. They all have different implications for how you run the business and pay tax. Ensuring you are fully informed helps avoid any unnecessary costs and enables you to make the right choices from the outset.
Here are some topics to think about :
Business structure
You will need to decide on the best legal structure:
- Sole Trader: the simplest to set up. You are taxed on the profits of the business each year, even if you do not withdraw these from the business bank account. You are personally responsible for the business debts and liabilities.
- Partnership: two or more people run a business and share the profits. All partners are responsible for any debts and liabilities. There are different types of partnership to consider – ordinary partnership and limited liability partnership.
- Private limited company: This is legally separate from the people who run it, that includes finances which are separate from your own. The company can own property and is responsible for its debts. The company pays corporation tax on its profits. You, personally, are only taxed on income that is declared to you from the company, therefore gives you some control over your personal income.
Paying tax and registering your business
If you are setting up a limited company, you must register the company with Companies House. You will file company accounts and a confirmation statement with Companies House annually and you will also need to file a corporation tax return, together with tagged accounts in iXBRL format, with HMRC. Company accounts need to be prepared in accordance with accounting standards and company law, therefore in a set format. You also need to consider whether you need to register the directors/shareholders for self assessment personal tax returns, which will depend on their personal income levels and income sources.
If you are self-employed as a sole trader, you must register for self assessment if you earn more than £1,000 from your self-employment (before you deduct your expenses).
If you trade through a partnership, you need to register the partnership with HMRC as well as register the partners for self assessment tax returns.
Depending on profit levels, you also need to consider if you wish to pay Class 2 National Insurance voluntarily as a sole trader or partner (for example to maintain qualifying years for state pension).
Record-keeping and bank accounts
As a limited company, you must use a business bank account and keep records about the company itself and financial and accounting records. HMRC may undertake a compliance check to make sure you are paying the right amount of tax.
Sole traders and those in a partnership must keep records of their business sales, income and expenses to enable them to complete their self assessment tax return. They should also keep proof of all receipts for goods, stock, and expenses; bank statements; sales invoices; till rolls; and bank slips.
It is worthwhile noting that from April 2026, sole traders with business and/or property income which total, when added together, to more than £50,000 (before deduction of expenses) will be required to maintain digital records and HMRC each quarter using compatible software. This is called Making Tax Digital for Income Tax – find out more here.
Expenses
Sole traders, partnerships and companies can deduct ‘allowable expenses’ (necessary costs that are directly related to running your business) from their income when calculating taxable profit. The tax rules can, however, vary between the different entities and are not always straight forward.
VAT
If your (or your company’s) taxable supplies are below £90,000, and you do not expect your taxable supplies to go over £90,000 in the next 30 days, you do not need to register for VAT. For newly set up businesses that started from scratch, you need to look at the end of each month for the last twelve months to see if the £90,000 registration threshold is exceeded.
Some of the issues to consider when thinking about VAT :
- If your supplies are in fact “taxable” – which means any supply in the UK that is not exempt VAT;
- Whether you want to voluntarily register for VAT, for example to hide the size of the business or to be able to claim back VAT on your expenses;
- If you need to register for VAT asap as you are over the VAT registration limit; and
- If you register for VAT, would it be advantageous to join a VAT scheme (such as the flat rate scheme). Also, you need to consider how you will keep your accounting records to ensure you meet the requirement of Making Tax Digital for VAT.
How M+A Partners can help
There are certainly lots of considerations when it comes to setting up your new business. Our experienced team takes the time to understand your unique business needs – explaining the different ways you can set up your business, the associated tax implications, as well as how to keep your books and records to ensure you meet any Making Tax Digital current and future requirements.
Should you wish to discuss your new business venture, or find out more about the tax considerations of working for yourself, get in touch.
