UK Fact-File Part 1:
Business Formation for Individuals

1.2 UK Individual Business Registration

The procedures necessary for an individual to commence business activity

Self-employed individuals must register for income tax and national insurance before or at least as soon as they commence trading.

A sole trader must register as self-employed and this has traditionally been done through Her Majesty’s Revenue & Customs (HMRC) either on or offline; the former is now becoming the norm. The form CWF1 can be downloaded from the HMRC website. It is advisable to register straight away to avoid any subsequent penalties.

Some types of business or industry are subject to different registration requirements.

Being classified as self-employed, a sole trader must register to pay Class 2 National Insurance Contributions (NICs) and will also be required to complete self-assessment tax returns (having previously registered with HMRC). The NICs may be deferred if the sole trader is also paying NICs in other employment. In addition to Class 2 NICs, a sole trader will also have to pay Class 4 NICs, based on a percentage of profits up to threshold limits.

Businesses with employees may also need to register to make PAYE and National Insurance contributions on behalf of said employees, if the employee in question is: already employed elsewhere, is receiving employee benefits, is being paid over the PAYE threshold (GBP125.00 weekly or GBP540.00 monthly, in 2010/11) and/or National Insurance Lower Earnings Limit, or is in receipt of an occupational or state pension.

There is normally no requirement to register for VAT until the annual turnover of a business exceeds the threshold ( GBP70,000, as of April 2010, increased from GBP68,000 previously) at which point it becomes compulsory. Some supplies or services are exempt from VAT, including certain welfare and health-related services, financial and insurance-related services, some types of services relating to educational and cultural matters, and certain gambling-related services.

Other than the formalities of registering a new company or an individual setting up as a self-employed person, there are certain sectors of business where there are further procedures to follow before a business may commence trading; in some cases, the law requires that a person or company cannot start trading until a personal or business licence has been granted (for example publicans, restaurant owners, and child minders).

Need for tax residency in business

Any citizen of the European Union or European Economic Area may enter the United Kingdom legally to live and work. Those wishing to work as sole traders on a self-employed basis, will be required to register for tax, national insurance and VAT in the same way as anybody else and cannot carry out business activities in the UK unless they have made arrangements to declare UK income to their home country’s tax authorities or to the UK authorities.

Individuals from countries other than in the EU or EEA may require a visa to enter the country and in many cases, a work permit may also be required.

Any incorporated company wishing to trade in the United Kingdom is required to have a UK registered office address. This must be a bona fide address where mail is received and responded to (ie from Companies House or HMRC) when required.

If a company is owned by a company or individual who lives or is based overseas, they must still have a UK registered office, whether trading as a company or having a branch office or representation in the UK. A foreign company must register with the UK authorities in order to trade in the UK.

The UK authorities will require documentary evidence of any company that is already established and based abroad and any directors, managers or employees of the company that is to operate in the UK must have the right to work in the UK.

When forming an incorporated entity (eg limited liability company, limited partnership) it is necessary to register the entity with Companies House.

To set up a limited company the following documents must be sent to Companies House:

Application to register a company (FORM 1N01);
Memorandum of Association;
Articles of Association

On receipt of these forms Companies House will incorporate the company – usually within eight to ten days from receipt of the documentation (which includes the Memorandum and Articles of Association). Same-day incorporation can be requested, for an increased fee. Companies House will process the application and issue the Incorporation Certificate.

There is an ongoing legal requirement to file accounts and to notify Companies House of any changes to the status of directors of the company. Proper records of meetings of directors and shareholders must be kept.

A Limited Liability Partnership must be incorporated and a form (LL IN01) completed and sent together with the relevant fee to Companies House. The partnership does not become legally effective until Companies House has issued the incorporation certificate. The form is available from the Companies House website – www.companieshouse.gov.uk. They can also be contacted at:

Main Office:

Companies House
Crown Way
Maindy
Cardiff
CF14 3UZ

Edinburgh:

Companies House
4th Floor Edinburgh Quay 2
139 Fountainbridge
Edinburgh
EH3 9FF

London:

Companies House Executive Agency
21 Bloomsbury Street
London WC1B 3XD

Northern Ireland:

Northern Ireland
Companies House
Second Floor
The Linenhall
32-38 Linenhall Street
Belfast
Northern Ireland
BT2 8BG

HMRC must also be informed of the existence of a new company – registration for corporation tax is mandatory, as corporation tax is payable on all incorporated companies’ taxable profits.

Any sole proprietor or non-limited partnership must register with HMRC upon commencement of business activities. In the case of a partnership, each partner must register separately as they will be responsible for their own tax return, in addition to the partnership tax return that must be filed by the nominated partner. There is no requirement, however, for a sole proprietor or partnership to register with Companies House.

Sole traders, partnerships (limited liability or not) and certain other bodies are not subject to corporation tax. Arrangements must also be made to register for PAYE (Pay As You Earn) to deduct income tax and national insurance at source for all employees of the company.