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It is also possible to set up as a public limited company (PLC) or as a co-operative, though those last two will be suitable for very few start-ups. Where do I register my new business if I set up as a sole trader? New sole traders must register with the Inland Revenue within three months of the end of the first month you start to trade. Failure to do so can result in financial penalties. The HM Revenue & Customs website How do I set up a limited liability company? There are two ways to set up a limited liability company. You can buy a company that has already been incorporated but is not trading; this commonly referred to as buying a company ‘off the shelf’. Alternatively, you incorporate an entirely new company. You can set up a company on your own – the Companies House website explains how to do this. You can also use a formations agent to do the paperwork for you, though this will cost you money. If my business fails, what will I be liable for? If you operate as a sole trader you are personally liable for all of the debts and liabilities of your business. In extreme cases, a business failure could result in your being declared bankrupt. Partners within a partnership carry joint and several liability for the debts and liabilities of their business. This means that all partners are liable for the full amount of the business debts and liabilities. Directors and officers of limited liability companies and partners of limited liability partnerships are not personally liable for the debts of their businesses. However, if a director or partner has personally guaranteed a debt they can be held liable for this. What tax will I have to pay? If you trade as a sole trader you are liable to pay income tax on your taxable profits at normal personal rates with the usual personal allowance. You need to fill in a self-assessment tax return each year. Sole traders are also liable to pay Class IV National Insurance Contributions on their taxable profits. Partners pay personal income tax on the proportion of the partnership profits that they are entitled to. They are also required to fill in self assessment tax forms each year. Class IV National Insurance Contributions are also payable. More details about self assessment are available at the HM Revenue & Customs website For those trading through a limited liability company, the company will be liable to pay Corporation Tax on all profits, and the directors and officers will be taxed via PAYE through normal payroll arrangements. Where dividend payments are made to shareholders, shareholders will incur a personal income tax liability on any dividends that they receive. Will I have to register for VAT when I start trading ? VAT registration is only mandatory when business turnover (sales) exceeds the registration threshold, currently (2009-10) £68,000 a year. Find out more about VAT at the HM Revenue & Customs website Can I get a grant to help me develop my business? For up-to-date information on available grants, check the Business Link website Do I really need a business plan now I'm trading? YES! We recommend that you do as having one greatly reduces the risks of things going horribly wrong. Having a business plan, and updating it at regular intervals, will help to identify potential problems and measure progress. Like so many things in life, you tend to get out of a business plan what you're prepared to put in. Make it work for you!       020 7460 5050   |   About us   |   Privacy policy   |   Funders   |   Partners Portobello Business Centre, 11-12 Barley Shotts Business Park, 246 Acklam Road, London W10 5YG Company Limited by Guarantee. Reg No. 3012156