15 Startup Essentials: Launching and Protecting Your UK Business
This article empowers startup business owners in the UK to build thriving businesses while safeguarding their ventures.
Starting a new venture can be an intimidating task, even if you have a deep understanding of your market or product. No founder is an expert in all the areas required to run a business, such as accounting, corporate law, marketing, or human resources. This can often feel overwhelming, but you're not alone—help is available!
8 of 10 startups fail within two years, according to Bloomberg, so how can your startup be in the successful 20 per cent? The secret is to prepare your business for the challenges that will come during those vulnerable early years.
At Dragon Argent, we believe that with the right professional advice, any business can achieve its potential. Our passion lies in removing barriers to growth, allowing founders to focus on scaling and developing their businesses rather than just managing them. We offer expert guidance in strategy, legal, accounting, tax and human resources, always with a long-term perspective in mind.
In this article, we have provided fundamental advice on setting up a business. From choosing the right company structure to setting up a business bank account, managing payments, and managing your employees, we hope the information helps you navigate the initial challenges of your business journey. This advice is brief and generic but should give you a good starting point. For specific needs, bespoke advice tailored to your business is recommended.
Table of content
What type of company to set up in the UK?
What are the advantages of setting up a limited company in the UK?
How to incorporate a company in the UK
What documents required to open a business bank account in the UK?
What are company statutory registers and why do you need them?
Why do you need a Shareholder’s Agreement and an Article of Association?
What are the duties of a company director?
Intellectual property checklist for start-ups
What is bookkeeping and why it is important?
When and how do you have to register for VAT?
How to prepare your statutory accounts in the UK?
What are the UK payroll processes and PAYE compliance requirements for your employees?
What you need to know before hiring your first employee
How to conduct a right to work Checks?
When should you use the Home Office online right to work checking service?
What type of company to set up in the UK?
The best type of company to set up in the UK depends on your specific circumstances, such as:
✔️ Number of owners: Are you going solo, or are there multiple founders?
✔️ Liability: How much personal risk are you comfortable with?
✔️ Growth potential: How big do you envision your business becoming?
✔️ Profit sharing: How do you want to split profits among the owners?
Here's a quick rundown of the most common structures to consider:
Sole trader: This is the simplest and cheapest option, ideal for one person businesses. You keep all the profits but have unlimited liability for debts.
Partnership: Good for 2 or more people to co-own a business. Profits and losses are shared according to an agreed ratio, and there's still unlimited liability.
Limited company: This separates your personal finances from the business. It offers limited liability and is a popular choice for growth-oriented businesses. There are different types of limited companies, with the most common being a private company limited by shares (Ltd).
Finally, consulting with a business advisor or accountant familiar with UK regulations like Dragon Argent is recommended to get personalised advice for your situation.
💡 Useful Resources: Sole Trader or Limited Company in the UK: Which is best for you?
What are the advantages of setting up a limited company in the UK?
Setting up a limited company in the UK offers several advantages, particularly compared to simpler structures like sole traders. Here are some of the key benefits:
✔️ Limited liability: This is the biggest perk. A limited company is a separate legal entity from its owners (shareholders and directors). If the company faces financial trouble or gets sued, your personal assets like your house or car are generally protected. However, this applies as long as the directors haven't done anything wrong like fraud or given personal guarantees for debts.
✔️ Potential tax benefits: Limited companies pay Corporation Tax on their profits, which can be a lower rate than income tax paid by sole traders. There are also more options for tax planning with a limited company structure. It's important to note that a good accountant can help you determine if a limited company offers actual tax advantages in your specific situation.
✔️ Increased credibility and trust: A limited company often projects a more professional image compared to a sole trader. This can be helpful when attracting customers, clients, or investors.
✔️ Easier access to funding: If you plan to grow your business and need to raise capital, a limited company structure is generally more attractive to lenders and investors.
✔️ Flexibility in profit sharing: Profits in a limited company are distributed as dividends to shareholders. This allows for more flexibility in how you share profits among the owners compared to a fixed partnership structure.
✔️ Pensions and other benefits: Directors of a limited company can set up company pension schemes and benefit from other tax-efficient ways to take money out of the business.
✔️ Clear separation of business and personal finances: Having a limited company keeps your business finances separate from your personal finances, making bookkeeping and tax filing easier.
✔️ Succession planning: Selling or transferring ownership of a limited company is generally simpler than with a sole trader structure.
It's important to remember that there are also some drawbacks to consider, such as increased administrative burden and costs associated with setting up and running a limited company. However, for many businesses, the advantages outweigh the disadvantages.
💡 Useful Resources: Recorded Webinar: How to Build a Valuable Startup
How to incorporate a company in the UK
Incorporating a company in the UK involves several steps, and it's important to ensure everything is done correctly to comply with UK laws and regulations. Here is some advice you can provide to your client:
Choose a Company Name: Select a unique name for your company that complies with the UK's naming regulations. The name should not be offensive, misleading, or too similar to existing company names.
Register Your Company: To register your company, you'll need to provide information such as the company's registered office address, details of directors and shareholders, and the company's Articles of Association. You can do this through Companies House.
Appoint Directors and a Company Secretary: Every company must have at least one director. Private companies do not need a company secretary, but public companies do. Directors must be at least 16 years old and not disqualified from acting as a director.
Issue Shares: If you're setting up a limited company, you'll need to issue shares to shareholders. You'll also need to decide on the total number of shares and their value.
Register for Corporation Tax: Once your company is incorporated, you must register for Corporation Tax with HM Revenue and Customs (HMRC). You should do this within three months of starting to trade.
Set Up a Business Bank Account: Open a business bank account to keep your business finances separate from your personal finances. This is a requirement for limited companies.
Comply with Legal Requirements: Ensure you comply with all legal requirements, such as filing annual accounts and confirmation statements with Companies House, maintaining proper accounting records, and adhering to health and safety regulations.
What documents required to open a business bank account in the UK?
Once you have set your business up, you’ll find you will need to open a business bank account for several reasons:
For businesses setting up a bank account in the UK, the process is relatively straightforward as long as you comply with the eligibility criteria. To open a business bank account, you will almost certainly need:
✔️ Proof of ID for all named company directors
✔️ Proof of address
✔️ Trading and/or business registration address
✔️ Contact details
✔️ Companies House registration number (for limited companies and partnerships)
✔️ Estimated annual turnover
In some cases, you’ll need to prove your own personal financial situation, with documents to show you have a clean credit and banking history. It would also be advisable to ensure you have a business plan at this stage. While it may not be a requirement to open a business account, it’s a great example of when a professional looking business plan can be used to build credibility and facilitate quick decision making.
💡 Useful Resources: A Guide to Business Bank Accounts in the UK for Startups
What are company statutory registers and why do you need them?
Statutory registers are used to maintain important information about a company, such as details of directors, shareholders, and significant company events. They help ensure transparency and compliance with legal requirements.
It's crucial to keep statutory registers accurate and up to date. Any changes, such as appointments or resignations of directors, allotment of shares, or changes to the registered office address, should be recorded promptly.
Ensure that all information recorded in the statutory registers is accurate and complete. Any errors or discrepancies should be rectified promptly.
Some changes to the statutory registers may need to be filed with Companies House. It's important to be aware of these requirements and comply with them.
💡 Useful Resources: Does my business need a company secretary?
Why do you need a Shareholder's Agreement and Articles of Association?
Every company in England and Wales must have articles of association.
A company’s articles of association is a public document, available for viewing at Companies’ House, which sets out the rules for how the company will operate internally. There are rules on what the articles must contain and will bind the company to these rules. On incorporation you are provided with what is referred to as Model Articles, these are prescribed under Companies Act 2006. You can amend your articles to make them bespoke to fit your vision for your company.
While it is not a legal obligation to have a shareholder’s agreement (SHA), it is crucially beneficial to get one in place before investment rounds are undertaken. An SHA is a contract between the company and its shareholders, outlining the rights and obligations of the shareholders.
The SHA is a private document which is not available for the public view, unlike the company’s articles of association.
We consider it to be commercially beneficial for many reasons, including:
Disputes: an SHA will govern how disputes are handled and the framework for any dispute resolution procedures. It can also minimise any potential disputes as it provides the framework for how certain decisions are to be made.
Governs management: an SHA can hold directors accountable for certain actions and require directors to seek shareholder’s consent in advance of any significant decisions.
Deadlock: it is expected that during the lifetime of a company, there will be instances where the shareholders and directors may have conflicting views on decision making. An SHA will dictate what will happen during these situations.
Share transfer: A SHA will regulate transfer of shares which will prevent any transfers being made to unknown parties or potentially a competitor.
Protecting company: A SHA will also protect the company from any disputes between shareholders and will be drafted to contain provisions that clearly stipulate how the company is to be run.
💡 Useful Resources: Rules of the Club: Shareholders’ Agreements and Articles of Association
What are the duties of a company director?
If you decide that a limited company is the most appropriate vehicle through which to manage your business, you are obligated to register that limited company with Companies House, the United Kingdom’s registrar of companies.
By doing this, you will become a company director and as such, you may be surprised to learn you have legal obligations to both the limited company, which is a legal entity in its own right and Companies House.
As a director, you are legally responsible for running the company and making sure information is sent to company’s house on time. This information includes:
✔️ The confirmation statement
✔️ The annual accounts
✔️ Any change in your company’s officers or their personal details
✔️ A change to your company’s registered office
✔️ The allotment of shares
✔️ Registration of charges
✔️ Any change in your company’s people with significant control details
You can hire other people to manage some of these things day-to-day (for example, an accountant or company secretary) but you’re still legally responsible for your company’s records, accounts and performance.
💡 Useful Resources: Do you know your duties as a director?
Intellectual property checklist for start-ups
Even the start-ups, regardless of their size, can possess valuable intellectual property (IP) deserving of safeguarding. Ranging from your company's name to the unique blueprint of your offering, these are assets that define your distinctiveness amidst competitors. As your venture evolves, the significance of these IP assets amplifies, underscoring the need for a solid foundation from the outset.
Below checklist serves as a guide, outlining essential intellectual property aspects for start-ups and delineating the necessary steps for commencement:
Trade Mark: Trade marks protect the signs and names used to distinguish the goods or services of one enterprise from another. The marks must be distinctive for the goods/services provided. Filed with UKIPO. Lasts indefinitely subject to renewal fees every 10 years
Patents: Protects new inventions and technical functions. Must be new, an invention and have a technical effect. Filed with UKIPO. Can last for 20 years from the date of registration subject to renewal fees every 5 years.
Registered Designs: Protects the overall visual appearance of a product such as the physical shape, configuration and decoration. Filed with UKIPO. Can last for 25 years from the date of registration and are subject to renewal fees every 5 years.
Copyright: Protects literary, dramatic, musical and artistic works such as books, music, photographs, art, films and sound recordings. Copyrights protect the expression of an idea, not the idea itself. There are no official registers in the UK.
Trade Secrets: Includes any information that has an economic value, kept confidential and is protected through proper measures. Trade secrets are difficult to categorise because they result from the combination of different types of technical and commercial information.
Benefits of protecting your business IP?
✔️ Protecting IP is crucial for businesses as it enables them to safeguard their ideas, inventions, brands, and creative works from exploitation.
✔️ Strong IP protections also attract investors and partners by signalling that there is a commitment to innovation and development of opportunities through monetisation such as, licencing IP and other commercial agreements.
✔️ Protection of IP mitigates risk and liability in infringement claims which could result in loss of revenue.
✔️ IP protections serve as a foundation for businesses to thrive in a global marketplace.
Businesses must conduct a comprehensive audit to identify and prioritise all valuable IP assets, ensuring that patents, trademarks, copyrights, and trade secrets are adequately protected based on strategic importance. If you have any questions related to IP, please get in touch with one of our IP solicitors today.
💡 Useful Resources: Intellectual Property Essentials for Startups
Accounting best practices: Follow the below best practices and establish a strong accounting system that promotes accurate financial reporting, facilitates informed decision-making, and protects your business from financial risks.
What is Bookkeeping and why it is important?
This is the bread and butter of business financials, without which, inevitable problems will arise. Bookkeeping is, first and foremost, the process of recording and classifying each business transaction. These records are to be maintained in such a way that they can be easily accessed, analysed, and understood later. Here, then, are a few crucial things to know:
What’s involved in bookkeeping?
Bookkeeping is managing your day-to-day finances of a business includes:
✔️ Making payments (e.g. bills)
✔️ Chasing payments from clients and customers
✔️ Ensuring your business pay the right amount of tax
✔️ Claiming back tax for your business (e.g. expenses)
✔️ Managing payroll to pay your staff and HMRC correctly
Bookkeeping tracks payments in and out of the business using three financial records:
Cashbook – this records your cash flow (everything moving in and out of your business’s account)
Sales invoice – this records what you’ve sold, including both paid and unpaid invoices.
Purchase invoice – this records what you’ve bought (including services) and how you’ve paid for each purchase.
These are typically the essential records (known as 'books') that you will maintain, although additional documentation may be necessary. Maintaining precise books is crucial for financial reporting accuracy, especially in the event of an audit.
💡 Useful Resources: Recorded Webinar: How to plan your business finances?
When and how do you have to register for VAT?
Once the company starts generating revenue over £90,000, it will need to pay/claim VAT.
What is VAT?
VAT stands for Value Added Tax, a tax added to most goods and services sold in the UK. Businesses registered for VAT collect VAT from their customers and then pay it to HM Revenue and Customs (HMRC), the UK tax authority.
Becoming VAT registered will mean that your business can reclaim input VAT paid on goods and services purchased for business use, reducing total expenditure. VAT registration can also enhance your business’s credibility and make the business more competitive, especially when dealing with other VAT registered entities.
Do I Need to Register for VAT?
Mandatory Registration: You must register for VAT if your VAT taxable turnover is more than £90,000 (as of April 1, 2024). Your VAT taxable turnover is the total sales subject to VAT, excluding exempt sales. We suggest that the company registers sooner rather than later as it can start reclaiming VAT from HMRC on costs that it pays (such as legal/accountancy invoices).
Voluntary Registration: You can also choose to register for VAT even if your turnover is below £90,000. This might be beneficial if you expect to go above the threshold soon or want to reclaim VAT you pay on business expenses.
How to Register for VAT
You can register for VAT online through the HMRC website https://www.gov.uk/register-for-vat/how-register-for-vat It's free to register, and you'll need your National Insurance number (or Unique Taxpayer Reference - UTR) and business bank account details.
What Happens After Registering?
Once registered, you'll need to:
Charge VAT on your sales at the current rate (usually 20%)
Keep VAT records for at least six years
Submit VAT returns to HMRC usually every quarter, reporting the VAT you've collected and paid
With our help, your VAT registration and returns needn’t be a chore. We can help you plan your VAT so it doesn’t stretch your resources, and make sure you reclaim as much as possible.
💡 Useful Resources: Changes on how business profits are taxed from 2023/24
How to prepare your statutory accounts in the UK?
All limited companies and limited liability partnerships (LLPs) are required by law to submit annual statutory accounts to Companies House. Although this is a compliance exercise, the aim should also be to provide transparency to your shareholders and aid your decision making. Having statutory accounts filed will also facilitate access to financing and enhance credibility with investors, shareholders and suppliers.
What's Included in Statutory Accounts?
There are three main components to statutory accounts:
Balance Sheet: This shows the company's assets (what it owns), liabilities (what it owes), and shareholders' equity (the difference between assets and liabilities) at a specific date.
Profit and Loss Account (P&L): This summarizes the company's income (sales and other revenue) and expenses (costs) over a specific period, usually a year. It shows the company's net profit or loss for the period.
Notes to the Accounts: These provide additional explanations and details that don't fit neatly in the balance sheet or P&L. They can include information about accounting policies, significant events, and contingent liabilities.
Deadlines and Filing
Statutory accounts must be filed with Companies House typically within nine months of the company's financial year-end. The company must also send copies to its shareholders and HMRC (tax authority).
Compliance Standards
Companies have some flexibility in how they prepare their statutory accounts, depending on their size and complexity. There are two main sets of financial reporting standards used in the UK:
UK Generally Accepted Accounting Principles (UK GAAP): This is a set of accounting rules and principles companies can follow.
International Financial Reporting Standards (IFRS): Larger and more complex companies are required to use IFRS.
Our experienced accounting team takes a consultative approach to the year-end accounting process. We’ll ensure compliance of course, but we’ll always speak to you both before and after year end to optimize treatment in line with your commercial objectives.
💡 Useful Resources: The Importance of Cash Flow Forecasting for Startups
What are the UK payroll processes and PAYE compliance requirements for your employees?
Payroll in the UK is the process of calculating, paying, and reporting employee wages and taxes. Here's a breakdown of the key aspects:
The Players Involved:
Employer: You, the business owner responsible for paying your employees and handling all the associated taxes.
Employee: The person you're employing and paying wages to.
HM Revenue and Customs (HMRC): The UK tax authority responsible for collecting Income Tax and National Insurance contributions.
Key Components of Payroll:
✔️ Calculating gross pay: This is the total amount you owe your employee before taxes and deductions. It factors in salary, bonuses, overtime pay, etc.
✔️ Tax deductions: You need to deduct Income Tax from your employee's pay according to their tax code. You might also need to deduct student loan repayments or pension contributions.
✔️ National Insurance contributions: Both employers and employees contribute National Insurance (NI) which goes towards social security benefits.
✔️ Net pay: This is the amount your employee receives after all deductions are made.
✔️ Reporting and Payment: You must report payroll details and submit tax and NI contributions to HMRC on a regular basis. The specific timeframe depends on the tax month (running from the 6th of one month to the 5th of the next).
Important Considerations:
✔️ PAYE Scheme: As an employer in the UK, you're required to register for the Pay As You Earn (PAYE) scheme with HMRC. This system facilitates deducting and paying Income Tax and National Insurance contributions for your employees.
✔️ Minimum Wage: The UK has a National Living Wage (NLW) for workers aged 23 and over, and minimum wage rates for younger workers. You are legally obligated to pay at least the minimum wage for the hours your employees work.
✔️ Employee Benefits: You might offer benefits like pensions, healthcare plans, or cycle to work schemes. These can have payroll implications, so factor them in when calculating net pay.
✔️ Payroll Software: Many businesses use payroll software to automate calculations, deductions, and reporting. This can save time and reduce errors.
Resources for Further Information:
HMRC PAYE for employers: https://www.gov.uk/paye-online
GOV.UK guide on Running Payroll: https://www.gov.uk/running-payroll
The Wise guide to Payroll in the UK: https://wise.com/gb/blog/what-is-payroll-uk
Our payroll team provide all employees with online access to their own payroll portal, with access to all their own payslips and documentation. This takes the administrative burden out of the monthly payroll process and gives employees a transparent view of their payroll records.
💡 Useful Resources: Guide to P11D and P11D(b) Forms: Expenses and benefits for employers
What you need to know before hiring your first employee
What an exciting time for you and your business… But it’s likely a scary time too? Hiring your first employee is a big responsibility and you might be nervous about getting it wrong. That’s why we’ve created this guide – it will talk you through everything you need to know so that you can hire with confidence:
Type of hires
Will the new hires be employees or consultants, the two require very different types of contracts and have different legal requirements for the company. Employees are legally required to have certain provisions within their employment contract. Check out our article on what an employment contract must contain.
If a director is will be paid a salary, a director’s service agreement will be crucial to ensure there are commercial protections, in addition to the legal provisions, to protect your company.
Can the business afford the hires
Companies need to ensure they can afford to pay the employees the national minimum wage or above. In addition to the salary, employers are required to pay NI, contribute towards your employee’s pension scheme and cover any maternity or paternity leave.
Other responsibilities
As an employer, you will have various legal responsibilities to adhere to including their statutory duty to have a health and safety policy, when they have 5 or more employees. There are also important legislative provisions relating to workplace disciplinary and grievance procedures.
While there may not be a legal requirement to have other policies in place, the absence of written policies is likely to reflect poorly on the business as an employer in the event of a tribunal claim.
Furthermore, employers must have Employer’s liability insurance in place from day one of their first employee commencing their employment.
💡 Useful Resources: What must an employment contract contain?
How to conduct a right to work Checks
Employers in the UK have an obligation upon them to prevent illegal working in the UK and as such, right to work checks, carried out in line with the guidance from the Home Office must be completed. Carried out correctly, a right to work check will create a statutory excuse to a civil penalty in the event that an employer employs an illegal worker. Failure to carry out right to work checks can have damming consequences and result in serious reputational damage and significant financial sanctions to businesses.
You should ensure that when you are onboarding employees you are conducting diligent right to work checks. Even if an employment contract requires employees to warrant, they have the right to work in the UK, as an employer you are still expected to conduct these checks. Employers should also be wary that once an initial right to work check has been concluded, this may not have fulfilled their legal obligations where workers are permitted to work in the UK for a limited time. Likewise, you may assume that you are able to outsource your right to work checks to a third party, however care must be taken to ensure right to work checks are being completed correctly.
The timing of when the checks are carried out and the way they are recorded is vital to ensuring the right to work check is done correctly.
Employers should carry out one of the following checks before employment begins:
✔️ Conduct an in-person ‘manual’ check of original documents;
✔️ Use the Home Office Online Checking service; or
✔️ Use an Identification Document Validation Technology (IDVT) identity check.
What is a Manual Check?
A Manual Check is the most well-known form of right to work check. There are various acceptable documents set out in List A and List B of the Home Office, which you must obtain for the manual check.
The process of performing a manual check is as follows:
Meet the individual.
Check the original documents in person with the individual present.
Make and retain copies of original documents, record the date the check was completed.
💡 Useful Resources: Business Immigration: The Importance of Right to Work Checks
When should you use the Home Office online right to work checking service?
Since 6 April 2022, a Home Office online right to work check can be carried out for various people, subject to what immigration documentation they have been issued i.e. a Biometric Residence Permit (BRP), Biometric Residence Card (BRC), EU Settlement or Pre-Settlement Status, or Frontier Worker Permit (FWP).
The online checking service is fairly simple to use and requires you to take the following steps:
the migrant employee can log into their UK Visa Immigration account and generate a share code to give their employer;
the employer will go to the right to work check page on the government website and enter the code and employees date of birth;
the employee will confirm that they have shared the code with the employer and then the employer will have access to their proof of right to work;
employers should check that the photo of the employee online matches the individual in question; and
the employer should print screen the employees’ profile and retain a copy of this right to work on the employee’s personnel file.
The Online checking service is free to use, and the statutory excuse is satisfied under this method as all information is provided instantly directly from the Home Office database, i.e. the Home Office is informed what date you made the check.
Passports and right to work checks must be kept up to date and kept on file for the duration of employment and two years after an employee’s employment terminates. Failure to comply with right to work checks can cause both commercial and reputational damage for your company and potentially an immigration fine of up to £45,000 per breach. Conducting right to work checks correctly will allow your company to obtain a statutory excuse should any issues arise.
Conclusion:
Depending on where you are in your startup journey, having got to the end of this article you may be feeling quite overwhelmed at the amount of work ahead of you. However, it’s all about celebrating the small wins, so congratulations on getting this far! Grab a cup of tea and a chocolate biscuit!
As you’ll have seen, the reality is there is such a broad spectrum of disciplines required to set up a business in the most optimal way. Startup founders must navigate accounting standards, tax, employment law, corporate law, IP law, marketing, sales, product development… the list is endless in the early days.
You may be an exceptionally rare breed, a polymath that feels comfortable making decisions with any of these hats on. However, the chances are you’re like the majority of us, and only really feel comfortable working alone in a few of these areas.
Successful founders recognise their strengths and weaknesses and seek help where they need it. Most startups are required to bootstrap, but it’s also critical to balance prudent budgeting with a realistic sense of what you can do efficiently and where it makes sense to engage an external advisor who can free your time up to allow you to focus on what you do best.
For many of our clients Dragon Argent are that trusted advisor who is interested and invested in their long-term growth. We have a small but expert team of lawyers, accountants, employment and commercial specialists that act as an extension of our client’s businesses, offering entrepreneurial, joined up professional advice across multiple disciplines.
From formation to exit, we support our client’s commercial objectives and love nothing better than joining courageous founders on their startup journeys!
Speak to one of our experts today ↓
Written by:
Senior Corporate & Commercial Solicitor
Trainee Solicitor
Employment Solicitor
Trainee Solicitor
Head of Accountancy