Starting up in business is genuinely exciting — and genuinely complicated. There are dozens of decisions to make before you earn your first pound, and a lot of conflicting advice on the internet about how to make them. Some of that advice is fine. Some of it will cost you money.

At Edward Harris, we work with a lot of new business owners across Greater Manchester and beyond. We help people at the very beginning — before they’ve registered, before they’ve opened a business bank account, before they know what VAT even means in practice. What we’ve found is that the founders who start with the right structure, the right habits, and a basic understanding of their obligations tend to have a much smoother first year than those who figure it out as they go.

This is our honest take on the key things to think through when you’re starting out — not a comprehensive legal guide, but the practical perspective we share with clients in those early conversations.

This is the question almost every new founder asks first, and understandably so. The honest answer is that it depends — but it doesn’t depend on as many things as people think.

As a sole trader, you register with HMRC for Self Assessment, pay Income Tax and Class 4 National Insurance on your profits, and that’s largely it. There’s no company to register, no accounts to file at Companies House, no Corporation Tax return. It’s simpler, cheaper to maintain, and entirely appropriate for a huge number of small businesses.

A limited company is a separate legal entity. It pays Corporation Tax on its profits. You, as a director, pay yourself a salary (subject to Income Tax and National Insurance) and potentially dividends (taxed at a lower rate than salary). The tax efficiency of this structure improves meaningfully once profits exceed roughly £30,000–£40,000 per year — below that, the additional administration cost often cancels out any saving.

What we tend to say to new clients: if you’re just starting out, your income is uncertain, and you don’t have a specific reason to incorporate — such as investor requirements, liability protection for a higher-risk business, or working in an industry where limited company status is expected — starting as a sole trader and incorporating later is often the more sensible route. You can always upgrade. Unwinding an unnecessary company is more hassle than creating one.

You can read more about the benefits of a limited company and the benefits of operating as a sole trader in our related posts.

Whether you go sole trader or limited company, you need to register — and the processes are quite different.

Registering as a sole trader

You register for Self Assessment with HMRC. There’s no fee and no Companies House filing. You’ll need to submit a tax return each year by 31 January covering the previous tax year (which runs April to April). If you haven’t registered within three months of starting to trade, HMRC expects you to do so promptly — penalties can apply if you leave it too long.

Setting up a limited company

You register with Companies House. The process involves choosing a company name, providing a registered office address, identifying at least one director and one shareholder, specifying a SIC code for your industry, and declaring anyone with significant control — generally anyone holding more than 25% of shares or voting rights. The filing fee starts from £50 online. Once incorporated, you must register separately with HMRC for Corporation Tax, and for PAYE if you intend to pay yourself a salary.

Every year, a limited company must file annual accounts, a Corporation Tax return (CT600), and a Confirmation Statement with Companies House. These are not optional, and the deadlines are different — missing them attracts automatic penalties. If you’re setting up as a limited company, having an accountant manage these filings from the start tends to pay for itself quickly.

VAT registration becomes mandatory when your taxable turnover in any rolling 12-month period exceeds £90,000 — the threshold for 2026/27. At that point, you have 30 days to notify HMRC and register.

But the decision about VAT isn’t just about hitting the threshold. There are a few things new founders often miss:

• If your customers are VAT-registered businesses, they can usually reclaim any VAT you charge them — which means voluntary early registration can actually be beneficial. You can reclaim VAT on your own purchases, including pre-registration expenses in some cases, and your pricing doesn’t necessarily suffer.
• If your customers are members of the public or small businesses not VAT-registered, adding 20% to your prices is more sensitive. Voluntary registration matters less here until you need it.
• The VAT Flat Rate Scheme can be a useful simplification for certain service businesses with low input costs — you charge VAT at the standard rate but pay HMRC a fixed percentage of your turnover instead of the difference between input and output tax. It won’t suit everyone, but it’s worth understanding before you register.

What we see in practice is that new founders either ignore VAT entirely until they’re forced to deal with it, or they register too early and create unnecessary administration. The right answer depends on your customers, your costs, and your growth trajectory. We’d always recommend thinking this through before you register rather than after.

Beyond structure and registration, the biggest difference we see between founders who have a smooth first year and those who don’t is usually habits rather than knowledge.

A few things that matter more than most people expect:

• A separate business bank account from day one. Even as a sole trader, mixing personal and business transactions makes bookkeeping significantly harder and your tax return more error-prone. Open a dedicated account before you take your first payment.
• Keeping records as you go. Receipts, invoices, mileage logs — these are much easier to maintain weekly than to reconstruct at the end of the tax year. Cloud bookkeeping tools like Xero, QuickBooks, and FreeAgent make this straightforward even if you have no accounting background.
• Setting aside tax from every payment you receive. Sole traders pay tax on their profits through Self Assessment, typically in January and July. If you haven’t been putting money aside, January can be a very unwelcome surprise. A rough rule of thumb: set aside 25–30% of profit until you know your effective rate more precisely.
• Knowing what you can actually claim. Business expenses reduce your taxable profit — but only legitimate ones, claimed correctly. New founders frequently either over-claim (which creates HMRC risk) or under-claim (which means paying more tax than necessary). Getting clear on this early is one of the simplest ways to reduce your tax bill lawfully.