How to start a business

Authored by Hiscox Experts.
13 min read
people creating business plan
Setting up a business is an exciting time, as you move forward with a fresh idea. But whether coming up with USPs or dealing with paperwork, there are plenty of foundations to lay.

Read on to explore how to start a business in the UK. Our guide covers everything from grants and regulations to social media marketing and tax.

Finding your 'big idea'

The very first step when building a business is to find a unique selling point (USP) that sets you apart from the crowd. You may have an entirely new product or service, ready to shake up your industry. Or perhaps you’ve simply found a way of doing things better than your competitors [1].

You could be a beautician offering a fresh spin on traditional treatments. Or a coffee shop owner selling unique blends from around the world. Whatever your skills, it’s all about carving a niche and standing out from the competition.


What are you selling and to whom?

When you set up a company in the UK, try to be crystal clear on the gap in the market your product or service will fill. And be honest about whether there’s a genuine demand for it [2].

Think about the age, background and characteristics of your target customers. Then ask questions like:

  • What type of business would they prefer to deal with? For example, online, in-person or a mix of both?
  • How will you match their price expectations?
  • Will they have any ethical or environmental concerns?
  • Are there enough customers in your local area?
  • Are their needs already being met by existing UK companies?


What type of brand do you want to be?

Coming up with a viable product is just one piece of the puzzle. Even the most groundbreaking idea could struggle without another key ingredient: effective branding.

Your brand is the way you present your company to the world. Choosing certain language, visuals and colours helps to set the right tone – and attract your audience [3]. As a starting point, consider whether your customers would prefer:

  • More casual or formal language
  • Eye-catching or simplistic colours
  • A humorous company name and logo, or something more direct.

For instance, a builder specialising in complex home extensions might wish to avoid puns or overly bright colours that make them appear less serious. In contrast, a less formal business may follow this approach to create a more relaxed feel.

Learn more about brand building


Creating a simple business plan

Have you nailed your idea, brand and a realistic target audience? Now is the time to precisely map out how to start your own business.

A traditional business plan is a formal document where you describe your new company – and forecast its future growth. The aim is to attract investors or lenders and ensure everyone is on the same page [4].

It’s also possible to create a streamlined, one-page business plan that gets straight to the point. Business expert Bernard Marr has developed the ‘SMART Strategy Board’ to do just that.

It includes a [5]:

  1. Purpose panel. This allows you to effectively set out your company’s purpose, plus its ambitions for the future.
  2. Customer panel. Here, you can identify your target audience and what you’re planning to offer them.
  3. Finance panel. The place to spell out your financial goals, covering things like profits and efficiency.
  4. Operations panel. Outline the partners and processes that will make your firm a success.
  5. Resource panel. Cover exactly what you’ll need when it comes to IT systems, infrastructure, talent and values.
  6. Competition and risk panel. Weigh up the competitors and risks that could stand in your way.

Explore the SMART Strategy Board


Funding your business

Setting up a business doesn’t always come cheap. Start-up costs can quickly add up, from tools, tech and specialist equipment to marketing fees, employee wages and website domains.

Borrowing from family and friends could handle some expenses, along with using personal savings. However, you might need to explore other sources of funding to get your venture fully off the ground.

Here are some common funding options for entrepreneurs.


Small business grants

The Government offers a variety of support schemes (external link) across different regions and industries. These cover things like broadband upgrades and reducing energy consumption [6]. Other small business grants may be available from independent agencies like Innovate UK (external link).


Business loans

A business loan works in a similar way to a personal loan. Your company borrows money from a lender, such as a high street bank. You then repay what you owe in instalments, over a set number of months.

You also pay interest on top, and the rate could be fixed or variable. It may also depend on factors like your credit score [7].

Many UK businesses are tapping into the lending market. In fact, gross bank lending climbed by 12.8% among smaller businesses in 2022, reaching £65.1 billion [8].

Learn about small business loans


Seed funding

This alternative to formal business loans pairs entrepreneurs with private investors. These investors may ask for a share of future profits or an equity stake, in exchange for a cash injection [9].

Find out more about seed funding



Crowdfunding offers a less formal way to cover start-up costs. You could raise money from hundreds, or even thousands, of individual investors, through a single online platform.

You start by explaining why you’re raising money – and the final amount needed. People can then make pledges towards your target. In return, you could offer interest, a stake in the company or other rewards [10].

See the pros and cons of crowdfunding


Registering your business, tax and VAT

Company structures, tax and registration may be the last things on your mind as you explore how to start a small business in the UK. Yet they’re essential building blocks.


Sole trader, limited company or partnership?

There are three main routes to setting up a company (external link), each with different responsibilities and levels of flexibility:

  1. Sole trader. Under this structure, you’re self-employed. On the one hand, you keep any profits that you make. On the other, you’re solely responsible for any losses too [11].
  2. Limited company. This structure is different from a sole trader, as it separates your personal finances from those of your business. Your limited company (external link) is classed as a standalone legal entity [12]. However, you’ll face additional reporting and management duties.
  3. Partnership. A structure that shares responsibilities between two or more business owners (external link). You’ll share any profits – but also losses [13].

Compare more UK business types


Registering your business

Once you’ve decided on a structure, it’s time to register your business. You’ll need to register a limited company with Companies House (external link). This confirms it legally exists, and you’ll get a company number and official formation date [14].

Building a business as a sole trader or through a partnership instead? You’ll need to register for Self Assessment (external link) with HM Revenue and Customs [15] (HMRC) to ensure the right tax is paid.

You also have the option to register a trademark (external link) to protect your company name or product logo [16].



VAT is a tax that certain UK businesses need to add to their prices. If you have a turnover above £85,000, you have to register for VAT. You then have to charge it to your customers, and pass any tax owed to HMRC [17]. A 20% VAT rate covers most products and services [18].

Registered firms can also claim back the VAT (external link) they pay when buying goods from other companies.


Corporation Tax

This is the main tax you’ll deal with after setting up a business as a limited company [19]. It’s usually paid on your trading profits and any gains you’ve made after selling assets [20].

There are two rates of Corporation Tax (external link) in the UK:

  1. Main rate – 25% on profits above £250,000
  2. Small profits rate – 19% on profits of £50,000 or lower [21].

If you’re a sole trader or in a partnership, you’ll pay Income Tax rather than Corporation Tax [19].


Employing your first staff

Setting up a business isn’t just about the short term. As your company grows, you might need to expand your headcount.

Here are some things to consider when hiring employees for the first time:


Defining roles and setting wages

Try to clearly define new starter responsibilities and make the job description as clear as possible to prevent misunderstandings.

Think carefully about the wages you can afford too. You’ll need to pay the National Minimum Wage (external link) for your employee’s age [22]. Beyond that, you might want to consider your budget and what other companies pay for similar roles.


Right to work and DBS checks

Do your candidates have the right to legally work in the UK? And will their roles require a Disclosure and Barring Service (DBS) check (external link)? You’ll need to clarify this before making a formal offer.


Written statement of employment

Taking on an employee for more than a month? You’ll need to provide a written statement of employment (external link). This outlines the main working conditions they can expect [23].


Employment contracts

Make sure new hires sign a formal contract of employment. This ensures both parties agree to the terms and conditions of the role. It can also be used as a legal document in case of a dispute [24].

Learn more about employment contracts


Notifying HMRC of employment

You’ll need to register as an employer (external link) with the tax authority to legally pay new starters’ wages. HMRC asks you to do this before their first payday [25].


Arranging necessary insurance

Most businesses with staff are legally required to have employers’ liability (EL) insurance in the UK (external link) [26]. However, there may be other types of business insurance to consider too. For example, professional indemnity insurance if a client accuses your employee of negligent work.


Laws and regulations affecting small businesses

As technologies and industries evolve, so do the rules and regulations that guide small businesses. As a starting point, it’s worth checking to see whether your sector requires special licences or permits. Trade bodies might also recommend certain qualifications when setting up a business.

Here are some laws and regulations to keep in mind.


Employers' Liability (Compulsory Insurance) Act 1969

This makes it a legal requirement to purchase employers’ liability insurance if you have employees on your books. You’ll need to be covered for £5 million or more. And the policy must be overseen by an authorised insurance firm [26].

EL handles compensation costs if an employee is injured or becomes ill due to tasks they’ve performed as part of their role. While certain exemptions apply, there’s a potential daily fine of £2,500 for non-compliance [26].


Health and Safety Executive

The HSE oversees workplace health and safety in the UK. As the official regulator, it ensures employers follow the rules and adequately protect staff. Those suspected of failures can face investigations.


Data Protection Act and GDPR

In the digital age, companies can gather customer data like never before. But with greater opportunities come more responsibilities. Under the Data Protection Act 2018 (external link), UK businesses are legally required to handle personal data fairly and transparently. It also needs to be used for a specific purpose and only retained for as long as necessary [27].

What’s more, you’ll need to ensure personal data is stored securely [28], so important details don’t fall into the wrong hands.

The Data Protection Act also incorporates the General Data Protection Regulation (GDPR) [27]. This international framework was introduced in 2018 [29] and still applies here, despite the UK’s separation from the European Union. A key goal of the GDPR is to reinforce the rights of anyone whose data is collected or stored by businesses.


Trade description laws

When you first set up a company, you’ll be keen to get an edge over your competitors. So, it might be tempting to make elaborate claims. But doing so could land you in hot water.

Under the Trade Descriptions Act 1968, it’s an offence to use misinformation to sell a product or service [30]. And customers are further safeguarded by the Consumer Protection from Unfair Trading Regulations (2008). These regulations tightened business practices by addressing false endorsements and aggressive sales tactics [30].


Marketing, SEO and customer experience

Whether through word-of-mouth reviews or more formal strategies, marketing is a key ingredient when exploring how to start a business.

Social media and search engine optimisation (SEO) are among the tools that may help to promote your firm. Building a seamless customer experience is another way to establish your brand.


Social media marketing

Social platforms have changed the way customers communicate with – and buy from – brands. By the start of 2023, around 57.1 million people were classed as active social media users in the UK alone [31].

Posting on social media sites could quickly spread the word about your brand, through targeted language and photos. It also ensures you can respond directly to customer queries and update them in real-time.

Popular platforms for start-ups include:

  • YouTube. It’s quick and easy to create a YouTube channel. Along with promotional videos, you could consider offering in-depth guides to engage your audience.
  • Facebook. Boasting 2.98 billion monthly active users [32]Facebook remains a global social media titan. From eye-catching product releases to competitions and behind-the-scenes videos, it’s simple to share a range of content.
  • Instagram. This platform is all about visual content, pushing photos and videos to a global audience. You can shout about your business using classic posts, reels or stories.

Discover more social media benefits


SEO and content marketing

SEO and content marketing tools aim to push your business up search engine results pages. Adding targeted keywords and SEO elements to your online content could increase your visibility on Google, encouraging more people to click through.

Optimising your website for search engines may require external support. But it could help you to find an edge over competitors.


Customer experience

customer experience strategy is a more holistic way of building a business. It describes how your brand interacts with customers at different stages of their journey. These touchpoints could include navigating your website, booking an appointment or email communications.

You might want to think about the friction customers could face – and potential quick wins.


Cash flow management

As your business gets into gear, you’ll need to monitor a variety of financial indicators. Tracking revenues, profits and spending is vital. The same goes for cash flow.

Cash flow reveals the balance of money heading into and out of your company at specific points in time. A positive figure means your income is outweighing expenses and start-up costs. However, a negative cash flow suggests outgoings are higher than your overall income [33].

Cash flow can be measured in slightly different ways. These include:

  • Operating cash flow. Includes the direct production and sale of goods in a company’s ordinary operations [34].
  • Investing cash flow. Encompasses a firm’s investment-related activities.
  • Financing cash flow. Highlights the money involved in funding a business. It could include debt, equity and dividends.

Start-ups can use cash flow forecasting to estimate their future financial performance. This is a way of predicting your cash flow over a certain period – three months or a full year, for example. It may help you to identify potential pinch points, where your spending is likely to overshadow your income.


Building financial resilience

A sustained period of negative cash flow may put serious pressure on your bottom line. Building your financial resilience could help you to prepare for these leaner periods. It might be as simple as building emergency savings at peak times when your company has a bit more money to spare. It could also include diversification into new markets or reviewing the durability of supply chains.

On the one hand, building financial resilience can keep things ticking over at quieter points in the business cycle. On the other, it could make all the difference when surviving an economic jolt, such as the Covid-19 pandemic or cost-of-living squeeze.


What insurance do I need for my small business?

Setting up a business from scratch doesn’t happen overnight. Developing a brand will take hours of dedication and patience. And that’s all before you navigate different rules and regulations. As a result, you may wish to protect what you’ve worked so hard to achieve.

Different types of UK business insurance can safeguard your firm against potential risks. For example, employers’ liability insurance could shield you from legal and compensation expenses if a worker is hurt or falls ill on your watch. In fact, it’ll likely be a legal requirement if you hire employees [26].

Meanwhile, professional indemnity (PI) insurance in the UK aims to protect you from claims of negligence or errors in your work. And public liability (PL) insurance could handle claims from members of the public, should they suffer an injury or property damage due to your business activities.

These covers aren’t required by law. However, some industry bodies may ask you to buy PI cover before you can join [35]. Clients might ask to see PL insurance before signing contracts too.


At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.


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Hiscox Experts

The Hiscox Experts are leaders valued for their experience within the insurance industry. Their specialisms include areas such as professional indemnity and public liability, across industries including media, technology, and broader professional services. All content authored by the Hiscox Experts is in line with our editorial guidelines.