To start an online business in the UK, you pick a legal structure, register with either Companies House or HMRC, and put a handful of consumer, data, and tax rules in place before you take your first order. A sole trader can register with HMRC for free in minutes. Incorporating a limited company costs £100 online and is usually operational within a couple of weeks once HMRC has issued its tax references. Several of the fees and thresholds you’ll find quoted online changed in early 2026, so working from current figures matters.
Pick a Legal Structure First
The structure you choose decides how you’re taxed, how much personal risk you carry, and how much paperwork you file every year.
Sole Trader
You and the business are legally the same person. You keep all profits after tax, but you are personally responsible for every debt the business takes on.1GOV.UK. Become a Sole Trader – What a Sole Trader Is There’s no registration fee, no public filing of accounts, and no separate business tax return. The trade-off is unlimited liability: if the business owes money or is sued, your personal assets are on the line. It suits freelancers, consultants, and small e-commerce sellers testing an idea.
Limited Company
A private limited company is a separate legal entity. It’s registered with Companies House, run by at least one director, and has at least one shareholder, who can also be the director.2GOV.UK. Set Up a Private Limited Company – Register Your Company The company owns its profits, pays corporation tax on them, and can distribute what remains as dividends. Your personal liability is normally limited to what you paid for your shares, so your home and savings are shielded if the business fails. The cost is more admin: annual accounts, a confirmation statement, and corporation tax returns all have to be filed on time.
A third option, the limited liability partnership, exists mainly for professional service firms with multiple principals rather than solo online sellers, and it carries its own Companies House filing obligations.3GOV.UK. Preparing and Filing LLP Accounts With Companies House
Register the Business
Registering as a Sole Trader
Registering as a sole trader is free. You tell HMRC you’re self-employed through the online registration service, which also signs you up for Self Assessment.4GOV.UK. Become a Sole Trader – Register as a Sole Trader You must register by 5 October after the end of the tax year in which you started trading.5GOV.UK. Self Assessment Tax Returns – Deadlines So if you start selling in January 2027, inside the 2026–27 tax year, you have until 5 October 2027. Missing this deadline can trigger penalties.
Incorporating a Limited Company
You register a limited company through the Companies House web incorporation service, which in most cases signs the company up for corporation tax at the same time.2GOV.UK. Set Up a Private Limited Company – Register Your Company The digital application asks for a memorandum and articles of association (the documents that govern how the company runs), details of directors, shareholders, and anyone with significant control, and the initial share capital.
From 1 February 2026, the online incorporation fee is £100, up sharply from the £12 that stood for years.6Changes to UK Company Law. Changes to Companies House Fees Same-day incorporation through an approved software filing agent costs £156.7GOV.UK. Companies House Fees Standard applications typically go through within a few working days.
You’ll need personal details for every director and shareholder, including full name, date of birth, and nationality.8GOV.UK. Your Personal Information on the Companies House Register Companies House now requires identity verification for directors and people with significant control, either directly with Companies House or through an authorised agent. You must identify every person with significant control, meaning anyone holding more than 25 percent of the shares or voting rights.
Every company also needs a registered office address. It must be a physical location in the same part of the UK where the company is registered, and PO boxes aren’t allowed.9GOV.UK. Check the Rules for Registered Office Addresses and Email Addresses It doesn’t have to be where you actually work. Many online founders use a professional registered office service to keep their home address off the public register. If your personal address is already on the register, you can apply to remove it, but you’ll need to supply a replacement first.10GOV.UK. Removing Your Personal Details From the Companies House Register
After incorporation, HMRC posts your company’s Unique Taxpayer Reference, which usually arrives within about 15 days.11GOV.UK. Find Your UTR Number You need it to file corporation tax returns, so build that waiting period into your launch plan.
Naming the Business and Picking an SIC Code
Your name has to comply with the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015.12Legislation.gov.uk. The Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 Search the Companies House name index first to check no existing company already uses the same or a confusingly similar name.13GOV.UK. Limited Liability Partnerships – Incorporation and Names Words that imply a government link or a regulated profession, like “bank,” “council,” or “insurance,” need separate approval before they can appear in a business name.
You’ll also pick at least one Standard Industrial Classification code that describes what the business does. These five-digit codes let the government track economic activity across industries.14GOV.UK. Standard Industrial Classification of Economic Activities (SIC) An online retailer would typically use a code for internet retail; a software-as-a-service business might sit under computer programming or consultancy. The code is mainly statistical, but Companies House will reject a filing that carries an invalid one.
Make the Website Legally Compliant
Consumer Contracts and the Right to Cancel
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 set the ground rules for selling online. Before a customer completes a purchase, you must show the total price including tax, any delivery charges, and the expected delivery timeframe. Hiding these until the final checkout step puts you in breach.
Customers then have 14 days from receiving their goods to cancel for any reason and get a full refund.15GOV.UK. Online and Distance Selling They don’t have to give a reason. If you fail to tell the customer about this right, the window extends to 12 months. Perishable items, personalised goods, and sealed products opened where return would be unhygienic are exceptions. This is where most new online sellers slip up, usually by lacking a clear cancellation policy or a practical way for the customer to use the right.
Information Your Website Must Display
The Electronic Commerce (EC Directive) Regulations 2002 require certain details to be permanently and easily accessible on your site.16Legislation.gov.uk. The Electronic Commerce (EC Directive) Regulations 2002 – Explanatory Note At a minimum, that means the full registered business name (not just a trading name), a physical geographic address where the business is established, a direct contact email, and your VAT number if you’re VAT-registered. Most businesses put this in a footer link or a dedicated legal page. A visitor should be able to find it without hunting.
Data Protection and Cookies
Collecting names, email addresses, shipping details, or payment information brings you under the UK General Data Protection Regulation. You need a lawful basis to process each category of personal data, and a clear privacy notice telling customers what you collect, why, and how long you keep it.
Most businesses must also register with the Information Commissioner’s Office and pay an annual data protection fee. Micro organisations (turnover up to £632,000 or no more than 10 staff) pay £52 a year; small and medium organisations pay £78.17Information Commissioner’s Office (ICO). Guide to the Data Protection Fee Failing to register is itself an offence, separate from any penalties for mishandling data.
If your site uses cookies or similar tracking technologies, you need active consent before setting any non-essential cookies, and you must clearly explain what each cookie does.18Information Commissioner’s Office (ICO). Cookies and Similar Technologies Cookies strictly necessary to deliver a service the user asked for, like keeping items in a shopping basket, are the only exception. Pre-ticked consent boxes don’t count.
Accessibility
The Equality Act 2010 requires service providers, including online businesses, to make reasonable adjustments for disabled people. Your website should be usable by people who rely on screen readers, keyboard navigation, or other assistive technology. There’s no specific technical standard mandated for private-sector sites in the way there is for public-sector ones, but failing to make reasonable adjustments can amount to unlawful discrimination. Following the Web Content Accessibility Guidelines 2.1 at level AA is the widely accepted benchmark.
Set Up Tax
VAT
If your taxable turnover exceeds £90,000 in any rolling 12-month period, you must register for VAT.19GOV.UK. How VAT Works – VAT Thresholds You can register voluntarily below that threshold, which can make sense if most of your customers are VAT-registered businesses (they reclaim what you charge) or if you want to reclaim VAT on significant startup costs. Once registered, you file quarterly VAT returns and pay HMRC the difference between VAT charged to customers and VAT paid on business expenses.
Physical goods sold to customers outside the UK can qualify for zero-rate VAT, meaning you charge 0% but still reclaim VAT on your costs. You’ll need proper evidence of export, including commercial documentation and proof the goods left the country within the required timeframe.20GOV.UK. VAT on Goods Exported From the UK (VAT Notice 703) Rules differ depending on whether you ship the goods yourself or the overseas customer arranges collection.
Corporation Tax
Limited companies pay corporation tax on profits. The small profits rate is 19% for companies with profits under £50,000, and the main rate is 25% for profits above £250,000. Companies with profits between those figures pay an effective rate somewhere in between through marginal relief. You must pay corporation tax within nine months and one day after the end of your accounting period.21GOV.UK. Pay Your Corporation Tax Bill
Self Assessment
Sole traders and company directors with income outside PAYE file an annual Self Assessment tax return. The deadline is 31 January following the end of the tax year, which runs 6 April to 5 April.5GOV.UK. Self Assessment Tax Returns – Deadlines Miss it and you get an immediate £100 penalty, even if you owe no tax, with further daily and percentage-based penalties stacking on top the longer the return is outstanding.22GOV.UK. Self Assessment Tax Returns – Penalties
Making Tax Digital
From 6 April 2026, self-employed individuals and landlords with total qualifying income above £50,000 must comply with Making Tax Digital for Income Tax.23GOV.UK. Sign Up for Making Tax Digital for Income Tax That means keeping digital records in compatible software and submitting quarterly updates to HMRC instead of waiting for the end of the year. Income below £20,000 is currently exempt. Getting compatible software running before your first quarter closes will save you a scramble.
Keep Up With Ongoing Filings
A limited company must file a confirmation statement with Companies House at least once every 12 months, confirming the information on the public register is still accurate.24GOV.UK. Filing Your Company’s Confirmation Statement From February 2026, the online filing fee is £50.25GOV.UK. Companies House Fees Are Changing From 1 February 2026 You also file annual accounts to the standards appropriate for your company size. Missing either can bring penalties and, eventually, the registrar striking the company off.
Protect the Brand and the Work
Original content you create for the business, including website copy, product photography, software code, and database structures, is protected by copyright the moment you create it. There’s no registration and no fee.26GOV.UK. How Copyright Protects Your Work – Overview A copyright notice (the © symbol with your name and year) deters copying but doesn’t change the level of protection you have.
Your brand name and logo are different. Copyright won’t stop someone else trading under a similar name; for that you need a registered trademark from the UK Intellectual Property Office. From 1 April 2026, a single-class online trademark application costs £205, with each additional class £60.27GOV.UK. Intellectual Property Office Fees to Increase From April 2026 Applications take several months and go through an examination period during which third parties can oppose the registration. If you plan to build a recognisable brand, do this early rather than discover later that someone else registered a similar mark.
Insurance
Hire even one employee and you’re legally required to hold employers’ liability insurance with at least £5 million of cover from an authorised insurer. Trading without it carries a fine of £2,500 for every day you’re uninsured, and you must display your certificate where employees can see it.28GOV.UK. Employers’ Liability Insurance
Beyond that legal minimum, professional indemnity insurance is worth considering if your business involves giving advice, providing digital services, or handling client projects. It covers claims where a client loses money because of your work, including allegations of negligence, breach of confidentiality, and accidental copyright infringement. Policies typically carry £2 million to £5 million in cover. Public liability insurance isn’t a legal requirement for most online-only businesses, but it becomes relevant if you meet clients in person, attend trade events, or work from premises others visit.
Before You Hire
When you take on your first employee, register as an employer with HMRC before the first payday.29GOV.UK. Register as an Employer HMRC issues an employer PAYE reference, which you use to run payroll, deduct income tax and National Insurance from wages, and report payments. Most limited companies need to register even if the only person being paid is the sole director.
Every employee must get a written statement of employment particulars on or before their first day. This principal statement covers the job title, pay rate and frequency, working hours, holiday entitlement, notice period, and any probation conditions. Additional terms on pensions, collective agreements, and disciplinary procedures can follow within two months. This is a legal requirement, and employees who never receive one have grounds to bring an employment tribunal claim.
You must also check every employee has the right to work in the UK before they start, and keep copies of the relevant documents. For an online business hiring remote workers, this check still applies even if the employee never sets foot in a physical office.