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Legal Requirements for Starting a Small Business

Beginning a business in the UK is exciting but you must ensure everything’s set up properly in the eyes of the law. If you have any worries you should seek legal advice from a business law solicitor first. Complying with the law for small businesses when you start is essential to protect your company from the beginning.

There are all sorts of regulations and laws for small businesses to follow. Some obligations apply to every start-up while others are specific to certain industries. Being aware of the regulations that apply to your organisation and complying is vital. Failing to meet your legal obligations as a business could lead to large fines and even closure.

To help you get started we’ve pulled together some of the main legal obligations of a business when you’re just beginning. Following each one should see you set off on solid ground at the start of your business journey. These are some of the main legal requirements for starting a small business.

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Register your business

Decide on a business structure and register your business in the UK. There are different ways to legally register your new company depending on the structure you choose:

  • Sole trader – as a sole trader you’re personally responsible for any debts and losses of your business and have some accounting responsibilities. Sole trader businesses count as being self-employed, so you must register for Self Assessment with HMRC.
  • Limited company – when setting up as a limited company you must register with HMRC and with Companies House (details of the business name, registered address, directors, and shareholders will be viewable on the Companies House website). Your personal and business assets will be separate as the limited company will be classified as a separate legal entity. All shareholders must agree and sign a memorandum and articles of association. You’ll also need to register for corporation tax within three months of starting to trade.
  • Partnership – you must register with HMRC and choose a nominated partner to legally start your business as a partnership. You’ll share responsibility for the company’s debts and profits and the nominated partner will be responsible for the partnership’s tax returns and business records.

Apply for required licences

The law for small businesses requires licences, permits, or certification for certain activities, such as playing music, selling wood, and trading in the street. There are hundreds of licences available in the UK. Whether you need to apply for a licence depends on the location and activities of your business.

Check if your company needs a particular licence – you can find and apply for hundreds of licences on the UK government website. There’s a huge range and some common business licences include:

  • Approval of premises for civil marriage and civil partnership
  • Auction premises registration
  • Busking licence
  • Caravan site licence
  • Club premises certificate
  • Hairdresser registration
  • Legal executive registration
  • Licence to sell alcohol
  • Market stall licence
  • Music licence for physical products
  • Packaging waste registration
  • Permission to distribute leaflets
  • Premises licence
  • Safety certificates: Sports grounds
  • Skip licence
  • Street trading licence
  • Waste management licence
  • Waste supply licence

Put in place appropriate insurance

The legal obligations of a business in the UK mean there are a few types of insurance you must have in place before starting a company. Every business must have employers’ liability insurance. This covers the costs to compensate any employees who are injured or become ill through work.

Businesses that use vehicles must legally have commercial motor insurance in place. This includes if only one person drives a car or van for work purposes, such as delivering food or attending client meetings. Professional indemnity insurance isn’t a legal requirement for all businesses, but some professional bodies and regulators require it to be in place.

There are many other types of business insurance which, while they aren’t legally required, are often advisable to consider:

  • Liability insurance – protect against compensation claims brought against your business due to fault or negligence by customers, shareholders, or members of the public. There are various types including public, product, and directors’ and officers’ liability insurance.
  • Commercial property insurance – to cover the costs of any building repairs or replacing damaged and broken equipment in your business premises.
  • Cyber insurance – cover any costs related to losing information and data from a cyber-attack, as well as damage to IT systems and networks.

Organise employee contracts 

There are various employment law obligations for businesses that you must comply with if your start-up has one or more staff members. It’s a legal requirement to provide a written employment contract for every employee to ensure fairness and protection for your employees. This is the key information every employee contract should include:

  • The employer and employee’s name and address
  • Start date of the employee
  • Start date when the contract applies
  • Continuous services date
  • Expected end date of the contract (for a temporary or fixed-term position)
  • Job title (or a brief description of duties)
  • Hours of work
  • Pay
  • Holiday entitlement
  • Sickness absence and pay
  • Notice period
  • Collective agreements
employee signing a contract.

Meet your tax obligations

One of the key legal requirements for starting a small business in the UK is to ensure you’re registered for and meet your tax obligations. The taxes your business must pay and register for depends on your organisation type, size, and structure. Some common tax obligations for businesses include:

  • Corporation tax – limited liability companies must register for corporation tax as this is the tax paid on profits.
  • Value-added tax (VAT) – your business must register for VAT if your VAT-taxable turnover is more than £90,000. You can also register if it’s less than this amount.
  • Income tax and National Insurance – the business is responsible for deducting income tax and National Insurance contributions from employee wages and remitting them to HMRC.

Comply with data protection law

Regulations and laws for small businesses around information collection, processing, and storage of personal data are covered by the General Data Protection Regulation (GDPR). Every business must understand and comply with GDPR when storing any kind of personal information. This includes customer, client, and employee data.

All personal data must be stored securely and kept accurate and up to date. Your business has an obligation to tell anyone whose data you have who you are and how you’ll use their information (such as sharing it with other organisations). The individual has a right to see any information you possess about them and correct it, request their data be deleted, and request it’s not used for specific purposes.

As a business, you must also inform the Information Commissioner’s Office (ICO) about how you use personal information and respond to a data protection request (when someone asks to see the information you have about them). Failure to comply with GDPR could lead to a large fine and compensation payout.

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Arrange waste collection and disposal

All businesses in the UK must legally use licensed waste carriers to remove commercial waste from their premises. The Environmental Protection Act 1990 outlines the responsibilities of businesses when it comes to waste management. Under the act, transferring waste to an unauthorised person is an offence that could be penalised with a fine.

Businesses also have a legal responsibility to keep waste to a minimum and follow the waste hierarchy (reduce, reuse, recycle, and recover waste in that order). You must sort and store commercial waste safely and complete a waste transfer note for every load that leaves your premises.

Legal waste management obligations vary across countries in the UK with the recently introduced Workplace Recycling Regulations in Wales, for example. If you want any help or advice about the legal aspects of waste management or to arrange waste collection then speak to one of our experts – call 0800 211 8390 or contact us online.

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