Tax, insurance and the law: guidance for small businesses

Among the many things to think about when setting up a new business, tax, insurance and the law may come way down the list. But they shouldn't!

Find out why it pays to consider these carefully when launching your start-up.

As a new business owner, you'll need to wear many hats to help get your start-up off the ground.

One of the most important roles lies in making sure your business is keeping to the law, whether that's in how you register your business' structure or the insurance cover you arrange.

Our guide reveals some of the common requirements you should consider.

Dealing with tax, insurance and legal requirements may be the last thing on your mind when launching a business.

But not investing the time in setting your business up properly could prove costly and damaging for your start-up further down the line.

There are a lot of boxes to tick when starting your business, but it needn't be overwhelming.

The Government and other organisations provide lots of free information as to the steps you need to take to get your business off to the best start.

Below are some of the key requirements to consider when starting a business.

Starting a business in England, Wales, Scotland or Northern Ireland

It's worth knowing that requirements and regulations may vary depending on where in the UK you're setting up your business.

While many regulations are the same throughout the UK, there are some differences, as well as specific support and advice for new businesses, depending on where your business operates.

• In England, and for UK-wide advice, visit GOV.UK for a list of guidance and tools related to business regulation, from weights and measures to product safety.
• In Wales, the Government's dedicated Business Wales site has useful guidance on the legal requirements when starting a business, as well as support and advice.
• In Scotland, visit mygov.scot for a comprehensive list of licences and regulations that can affect your start-up, from accepting returns and giving refunds to marketing and advertising.
• In Northern Ireland, the Government's NI Direct site has a helpful guide to starting up and where Northern Irish businesses can find support.

Our Support and Advice section includes helpful legal guidance, including information on legal factors that affect businesses and how to solve business disputes.

Registering a business

One of the first things you must do as a new business owner is to decide how your start-up will be structured. There are several ways to set up a new business - as a sole trader, a limited company or a partnership.

• Becoming a sole trader is the simplest option. It means you're personally liable for all business debts.
• A limited company can be owned and operated by one or more people. As it exists as its own legal entity, the owners aren't personally liable for business debts, other than what they agree to contribute to the company (assuming they don't provide any personal guarantees or other similar commitments).
• A partnership is a way for two or more people to run a business together. There are several types of partnerships such as limited partnerships, limited liability partnerships and general business partnerships. Read our guide to partnership business structures for more information.

To learn more about registering a business, and business structures, download the Start Up Loans Essential Guide to Starting a Business.

Tax rules

Getting to grips with your tax obligations as a new business is important to avoid any financial or criminal penalties.

If you operate as a sole trader and earn more than £1,000 in the tax year, you must register for self-assessment with HM Revenue & Customs (HMRC) to pay your taxes.

As a limited company, you must file accounts with HMRC and pay corporation tax on any profit your business makes.

If your turnover exceeds the VAT (value-added tax) threshold, which is currently £90,000 in a rolling 12-month period, you must register for VAT.

This is not a fixed period, such as a calendar year, and can be any 12-month period, such as December 2021 to November 2022.

Businesses operating from a property - such as shops, pubs, restaurants and factories - may be liable for non-domestic business rates.

You may be able to get business rates relief to reduce your bill.

Business insurance

Understanding whether your business needs insurance can be tricky.

Some types of insurance may be required for certain businesses, while other types are simply recommended.

Companies with employees, including full-time, short-term or part-time staff as well as casual workers and contractors, are legally required to have employers' liability insurance.

You can find more guidance on the Government's employers' liability insurance pages.

Professional indemnity insurance is recommended if your business provides advice or services, as it protects you if you face a legal claim from a client.

For certain businesses, such as solicitors, accountants and architects, regulators and professional bodies may make it compulsory for you to have professional indemnity insurance.

Other types of insurance you may need to consider include:

• stock cover
• product liability insurance
• laptop insurance
• turnover protection
• cyber security insurance

Some types of insurance are suitable for specific businesses, so check any insurance requirements your start-up may have.

Our small business insurance guide has more detail on insurance and when you need it to protect your business if things go wrong.

Employment regulations

If you plan to hire staff, you need to be aware of employment regulations that may apply to your business.

Read our guide on Employment law: key employment legislation every UK business should know for more information.

There are a lot of rules and regulations to get to grips with but here are some of the most important areas that may apply to your business:

• Before the first payday, you must register as an employer with HMRC.
• You must adhere to the National Minimum Wage and National Living Wage rules when paying staff.
• You must give new staff a written statement of employment.
• You should not illegally discriminate against employees or prospective employees - for example, during recruitment and when interviewing candidates for employment.
• Be aware of rules around employees' working hours and holiday entitlement. Full-time employees are entitled to at least 28 days' paid annual leave.
• You must provide a workplace pension scheme for eligible staff.
• Parents have various rights when it comes to taking time off work and being paid. As a result, you need to be aware of rules relating to maternity leave, paternity leave, adoption leave and shared parental leave.
• You must follow the rules when taking disciplinary action, dismissing staff or making redundancies.

The Advisory, Conciliation and Arbitration Service (ACAS) has useful example letters, forms and policies for employers to download that provide more detail.

Health and safety

If you employ staff, you have a legal duty to make sure your workplace is safe and healthy.

The general duties for employers are outlined under the Health and Safety at Work etc Act 1974, while other laws have more specific requirements.

Under the Management of Health and Safety at Work Regulations 1992, you may be required to carry out a risk assessment and put steps in place to manage risks that could harm employees and the public, such as when handling hazardous substances.

The Manual Handling Operations Regulations 1992 and Provision and Use of Work Equipment Regulations 1998 mean employers must make sure staff are safe during manual handling activities and that work equipment is safe to use.

Different rules apply to specific businesses and work activities, so you should consult the Health and Safety Executive website to ensure your business is complying with any relevant regulations.

If you're setting up a food business, there are additional regulations to be aware of.

You may need to register with your local authority at least 28 days before the business opens.

And your business may need to comply with health and safety rules that are specific to food businesses.

The Food Standards Agency has a useful guide on the legal issues related to starting a food business from home.

Intellectual property

The Government describes intellectual property (IP) as “something that you create using your mind - for example, a story, an invention, an artistic work or a symbol”.

Protecting your intellectual property means you can stop people stealing or copying the names of your products, the design of your products and the things you write, make or invent.

There are laws and actions to take with differing levels of protection, including copyright, design, trademarks and patents.

Use the IP health check tool on the Intellectual Property Office website to identify IP in your business.

You need to be aware of IP rules when setting up your business, so you don't infringe the intellectual property of other businesses or individuals.

Managing personal data

The General Data Protection Regulation (GDPR) is a key piece of legislation you need to be aware of, and determines how your business processes and stores personal data.

If your business captures, processes, stores or uses personal information such as data that identifies customers or employees, you must follow data protection rules.

The rules are extensive and apply for activities ranging from recruiting staff and managing employee records to marketing your business and using CCTV.

Actions you may need to take include making sure information is kept secure, accurate and up to date.

You'll need to allow people to access any information you store about them.

You may also be required to register with the Information Commissioner's Office and pay a fee.

Read our GDPR checklist for small businesses and our guide to understanding what GDPR is, how it affects your business and how to comply with the law when managing personal data.

Legal advice

While there are many sources of help and advice from government websites, you should seek professional legal advice if you're unsure of your obligations or the regulations your business needs to meet.

Read our guide on how to choose a lawyer to help your business - from drafting employment contracts to setting up the right company structure. It includes helpful advice on finding a lawyer, aspects a lawyer can help with, and understanding legal costs.