Do you want to start a small business from home in UK as a foreigner? If YES, here is a detailed guide to starting a profitable business in UK with no money or experience.
Okay, having provided an in-depth analysis of the top 50 best small business ideas in UK and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in the UK with no money. So put on your entrepreneurial hat and let’s proceed.
The United Kingdom is ranked 9 among 190 economies when it comes to ease of doing business, according to the latest World Bank annual ratings. The rank of the United Kingdom deteriorated to 9 in 2018 from 7 in 2017. Ease of Doing Business in the United Kingdom averaged 7.27 from 2008 until 2018, reaching an all – time high of 11 in 2012 and a record low of 5 in 2009.
If you are considering starting a business in the United Kingdom, then you should be able to meet the basic requirements before you can be granted licenses and permits to operate. Aside from following the due process of starting a business in any part of the world, starting a business requires that you are a citizen or you are a legal resident or you have a Visa that permits you to run a business in the UK.
Facts and Figures of the United Kingdom That Will Interest You as an Investor/Entrepreneur
The United Kingdom has the fifth-largest national economy (and second-largest in EU) measured by nominal GDP and ninth-largest in the world (and second-largest in the EU) measured by purchasing power parity (PPP). The UK economy currently makes up 4% of world GDP.
The UK has been the fastest growing economy in the G7 for four consecutive years with 2.1% year on year growth in Q1 2016. In 2014 the UK was the ninth-largest exporter in the world and the fifth-largest importer, and had the second largest stock of inward foreign direct investment and the second-largest stock of outward foreign direct investment.
The UK is one of the world’s most globalised economies. The UK economy comprises (in descending order of size) the economies of:
- Northern Ireland
The service sector dominates the UK economy, contributing around 78% of GDP; the financial services industry is particularly important and London is the world’s largest financial centre. The British aerospace industry is the second- or third-largest national aerospace industry depending on the method of measurement.
The pharmaceutical industry plays an important role in the economy and the UK has the third-highest share of global pharmaceutical R&D. The automotive industry is also a major employer and exporter. The British economy is boosted by North Sea oil and gas production; its reserves were valued at an estimated £120 billion in 2011.
There are significant regional variations in prosperity, with the South East of England and southern Scotland the richest areas per capita. The size of London’s economy makes it the largest city by GDP in Europe.
- Import and export activity is a main contributor to the economy of the UK. The UK’s trade deficit in goods and services was estimated to have been £4.8 billion in February 2016, a narrowing of £0.4 billion from the revised deficit for January 2016.
- The narrowing of the trade-in-goods deficit reflected an increase in exports of £0.3 billion to £23.2 billion; attributed to a rise in the export of chemicals. In the three months to August 2016, the total trade deficit in goods and services widened by £3.8 billion to £13.7 billion. This is the largest quarterly deficit since the three months to March 2008, when the deficit was £14.4 billion.
- In the three months, the trade-in-goods deficit widened by £3 billion to £34.6 billion. This widening reflects a £1.7 billion fall in the export of goods (of which, oil fell by £0.7 billion and other fuels by £0.4 billion).In the three months to February 2016, trade-in-goods deficit with the EU was £23.8 billion – the widest on record; reflecting a 1.3% decrease in exports and a 1.1% increase in imports.
- The deficit for the previous three months (to November 2015) was £22.8 billion – the second largest on record. Before then, the most recent record deficit with the EU occurred in the three months to February 2015 when the deficit reached £22.4 billion.
- In 2013 the UK was the leading country in Europe for inward foreign direct investment (FDI) with $26.51bn. This gave it a 19.31% market share in Europe. In contrast, the UK was second in Europe for outward FDI, with $42.59bn, giving a 17.24% share of the European market.
Possible Challenges and Threats of Starting a Business in the United Kingdom
The UK is one of the world’s leading business locations and the number one destination for inward investment in Europe, but growing businesses still face several hurdles when expanding in the country.
It takes an average of 13 days to start a business, with the lion’s share of that time spent dealing with Her Majesty’s Revenue and Customs (HMRC) and registering for a withholding tax on incomes called PAYE (pay-as-you-earn). Although little or no fee is charged, the number of procedures can make the process quite laborious for businesses. Challenges may include
- Dealing with Construction Permits
- Getting electricity
- Registering property
- Getting credit
- Protecting investors
- Paying taxes
- Trading across borders
- Enforcing Contracts and resolving Insolvency
- Cultural barriers
Going straight to the point, here are the essential steps that you need to follow if you want to start a business in the United Kingdom.
Starting a Business in the UK as a Foreigner With No Money – A Complete Guide
Starting your own business in the United Kingdom requires careful planning, research and preparation. Each year in the UK, more than 500,000 people start a business of their own. Some survive, many don’t. Some people who start a business are natural-born entrepreneurs with a fantastic idea they turn into a successful new venture.
Many want to earn more money or be their own boss. Some seek greater flexibility or a more favourable work-life balance. Many simply have no alternative, perhaps after losing their job.
Starting a business can provide you with a more rewarding life, but requires careful planning in order to succeed. To get started you’ll need a good business plan. You’ll also need a brand, a name and competitor knowledge. You’ll need to understand your costs before you get going, and manage your finances once you’ve started your business.
Step One: Choose a Name for Your Business
Choosing a name of your business is the first port of call when starting a business. When you come up with a name, it is always advisable to run the name via the Intellectual Property Office search on GOV.UK to ensure that the name you choose is not an already trademarked name by another company.
Your business name must not have any profanity in it and it must not be similar to the name of a company that is legally registered at Companies House or else it will not be approved.
Step Two: Register Your Business Name
One of the most important steps that you should take on your quest to starting a business in UK is to register the business name. You can register your new business at Companies House on GOV.UK. The entire process will take you about 30 minutes if you have all the details ready before approaching them.
In United Kingdom, you can register your business online but it will cost you £12 to register a company online (you can pay this fee via PayPal, debit card or credit card). It takes on average 24hrs for your company to be registered. Please note that to register a business in UK, you will need to submit the following documents and information:
- A company name (You can find more information on naming your company below).
- Valid ID
- Address for the company.
- One or more directors’ names and details (if it is just you that is fine).
- Details of the company shares, shareholding, and shareholders (with at least one shareholder).
- A Memorandum and articles of association. This is a standard document that shareholders create and agree to that outlines the company’s written rules.
- Detailed information on anyone who owns a significant interest or control in the company (this means anyone who owns 25% or more shares or voting rights in the company).
Agencies and Parastatals in Charge of Registering Business in the United Kingdom
The agency in charge of registering business and licensing business in the United Kingdom is the company house. Companies House is the United Kingdom’s registrar of companies and is an executive agency and trading fund of Her Majesty’s Government. It falls under the remit of the Department for Business, Innovation and Skills (BIS) and is also a member of the Public Data Group.
All forms of companies (as permitted by the United Kingdom Companies Act) are incorporated and registered with Companies House and file specific details as required by the current Companies Act 2006. All registered limited companies, including subsidiary, small and inactive companies, must file annual financial statements in addition to annual company returns, which are all public records. Only some registered unlimited companies (meeting certain conditions) are exempt from this requirement.
List of Legal Documents Needed to Run a Business in the United Kingdom
- Business Plan
- Confidentiality Agreement
- Directors’ Resolution
- Joint Venture Agreement
- Non-Disclosure Agreement
- Partnership Agreement
- Purchase of Business Agreement
License and Permits Needed to do Business in the United Kingdom
When setting up a business in the UK, you may need to apply for a licence, depending on what your business is. Popular licences may include;
- Temporary Events Notice – A Temporary Event Notice is for carrying out a ‘licensable activity’ on unlicensed premises.
- Occasional licence – In the United Kingdom you need an occasional licence if you want to sell alcohol from unlicensed premises.
- Food business registration – Food business registration if carrying out ‘food operations’ in a food business.
- Business license – You will need this to operate any business at all.
Step Three: Choose a Business Structure for Your Business
The United Kingdom has a wide array of options that you can choose from if you are looking for a business structure to build your business on. When setting up a business in the United Kingdom, You must choose a structure for your business. This structure will define your legal responsibilities, like:
- the paperwork you must fill in to get started
- the taxes you’ll have to manage and pay
- how you can personally take the profit your business makes
- your personal responsibilities if your business makes a loss
You can change your business structure after you’ve started up if you find a new structure suits you better. Business structures that you can choose from include;
- Sole Trader
A sole trader is a business-type where one person owns and runs the entire business. It is the simplest business structure you could adopt. It is very suitable for one-person businesses; this includes independent accountants, web developers and gardeners among others.
A sole trader is an individual entitled to all/any profits of the business but is also liable for any debt/damages incurred. In the UK, there are currently over 3 million registered sole traders, and the number is growing with a massive influx of skilled freelancers.
- Limited Company
A limited company is a legal business structure, that means a business that is separate from its owners. This means the owners are only liable for any business debts to the extent of the amount of money they have put into the business, thus limiting any exposure for business owners beyond their total investment. There are two types of limited companies you can incorporate in the UK.
- Private Limited Company (LTD or Ltd)
In a private limited company, the owners privately hold shares. This is the most common and preferred incorporation structure for most small businesses in the UK. Over 5.2 million limited companies are operating in the UK now.
- Public Limited Company (PLC)
In a public limited company, shares are available to the public for ownership and purchase. A public limited company must have a value of at least 50,000 pounds before it can trade as a PLC. PLC is commonly used as a structure for major companies after they make an initial public offering (selling a large portion of their shares in the capital markets).
- Limited Liability Partnership (LLP)
An LLP is a partnership structure used by many businesses including vets, dentists, law firms or accountancy firms. An LLP is made up of at least one limited partner and one general partner (there can also be more than one of each), and these partners have different responsibilities and exposure regarding the business. Partnerships in Scotland (known as ‘firms’) are different, and have a ‘legal personality’ separate from the individual partners.
- Guarantee Company (LBG)
Guarantee Company (LBG) is a structure used by not-for-profit businesses such as social enterprises that seek a legal structure to operate. This structure is somewhere between a charitable status and a limited company. In an LBG, no share capital is issued, instead, the members act as guarantors for the company. It’s commonly used by trade associations, schools, and other businesses.
The bottom line is that if you have plans to grow your small business beyond yourself (one person) and then sell it, then a Private Limited Company would likely be the most suitable structure for you.
If you are considering operating a mom and pop kind of business, then a Sole Tradership would probably be the best structure to build your business on. But if you have plans to build a business brand that has a significant amount of senior management, capital and that deals in services, then a Limited Liability partnership would be the best choice.
Step Four: Sort Out Bank Account and Tax Related Issues
The right time to open a bank account for your business is after you have registered the business. This is because you can only open an account for a legal entity. Just ensure that you choose a bank that won’t overburden your business with too much hidden charges.
You can contact an accountant to help you handle all your accounting concerns. Please note that an accountant will either ask you to pay a lump sum annually or a monthly fee that will cover the ongoing work. The amount you are expected to pay will depend on how well you can negotiate, but it will likely be between £30-150 a month depending on the complexity of your business financial matters and filing needs.
Sole traders would only need the services of an accountant once a year for self-assessment and this should cost between £80 -200. In the UK, you can’t avoid paying your tax as at when due and here are some of the information that you would need as regards tax ;
- Register for VAT (Value Added Tax)
If your business is likely to have more than £85,000 in annual sales, you will need to register for VAT. This is a flat rate tax you must charge on top of any goods or services you sell. VAT currently stands at 20 percent. As a matter of fact, in UK once you have VAT registered and have your VAT number you can purchase products from other businesses VAT free.
- Register for Corporation Tax
If you settle for a limited company and it is trading (this means making any financial transaction), you will need to register for corporation tax within three months of starting your business or beginning to trade. Please note that you will be assessed for corporation tax through your annual accounts and will need to pay a flat rate tax based on the profits generated by your business.
As a new business owner, it is important that you apply for trademark or patent for your business especially if you have a unique product or service or business idea or technology or business process. With that, you will legally own your brand and company name, and prevent anyone from making use of your idea without due consultation.
A trademark is a legally registered symbol, word or words representing a business that legally owns it, protecting the business from anyone else using this name or symbol. A patent is an exclusive right granted for a product, invention or process that provides a new way of doing something or provides a new technical solution to a problem.
Please note you will only be qualified to apply for a patent only if you have successfully invented innovative technology or product that could be copied by others. A patent grants your legal ownership of this invention and the exclusive right to it, hence providing your business with the needed legal protection.
Step Six: Purchase the Needed Insurance Policy Cover for Your Business
It will be a grave mistake not to buy insurance policy cover for your business. As a matter of fact, in the United Kingdom, you cannot legally run a business without buying insurance policy cover. With the right insurance policy cover, your business will be protected when unforeseen happens.
The truth is that if you don’t have the right insurance policy in place and when things go wrong, it can threaten the existence of your business and your business can go bankrupt. In the United Kingdom, there are a number of important insurance covers that every business owner should consider buying and some of them are;
- Public Liability Insurance (PLI)
PLI protects businesses against losses suffered by people or customers injuring themselves due to the activity of the business. It is one of the most common types of small business insurance. It is of particular importance if you operate physical premises and regularly interact with customers in a third party or business owned premise.
- Professional Indemnity Insurance (PII)
PII is for businesses and professionals that provide advice or services to customers. It protects your business against any claims for damages or legal costs which arise due to omission or breach of professional duty in the daily course of operation. It actively protects your business if advice or a service provided negatively affects a customer.
- Employers Liability Insurance (ELI)
ELI protects a business that employs staff from financial losses incurred when a staff member experiences a job-related illness or injury. Workplace injuries can be extremely costly for an employer if they are liable. ELI offers protections against this and it’s particularly relevant for business who have many staff involved in physical work on their behalf, i.e. manufacturing, event planning, construction et al.
- Product Liability Insurance (PLI)
Product Liability insurance (PLI) policy cover protects your business from damage to property or personal injury caused by products your business/company has supplied or sold.
- Key Man Insurance (KMI)
Key man insurance policy cover protects businesses from the loss of a key employee such as a CEO by paying out a large sum on the event of their death or incapacitation. It is effectively life insurance against anything critical happening to a key employee. If your business is entirely reliant on one employee or a small group, this insurance can often help save the business from bankruptcy in a disaster situation.
- Landlord Insurance (LI)
Landlord Insurance policy cover (LI) protects business owners who own property from losses sustained as the result of renting that property. If a business owns its office and rents it out to other companies, this type of insurance will protect you from damages caused by a tenant.
- Trade Credit Insurance (TCI)
Trade credit insurance policy cover is an insurance package that protects private companies from their customers being unable to pay back a debt due to bankruptcy, default or insolvency. It’s most relevant for companies that operate under a B2B model and have a range of key customers who use offered credit facilities.
Step Seven: Rent or Lease an Office Space
No matter the type of business you intend running, it is the norm for you to operate from an office space; an address that will be linked to your office. It could be operating from your home or renting or leasing an office space. In the United Kingdom, here are the options available to new business owners who are looking towards renting or leasing an office space;
- Rent a Co-working Space
Co-working spaces allow you to flexibly rent office space or an individual desk at a relatively low cost compared to traditional serviced or private office options. They also offer an environment designed for start-ups with a great community of like-minded entrepreneurs.
- Apply for a Business Accelerator
Accelerator programs provide seed investment, mentorship and office space for a limited time to start-ups and other small companies. If you are a technology business, there are many accelerators where you could apply for in many major cities in the UK.
- Rent a Business Incubator Office
If you don’t have enough cash, then one of your options is to rent a business incubator office space. Incubators are effectively low-cost office space that offer some level of community and network. Non-for-profit companies, charities or universities typically run them.
- Rent Office Space from Another Local Business
In some cases, there are businesses that have enough office space they may not need. It is not out of place to find businesses subletting office space to other businesses as long as they abide by the terms and condition of the rent agreement
- Rent a Serviced Office
Serviced office is suitable for business owners that most probably do not have plans to stay in a location for a long time; they might want to try out their business idea in a location to see if it will fly. No doubt, renting a service office does not come cheap, but you are going to get the comfort and ambiance that will help project your business to high profile clients.
5 Best Cities to Do Business in the United Kingdom
Step Eight: Set Up Your Business Facility
In setting up your business facility, you are expected to put in place all that is needed to effectively run your business. You need to buy the needed office furniture, create filling system (both online and offline), buy the needed software apps, apply and obtain telephone line preferably landline, install your business signage and install CCTV and alarm system amongst others.
Please note that having a landline number for your business gives your business a legitimate image and it makes it easier for customers to call your office.
Good enough, in the UK, it is easy to set up a business line with your phone package. You can still buy a business landline in London and many other cities in the UK that will route to your mobile phone, allowing you to take calls via that number and make calls online using that number.
As regard business signage, it is compulsory that you must display a sign showing your company name and your registered business address as well as any other address where your business operates in your business premise. You only exempted from this law if your home address is where your business is based.
Step Nine: Source for Funding for Your New Business
In the United Kingdom, loads of entrepreneurs have launched their businesses by leveraging on business loans and startup grants. So, if you know you don’t have enough money to bankroll your business idea, you can apply for business loan or start up grant.
Interestingly, the Start Up Loans Scheme was launched in 2012 by the British government. It made available £150+ million pounds of public money to entrepreneurs in the form of a favorable, low-interest loan up to the amount of £25,000. Eligibility and facilitation of a start-up loan are carried out by delivery partners who assess each business plan or business case.
The loan is typically payment free for the initial year where you only pay nominal interest each month, with the bulk repayment starting on the second year and being paid back over as much as five years. Please note that even though the loan terms are very favorable, you are still obligated to the debt hence you must work hard.
If you are in business, it means that you have a product or service or a combination of both to sell to you target market. This is why it is very important to ensure that you develop your own sales and marketing strategy.
You should be able to come up with strategy that will help you get a fair share of the available market in the location where you intend selling your products or services. Trust me, the market in the United Kingdom is highly competitive and if you don’t have a workable sales and marketing strategy, you will likely struggle to stay afloat with the business and if care if not taken you will be pushed out of business.
Step Eleven: Hire the Needed Employees to Kick Start the Business
If you intend operating a standard business in the United Kingdom, you would definitely need a workforce. The truth is that the quality of staff you have will go a long way to determine how profitable your business will be. You might not have what it takes to hire the right candidate which is why some business owners usually contract that aspect of their business to HR and recruitment consultants.
The bottom line is that you must ensure that you hire people that are qualified, honest, customer centric and are ready to work to help you build a prosperous business. Please be informed that employment law in the UK is strict and well set up to protect both businesses and employees and you are mandated to pay each employee at least the minimum wage.
The maximum number of hours anyone can work for an employer in a week in the UK is 48 hours, except the employees agree to work overtime and they will be paid for it. You cannot unfairly discriminate by race, gender, disability, or any other factor regarding recruitment, pay, promotion, access to training, or termination.
So also, if you choose to employ anyone in the UK, you will need to pay several monthly employment taxes on their behalf including national insurance contributions for each employee. These taxes are typically paid via PAYE; this system is the primary method of collecting employment taxes from UK companies by the government. In the United Kingdom, it is mandatory that you provide pension for all your employees.
Step Twelve: Open Your Doors and Start Welcoming Customers
If you have bee able to successfully carry out step one to eleven, then you have indeed come a long way and it shows that you are truly ready for business. You cannot generate sales from your products or services if you do not open your door for business. In essence, the last step to take when starting a business in the United Kingdom is to ensure that you open your door for business; launch out with a bang so as to attract people.
There you have it; some of the most important steps that you are expected to follow if you want to launch your business in the United Kingdom.
Doing Business in UK – Economic Analysis
Economic growth is projected to continue at a robust pace over the coming years, driven by domestic demand. House prices have continued to rise, although housing supply is edging up. The unemployment rate has stabilised at around 5.5%, and recently wage growth has picked up.
Projected increases in labour productivity should underpin real wage growth. The trade deficit has remained contained, but weak global trade and past currency appreciation are holding back exports. Inflation is expected to increase towards the 2% inflation target as pressures on capacity emerge.
This projection assumes the Bank of England will begin to raise its policy rate, and then raise it gradually through in the years to come to ward off excess demand pressures. The pace of fiscal consolidation has appropriately been smoothed to around 1% of GDP per year and now involves smaller reductions in spending on public services than earlier planned.
However, the decision to significantly lift the minimum wage will increase labour costs, possibly lowering the contribution of employment to GDP growth.
The United Kingdom has made significant progress in its climate-change mitigation efforts. It has established a long-term framework with a unilateral commitment to reduce greenhouse gas emissions to 80% of their 1990 level by 2050, delivered through five-yearly reduction targets. To help reach this ambitious objective at low cost, carbon emissions could be taxed more uniformly by increasing the low implicit rates now faced by some sectors.
Factors and Incentives Encouraging Investors to Venture into Business in the United Kingdom
The UK has a range of strong attributes that are valued by investors. Here are some of them;
- Quality of life
- Stable and predictable social climate
- Good transport and technology infrastructures
- Competitive labour markets
- Investors also identified a number of areas of improvement in the UK’s offer over the last 12 months, including several that had previously been the less well-regarded elements of the UK environment, namely labour legislation, the overall trade policy environment, corporate taxation rates, labour costs, and real estate costs and availability.
- Confidence in the UK’s attractiveness remains high.
- The UK was ranked fourth globally, behind the US, China and India, when investors were asked to name their first-choice investment destination.
- Stability and political predictability feature prominently in the list of desirable attributes mentioned by investors, and the UK has traditionally scored very well in this respect.
- The UK Government is committed to a referendum on the future of the UK’s membership of the European Union. With 72% of investors citing access to the European single market as important to the UK’s attractiveness, the referendum has the potential to change perceptions of the UK dramatically, posing a major risk to FDI.
- The UK has shown itself capable of attracting R&D investment and leading in software, but it will continually need to develop its offer to remain competitive.
- Proposals to decentralise more economic decision-making power to the UK regions are seen as positive for UK attractiveness by 48% of investors.
List of 10 Well Known Foreign Brands in the UK
British brands are appreciated around the world for their quality and heritage. Many of them, though, are also owned by foreigners. For some “British” brands, it’s well-known they have foreign owners. They include:
- Branston pickle
- Rolls Royce
- Newcastle brown ale
- Jaguar Land Rover
10 Most Popular Indigenous Entrepreneurs in the United Kingdom
The United Kingdom has long been a hotbed of entrepreneurial activity, and hundreds of thousands of people in Britain have achieved financial independence by way of starting their own businesses. Even amongst Britain’s many successful entrepreneurs, there’s always a small percentage of people that rise to the upper echelons of high net worth status.
- David and Simon Reuben
- Philip Green
- Sir Richard Branson
- James Dyson
- Laurence Graff
- Alan Sugar
- J.K Rowling
- Duncan Bannatyne
- Simon Cowell
- Peter Jones
List of 10 Well Known Indigenous Businesses in the UK
Almost half of Britain’s biggest City firms are owned by foreign investors but there are few indigenous people who are making the United Kingdom proud.
- Victoria Beckham
- AUDEN MCKENZIE
- AO world
- RUFFER MANAGEMENT
- Virgin group