As a foreign entrepreneur starting a business in the UK, there are a number of common mistakes that should be avoided in order to boost your chances of achieving commercial success here. By taking the time to do your homework before starting your venture, you can significantly stack the odds in your favour. In this article, we cover 10 common mistakes to avoid when starting a business in the UK, including large, medium and small business pitfalls in the UK.
Mistake 1: Failing to Register Your Business Properly
It is important to meet the registration requirements for your chosen type of business in the UK. Companies must be registered with Companies House and HMRC before they start trading. Sole traders can operate without registering, but owners must register for tax self-assessment with HMRC if they earn in excess of £1,000 in a tax year.
You may receive a fine or other form of penalty if you fail to register for:
- Corporation tax within 3 months of starting business activity
- Self-assessment by 5th October in your second tax year
- VAT if your business has a taxable turnover of £90,000 or above
- Pay as you earn (PAYE)
- Business rates
- Licenses and permits
Taking the time to avoid UK business registration errors will ensure that your business can trade legally from day one.
Mistake 2: Choosing the Wrong Business Structure
There are several different types of business structure in the UK, each with its own advantages and disadvantages, including:
- Sole traders
- Partnerships, and
- Limited companies
Choosing the wrong business structure for your needs may mean that you pay more tax and have more administration and paperwork than is necessary. It also means that you may not have legal and financial protection from the debts and liabilities of your business. We advise speaking to an accountant or business advisor who can recommend the best type of business structure for your needs. This will depend on the type of business, whether you need protection from liability, your plans for growth, and your capacity to fulfil the duties and responsibilities of a limited company director.
Choosing the right type of business structure from the outset means that you do not need to make the transition to a different model in the future. It will also ensure that you can immediately benefit from the advantages of your chosen structure.
Mistake 3: Not Understanding UK Tax Laws & VAT Registration
Business tax mistakes in the UK can also be extremely costly. Taking the time to understand the basics of UK tax law, including VAT registration, will ensure that you make the right decisions from the outset. It is important to understand the type of tax you must pay, the thresholds that apply, and how and when to pay the tax you owe. Having this knowledge and understanding will make sure that you reduce your tax bill as much as possible and that you meet your filing deadlines, avoiding any fines and penalties for late submission.
Another mistake to avoid is not registering for value-added tax (VAT) when required to do so. You must register for VAT if your total taxable turnover for the last 12 months exceeds £90,000 (the VAT threshold) or if you expect your taxable turnover to exceed this amount in the next 30 days. If you register for VAT late, you may need to pay VAT on any sales that you have made since the date you should have registered.
Mistake 4: Ignoring Market Research & Customer Demand
Ignoring market research and customer demand can be fatal for any business. Why? Because you have not taken the time to understand the need for your products and services. The reality may be that while you believe you have a great idea, there is little demand for your offering.
Market research should be undertaken early in the business inception phase and can take many forms, including:
- Asking for customer opinion on social media
- Conducting surveys
- Focus groups
- Interviews
- Observation
- Data Analytics
No matter how confident you are in your idea, taking the time to do your research before you start your business can save you considerable time, stress and money.
Mistake 5: Lack of Business Plan & Financial Forecasting
Starting a business without a plan and financial forecast is like driving into the unknown without a map. Business plans are invaluable because they force business people to really think about their business strategy, competition, risks, financing, and other key aspects of their new venture. Financial forecasting also enables the business to stay financially afloat, which is especially key in the first few months of a new venture. Business plans should include:
- A description of the business’s products and services
- Market analysis
- SWOT analysis (strengths, weaknesses, opportunities and threats)
- Competitive analysis
- Marketing strategy
- Operations plan
- Management team, and
- Financial and cash flow forecasting.
Mistake 6: Not Opening a Business Bank Account Separately
It is imperative to keep your personal and business finances completely separate. By opening a business bank account that is separate from your personal bank account, you can ensure that your accounts and financial records are correct. Opening a separate bank account will ensure that you:
- Keep your business tax calculations separate from your own
- Comply with the company law in the UK – remember, a limited company is a separate legal entity; hence, it is important to keep your personal and business assets separate and
- Maintain your personal credit rating
Mistake 7: Neglecting Legal Compliance & Contracts
Legal compliance is essential for all businesses in the UK. To be legally compliant, your business must adhere to its accounting filing requirements, employment law (see below), licensing obligations, data protection law, and money laundering rules. The exact legal compliance requirements that you need to meet will depend on the type of business, your business model and the sectors you serve.
In addition, you must understand and comply with the basic principles of English contract law. Failure to comply with the law can lead to fines, being struck off the register of companies, claims for compensation, and even criminal prosecution, potentially leading to imprisonment.
Mistake 8: Underestimating Marketing & Branding
While some rare businesses grow organically and by word of mouth, the vast majority need a strong investment in marketing and branding. Failing to understand the different types of marketing and branding available and which is best for your business needs may mean that your business does not take off or grow. The most successful businesses blend the various marketing and sales methods based on their business and customer type.
Branding is particularly important because it shows your potential customers that you are an established and credible business and defines how your business is perceived. By effectively creating a brand for your company, it will make your business instantly recognisable and trusted by prospective clients. Social media platforms offer a highly effective way of establishing a brand with a loyal following.
Mistake 9: Hiring Without Understanding UK Employment Laws
There are many employment laws and regulations that businesses must comply with, including:
- Companies Act 2006
- Employment Rights Act 1996
- Equality Act 2010
- National Minimum Wage Act 1998
- Working Time Regulations 1998
Failure to comply with any one of these laws may result in fines and criminal prosecution.
Mistake 10: Not Leveraging Government Grants & Business Support
UK business funding mistakes can be costly. So many businesses fail to ask for government grants and business support that are readily available to them. In the UK, there are many national and local grants and business support services. A list of 89 grants can be found on the UK government website. The UK government support service also provides a dedicated business support service. In addition, there are hundreds of private grants and business support services across the UK.
Leveraging the financial and business support available to you can make all the difference in achieving a successful business in the UK.
Self-sponsorship Route UK
Are you a foreign entrepreneur considering establishing a business in the UK? If so, have you considered applying for a self-sponsorship route in the UK? The self-sponsorship route UK helps foreign business people set up a business here, which they can then use to sponsor themselves. This removes the reliance on another business to sponsor you; rather, you sponsor yourself. This requires establishing a business ‘footprint’ in the UK (e.g. renting premises), getting a sponsor licence, and issuing a Certificate of Sponsorship. An immigration law firm in the UK can guide you through this process. For friendly and insightful guidance on the self-sponsorship route in the UK, please speak to a member of our immigration law team today.
