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I’ve already started trading without doing anything special about starting a business — is that a problem?

This can cause problems, so you should take immediate steps to put things right.

By simply starting a business, without for example setting up a private limited company, you automatically become a sole trader or a partner in a traditional business partnership. Amongst other things, this means:

  • You need to make sure you are keeping proper business records. You also need to register with HMRC so that you can complete the right tax returns and make the right tax and National Insurance payments. You may also need to register for VAT if your turnover is above the VAT threshold.
  • If you are working in partnership, then you are doing this without any formal agreement between the partners. In particular, each partner is entitled to an equal share of the profits whether this is what you intended or not.
  • You are personally liable for any business debts.

It is possible to change your business form — for example, forming a private limited company to take over your business — though there may be tax consequences. You should take advice on what the best options for your particular circumstances are.

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