In the early stages of your business, it’s essential to ensure your operations are watertight and legally compliant. To avoid liability and mitigate risk, informing yourself about relevant nation-wide and industry-specific legislation and what these mean for your business is a critical first step. This quick guide walks you through key aspects of legal compliance for small business in England and Wales. We take a look at just some of the crucial ways that your business structure, taxes, and insurance create different legal responsibilities and what that means for you.
1. Choosing the legal structure of your business
One of the first aspects of legal compliance for a small business arises when registering your business. When choosing your startup’s business structure, it’s essential to understand the different responsibilities and legal requirements that different structures entail. Your choice of business structure will affect how you are taxed as a business, whether you are personally liable, the ownership structure of your business, as well as the extent of the administrative responsibilities you take on when it comes to keeping records and filing accounts.
Learn more about the differences between business structures and what that means legally in our blog article.
2. Companies Act 2006
The Companies Act 2006 is a major piece of legislation that forms the fundamental basis of company law in England and Wales. As a startup, it’s advisable to familiarise yourself with its stipulations and requirements. Unfortunately, though the act simplified many aspects of running a business, it is also one of the longest pieces of legislation comprising 1,300 sections. For this reason, seeking expert legal guidance is advisable.
One of the key aspects of the Companies Act is that it sets out concrete legal duties of company directors. These include the responsibility to
- Promote the success of their company
- Use independent judgement
- Carry out their work with reasonable care
- Avoid conflicts of interest
In addition, the Act bestows better protection on minority shareholders of private companies and makes it obligatory for listed companies to publicly disclose financial information, amongst other things.
3. Taxes
Legal compliance for startups also means being aware of your tax obligations. Depending on your business structure, you may be subject to income or corporation tax. Be sure to check what your tax requirements are when registering your business and ensure to file and pay on time.
If your business turnover goes over £85,000 (correct at time of writing), you will also need to register for VAT.
Additionally, if you are a limited company, you need to be aware of your additional legal responsibility to annually file a company tax return and statutory accounts.
4. Insurance
Insuring your startup should be one of your top priorities. If you have employees, you’re legally obliged to take out Employers Liability Insurance to cover employee compensation in case of injury or illness caused by working for you. Your policy needs to cover you for a minimum of £5 million.
Depending on the nature of your business, you may be required or advised to take out other types of insurance. For example, professional indemnity insurance is highly recommended for businesses that provide expert advice to their customers.
5. Industry specific licenses
Depending on the nature of your business, you may need to register for specific licenses to be able to legally carry out your business activities. For example, you may need to apply for a food or music licence, if you’re going to be selling in a market, you will need to apply for a market stall licence, and if you intend to play TV in your business premises you will need to apply for a TV license too.
6. Employees
If you’re going to be hiring employees, you need to make sure you’re aware of all the legal requirements associated with being an employer:
- You must pay your employees the National Minimum Wage at least.
- You’re required to ensure that your employees have the right to work in the U.K. and carry out other types of employment checks (depending on the nature of your business)
- Apply for a DBS check (if relevant)
- Take out employer’s liability insurance (as above)
- Provide your employees with a written statement of terms and conditions of employment
- Register as an employer with HMRC
- Enrol your staff in a workplace pension scheme (where relevant)
- Ensure that your workplace is health and safety compliant
7. Data protection (GDPR)
The EU’s 2018 General Data Protection Regulation (GDPR) was incorporated into English and Welsh law post-Brexit as UK GDPR. This regulates how businesses in the UK collect, process and use their customers’, suppliers’ and employees’ personal data.
To make sure your business is compliant with the UK GDPR, ensure to inform yourself of its requirements or seek guidance from one of our expert data protection and information lawyers.
Read about why businesses need to provide more information to their data subjects
Legal Compliance for a Startup
Legal compliance for a startup in the UK can feel overwhelming. Alongside building your business from the ground up, it can be easy to get lost in the legal jargon and legislation. To avoid unanticipated liability or substantial fines, it’s advisable to invest time into truly understanding your legal responsibilities as a business. Seeking expert guidance is key to streamlining the process, alleviating your stress, and protecting you and your business from risk. Our expert lawyers work closely with our clients to provide bespoke legal advice at crucial stages in your business’ journey. Get in touch today to find out how we can help.
FAQs about Legal Compliance for a startup in the U.K.
1. Do you need a business license to start a business in the UK?
Whether or not you need a license to start your business depends on the nature of your business. You can use the U.K. government’s licence finder to see which licenses you might need.
2. What is legal compliance for startups in the U.K.?
Legal compliance means adhering to relevant national legislation that regulates and relates to your business activities. As we’ve seen, legal compliance can relate to all aspects of business, from tax, hiring employees, and insuring your business.