A common question for new-time business people is whether or not you can start a business under 18 years old in the UK.
We’re very proud of these up-and-coming entrepreneurs that don’t want to do things the traditional way and instead want to jump in, head first, under their own terms. Some people might say that the next generation is entitled, but I’d call this behaviour inspiring.
Starting a business as a minor is no minor event (get it?), it’s a big deal. To ensure that you get all the facts and information right, we’ve put together this guide on how to start a business under 18 years old in the UK, including some tips and tricks to help you get the most from your new business ventures.
There’s no time like the present, so let’s get stuck in.
How to start a business under 18 years old in the UK
If you’re under 18, there’s technically nothing stopping you from starting a business. However, there are some caveats to how this is done, particularly financing a business, which we’ll get into later.
To start a business, all you need to do is follow these steps.
1. Create a business idea and start planning
The core of any business is a good idea. Once you have an idea, you need a plan to transform it from just a thought to a real and successful business.
This is where you will need to write a business plan. It might sound boring, but it’s an incredibly valuable document that will help you succeed by letting you figure out your goals and exactly how you’re going to hit them. It will include things like:
- Your business name
- What your business will do, or what products you will sell.
- Your secret weapon – aka what makes your business stand out from the others.
- Who your customers are, and where will you sell to them? (i.e. are you going to sell online or set up a stall in a local market?).
- How much your products or services will cost.
- What tools and materials you need to start, and how you plan on funding it (more on this later!).
- How you’re going to draw attention to your business and let your customers know that you’re ready to sell.
Don’t worry if you don’t have all the answers yet. We can help you get there with a step-by-step guide to creating your business plan.
Or, you can use the free Startup Hive that makes business plans easy. Just fill in the blanks, and you’re on your way.
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2. Choose a company structure
There are two main company structures to consider when starting a business under 18. The first is a sole trader, which is a business solely owned by one person. It really doesn’t matter how old you are – making them excellent options for those under 18 years old.
Alternatively, you could form a Limited Company, which is its own legal entity and is owned by shareholders.
Technically, those under 18 cannot form a limited company by themselves but can be appointed the director of one and have the majority of shareholders if they form it with someone over 18 years old.
To become a director, you do have to be a minimum of 16 years old. However, being a director does come with certain legal responsibilities, so if you want to be a director, you need to commit to running the company and making sure all accounts and reports are properly filed on time.
Failure to do so will result in pretty hefty fines and other nasty scenarios, like investigations from the HMRC, which nobody wants to go through.
It could also mean your removal as director of the company if you’re not sufficiently able to carry out this role. In some extreme cases, it could also mean imprisonment.
All this isn’t to make you panic, just to be prepared to take on the role. And if you’re not sure of what legal obligations you may have running a business, we’d always recommend getting legal advice from a lawyer before you sign your name on any dotted line.
When it comes to taking care of your accounts and records, you’ll also want to invest in some online accounting software to make the whole process a lot easier.
We’ve rounded up some of the best accounting software options in the UK for you to look at, including some tremendous beginner-friendly options to suit any under 18 company director.
3. Consider your funding options
Time for the bad news. If you’re under 18, you cannot get a business bank account. This means no business loans, credit cards, or traditional forms of finance for your business.
This doesn’t mean that you can’t fund your business – it just means that you need to look for other means to get that funding.
Ultimately, there are a lot of ways that you could do this, including:
- Taking out a personal loan from a family member rather than a business loan.
- Teaming up with a family member or partner who is over 18, so they can handle the business bank details on behalf of your business.
- Taking advantage of grants or finance schemes in your area, particularly those designed at getting young people into business. Some of these programs include, Prince’s Trust, Young Enterprise or Youth Enterprise and much, much more. You’ll also want to check your local government and area, as there are often local programs that you can also take advantage of. You might be surprised at what’s available in your area.
One alternative is also to forget about the finance for now and get started with what you can. Some great businesses started out with nothing, built from the ground up from the garage of their parent’s houses.
Now, there are more tools than ever to help build your business. Social media accounts are free and a great way to spread word of mouth. Website builders are a cheap way to get your business online – and some website builders even offer free packages that are perfect for getting started.
As you can’t get a business bank account, you’ll also need to keep extra detailed and accurate records of your business income in your regular bank accounts for your tax returns. If you haven’t already got one, we’d strongly recommend investing in some accounting software here.
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4. Name your business
Your business needs a name. Before you go wild with the naming, there are a few rules you might need to be aware of.
As a sole trader, you don’t need to register your company at Companies House. That’s something you will do if you decide to become a Limited Company. Generally speaking, you can start trading under any name you want, making sure you include it on all official paperwork, invoice, and letters that you produce.
There are a few restrictions, though. You cannot:
- Use swears, offensive or sensitive words. What might be a really cool and edgy idea is a really bad one as you’ll be banned faster than you can say your company name.
- Use an existing trademark, which you can see a full list of here!
- Use words or acronyms like limited’, ‘Ltd’, ‘limited liability partnership’, etc. Basically, if you haven’t officially registered as it, you can’t name it like that.
- Suggest a connection to the government or local authorities unless you get permission to do so. For example, if you want to use ‘Accredited’ in your company’s name, you need permission from the Department for Business, Energy and Industrial Strategy (BEIS).
Whatever you decide on for your name, remember that you can always register it as a trademark yourself to stop any future entrepreneurs from stealing your great idea.
5. Make it official
If you’re starting a business as a sole trader, all you need to do to get started is make sure that you notify HMRC and register for self-assessment tax returns.
Because you work for yourself, you need to manually work out and pay your tax each year rather than have it automatically deducted from your PAYE slip.
If you’ve done down the limited company avenue, you need to make sure that your company is registered with Companies House (by someone over 18!) and your name is listed as a director or shareholder. More information on forming limited companies can be found here.
Once that’s all official, you’re ready to start trading.
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Business tax for under 18s
Even if you’re under 18, you’re still eligible to pay tax. There are a few rules and exceptions, though, as those under the age of 16 will be exempt from paying National Insurance.
You’ll also get a tax-free allowance on your earnings. If you earn under £12,570 in a year, you won’t be eligible for income tax. This is great for those who have set up a business as a small-earning side project while in education.
If you choose to set up as a sole trader, you will need to pay this tax through self-assessment.
If you’ve become part of a limited company, tax will be paid through your salary. If you’re a shareholder, you’ll be entitled to a share of the company’s profits through dividends – which can be a little complicated if you’re under 18.
Any gross income over £100 is still liable for tax – but it becomes the responsibility of the parent or guardian to pay this on behalf of the minor.
In addition, any shares that are passed onto children from a limited company are considered Capital Gains, which are then eligible for Capital Gains Tax.
Although this set-up might work for some, with the added tax added to parents – it might be best to set up as a sole trader until you become 18 years old. You can always change from a sole trader to a limited company at a later date, so any choice you make now is not set in stone.
Tips for starting a business while still in school
In the UK, you are legally required to be in full-time education until you are 16 years old. If you want to start a business under 16, you cannot do anything that will jeopardise your school attendance and performance.
This will suit people who are considering doing a few hours a week, which they could easily fit around school commitments and school work.
If you’re over 16, you’re not legally required to be at school. However, if you want to gain qualifications and earn as many skills as possible while running a business, you’re free to do so.
We recently made a guide about how to start a business while employed. Although some aspects here are vastly different, as you won’t have employment contracts at school, some of the tips we shared to help balance two key areas of your life with your home commitments still ring true.
1. Starting small
You can’t give 100% to all areas in your life, sadly. Rather than going 100% into your business, take baby steps to make sure you don’t crash and burn.
2. Save and reinvest your income
Having money come in while you’re in education is an amazing feeling, and the temptation will be to go wild and enjoy yourself. While you should definitely enjoy your youth, try to hold onto some of this income to further invest in your business and grow your success.
3. Create a work/life balance
It will be hard to make any time for yourself or your family if you’re juggling both school and a business. You need to find a balance here – being switched on all the time will increase stress and resentment towards what you’re trying to create.
Being relaxed and well-rested will give you the best ideas anyway.
At Business4Beginners, we’d also recommend trying to get as much help for your business as you can while you’re at school.
Take advantage of any free school programs or incentives that could help you out, use your classmates as a free source of market research, and grab any opportunities to skill up and learn as you can.
Working restrictions if you’re under 18
There are certain laws about how many hours and when under 18s can work, designed to protect them from being taken advantage of. These include:
- Not working more than 8 hours a day and 40 hours a week (full-time hours).
- Sufficient rest breaks, including a 30-minute break if their day is longer than 4.5 hours.
- Breaks between shifts, with a 12-hour minimum rest between any 24 period of work. For example, if they finish a shift at 8 pm on a Friday, they cannot come in at 6 am on the following Saturday morning.
- Not working during the restricted period between 10 pm and 6 am, or between 11 pm or 7 am if it’s not written within their contract, or they are not working certain roles such as bars, entertainment, etc.
However, these rules apply to those who are employed by others. If you’re self-employed, you don’t need to adhere to these rules. You set your own hours and work conditions to work as hard and often as you want.
We’d always recommend new businesses to pace themselves, though. There’s no use in hitting the pedal hard right from the start line – you’ll burn out pretty quickly. Instead, make sure you take time to slow down, review your business plan and make sure that you’re following the right path.
If you haven’t created a business plan before, take a look at our step-by-step guide to creating your business plan here.
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