How Much Does It Cost to Start a Small Business in the UK?

“How much money do I need to start a business?” is one of the most searched questions by aspiring UK founders — and one of the least honestly answered. Some guides pretend you can start for £0, while others imply you need tens of thousands.

The truthful answer is: it depends on the business, but most small service and online businesses in the UK can be launched for somewhere between a few hundred pounds and a few thousand. This guide breaks down the realistic costs category by category, shows what you can skip at the start, and explains how to launch lean without cutting corners that matter.

The One-Off Legal and Registration Costs

Sole trader: £0

If you start as a sole trader, registering with HMRC is completely free. You can begin trading tomorrow and register for Self Assessment with HMRC before the 5 October deadline in your second tax year. There is no registration fee at all.

Limited company: £100

Registering a limited company online with Companies House costs £100 (postal applications cost £124, and same-day filing costs £156) — the current fees are listed on GOV.UK. The online fee rose from £50 to £100 on 1 February 2026, so treat any guide still quoting £50 as out of date.

Since 18 November 2025, directors and people with significant control must also verify their identity with Companies House. This is free if you do it yourself through GOV.UK One Login. You can read the full walkthrough in our step-by-step guide to registering a limited company later in this series.

VAT registration: £0

Registering for VAT is free. But remember the threshold: once your taxable turnover exceeds £90,000 in a rolling 12 months, registration becomes compulsory.

Domain, Website, and Branding

Every UK business needs an online presence, but costs vary enormously:

• Domain name: a .co.uk domain typically costs £5–£15 per year. This is a small, non-negotiable investment — it protects your brand and looks professional on invoices.
• Website: this is where budgets diverge. A simple WordPress site on shared hosting can cost £5–£20 per month. A DIY store on Shopify starts at around £29 per month on annual billing, at the time of writing. Paying an agency for a custom site can cost £2,000 or more — money most startups should not spend before they have paying customers.
• Logo and branding: a professional logo can cost £100–£500 from a freelancer. In the early days, a clean, simple wordmark made with an online tool is perfectly acceptable.
• Email: free personal email addresses look unprofessional. Business email on your own domain costs a few pounds a month.

Equipment and Premises

If you can work from home: almost £0

Most service businesses — consulting, freelancing, agencies, coaching — need little more than a laptop and a phone you already own. This is why the realistic startup cost for these businesses is so low.

If you need premises or equipment

This is where costs escalate fast. A food business, salon, or workshop may need thousands in equipment, deposits, and fit-out costs. Be honest about what is genuinely needed on day one versus what would be nice. Renting equipment or starting from a market stall, shared kitchen, or co-working space can cut these costs dramatically.

Insurance: The Cost People Forget

Many new businesses skip insurance to save money, which is exactly backwards. Typical costs:

• Professional indemnity insurance: often £150–£400 per year for freelancers and consultants.
• Public liability insurance: commonly £100–£300 per year, and frequently required before venues or clients will work with you.
• Employer liability insurance: legally required (usually at least £5 million of cover) the moment you employ anyone.

Ongoing Monthly Costs in Year One

Beyond the one-off setup costs, budget for these monthly outgoings:

• Accounting software: £10–£30 per month. From April 2026, Making Tax Digital for Income Tax applies to sole traders and landlords with qualifying income above £50,000, so digital records are no longer optional for many.
• Accountant: £50–£200 per month for a small business, though many owners start with software only. An accountant is an allowable business expense and usually pays for themselves.
• Marketing: you can start at £0 with organic social media and SEO, but even £100–£300 per month for ads or tools accelerates growth.
• Bank charges and payment processing: business accounts often have monthly fees, and card payments cost around 1–2% per transaction.

Working Capital: The Hidden Startup Cost

The cost most founders underestimate is not setup — it is the cash needed to survive until the business pays for itself. If you have monthly personal and business expenses of £2,000 and your first paying customers arrive in month three, you need £6,000 just to get there.

A sensible rule: have three to six months of essential expenses saved before you start, or keep your job and build the business on the side.

Realistic Budget Examples

Example 1: Freelance designer working from home (sole trader)
Domain £10 + basic website £120/year + accounting software £150/year + insurance £200/year = roughly £500 to launch, plus personal living expenses.

Example 2: Small e-commerce business (limited company)
Incorporation £100 + domain £10 + Shopify at roughly £350/year + stock £1,000–£3,000 + insurance £250 = roughly £2,000–£4,000 to launch.

Example 3: Food business from a shared kitchen (limited company)
Incorporation £100 + food hygiene course and certificates £100–£200 + equipment £1,000–£3,000 + insurance £500 + initial stock £500 = roughly £2,500–£5,000.

How to Start Lean Without Starting Sloppy

1. Validate before you spend. Get paying customers or firm commitments before buying equipment or inventory.
2. Rent before you buy. Kitchens, equipment, and even vehicles can be rented.
3. Use free tools first. Free tiers of email marketing, design, and accounting tools are good enough for the first months.
4. Do not incorporate too early — or too late. There is no point paying £100 and taking on filing duties for an idea that has no customers yet. But once revenue is steady, the limited liability is worth it.
5. Keep receipts from day one. Every business expense is evidence for your tax return.

FAQs About Starting a Business in the UK

Can I start a business in the UK with no money?

You can start certain businesses — freelancing, consulting, digital services — with almost no money beyond a domain name and basic tools. Businesses needing stock, equipment, or premises will need capital.

What is the cheapest business structure in the UK?

Being a sole trader is cheapest to start: HMRC registration is free. A limited company costs £100 to incorporate online.

How much should I save before starting a business?

Aim for three to six months of essential personal and business expenses, so you are not forced to take bad decisions under cash pressure.

Do I need a business bank account from day one?

A limited company must keep its money separate from personal money, so yes. Sole traders are not legally required to have one, but it makes bookkeeping far easier and is strongly recommended.

Conclusion

For most small UK businesses, the honest answer is that you can start for a few hundred to a few thousand pounds — the statutory costs like company incorporation are small (£100), and the real money goes into equipment, stock, and the working capital you need while the business gets going. Start lean, validate with real customers, and spend on what directly generates revenue.

For more startup help, see our guide to registering a limited company in the UK and keep exploring our Startups category for funding, validation, and launch checklists.