What are the legal requirements for starting a small business in the UK?
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When starting a small business, trying to get your head around all of the necessary legal processes can be confusing and intimidating. One of the biggest worries we see relates to employing staff and knowing what is legally required to comply with employment laws, to avoid the risk of potential tribunal claims.

In this post we’re hoping to rid you of those fears by clearly setting out a list of the steps to consider when setting up your small business.

The most important legal requirements for starting a small business are:

  1. Register your business
  2. Get insured
  3. Equal opportunities
  4. Comply with data laws
  5. Check employees’ right to work
  6. Do a DBS check
  7. Send a written statement of employment
  8. Health & Safety
  9. National minimum wage
  10. Report to HMRC
  11. Pensions

1. Register your business

Before you can start shaking up the business world, you need to legally register your company so you can begin trading. This requires you to choose which type of business suits your needs: self-employed, partnership or limited company. Starting a small business can be daunting but as soon as you are registered, the sky is your limit!

Each has its own process to follow, which can be found at GOV UK.

2. Get insured

Once you’ve set up your business, it’s vital to protect it just in case anything goes wrong.

Employer’s liability insurance is a legal requirement for all businesses (unless you have no employees, or only employ family members). It’s designed to cover any compensation costs that crop up if an employee becomes injured or ill in the workplace.

Commercial motor insurance is also necessary if employees require the use of vehicles, and you may also need to apply for permits if you’ll be serving food or playing music.

For businesses such as solicitors, architects and some healthcare professionals, professional indemnity insurance is a legal requirement. This covers the cost of any compensation awarded to customers due to any loss or damage caused by negligent service.

Some types of insurance are optional, such as cyber insurance (to protect against hackers or data breaches) and commercial property insurance (to protect buildings and contents).

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3. Equal opportunities

It is unlawful for employers to discriminate against anyone on the basis of their protected characteristics (ethnicity, gender, age etc). During the recruitment process, there are multiple stages where employers can inadvertently make mistakes, so it’s important to get clued up on discrimination law from the start.

Keep the job description specific to what skills and experience your ideal candidate must have, advertise widely and check whether any reasonable adjustments need to be made for the interview process. During the interview itself, avoid questions such as ‘Are you planning to start a family?’, as this could be seen as discriminatory if a job offer is not then made.

4. Comply with data laws

It’s not just big companies that need to know about GDPR. Small businesses also have a legal responsibility to keep personal data safe and provide a clear policy on how that data will be used and why.

Storing data within HR software is the easiest way to keep it protected. Have a clear Privacy Policy and keep it accessible and up-to-date to ensure your staff are fully aware of how their personal data will be stored, for what purpose, and how long it will be kept.

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5. Check employees’ right to work

If you hire someone without first checking they have the right to work in the UK, you’ll be taking the risk of receiving a severe penalty, with fines of up to £20,000 per employee.

Before offering the role to a candidate, it must be made clear to them that the offer is subject to proof of their right to work, which should be provided before their start date (for example, in the form of a passport or residence card). If this can’t be provided, you may not be able to hire them to work for your company.

6. Do a DBS check

All employers have the ability to carry out a DBS check on new employees, which will provide information about any unspent criminal convictions. If you decide to use DBS checks, you should ensure that your reasons for doing so are documented so this can be justified if necessary.

There are different types of DBS check you can carry out, with each providing different levels of information. An enhanced check is legally required if the new employee will be working in certain types of roles, for example with children or other vulnerable people.

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7. Send a written statement of terms and conditions of employment

After hiring your new employee, you need to provide them with a written statement of terms and conditions of employment within two months of their start date. This is usually delivered in the form of an employment contract which lists the main conditions, agreements and responsibilities agreed between you and your new hire.

The clauses you must include are:

  • Name and address of employer and employee
  • Start date
  • Date contract will apply from
  • Continuous services date
  • When the contract is expected to end if temporary or fixed term
  • Job title or a brief description of duties
  • Place of work
  • Requirement to work overseas
  • Hours of work
  • Pay – how often and when
  • Holiday entitlement
  • Sickness absence and pay
  • Notice period
  • Pension arrangements
  • Disciplinary and grievance procedures (or explanation on where to find information about these)
  • Collective Agreements

8. Health & Safety

For businesses with five or more employees, it is the law to have a written health and safety policy for the company to follow. This should lay out your aims for maintaining a safe working environment, how you will ensure this happens and who is responsible for doing it.

You will also need to carry out a risk assessment to identify any possible causes of harm or injury within your workplace, and what you will do to minimise that risk. Make sure to take into consideration those employees that are more vulnerable, such as individuals with a disability, as they could be more susceptible to injury.

Train your employees to work safely and sensibly, and regularly review and update your policy to ensure it’s still relevant and up to date. If you can show that you have taken reasonable steps to protect your employees from harm, you will reduce any risk of a claim in the event of an accident.

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9. National minimum wage

All businesses are legally required to pay all workers at least the National Minimum Wage, which can vary on the basis of the worker’s age or if they are an apprentice. Those over the age of 25 will be entitled to receive the National Living Wage.

The minimum wage for each worker can be easily calculated using GOV UK’s wage checker. If you discover you have underpaid any of your workers, you must pay the arrears immediately, or risk a fine of up to £20,000 per individual.

Some HR software solutions can alert you if your payments fall below the minimum wage when averaged out, so that you can rectify this.

See how our software can help

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10. Report payments to HMRC

For small business owners, payroll can seem a huge and complicated system. However, with the right software and an organised procedure in place, you can ensure the process goes smoothly.

If you run payroll yourself, you will need to report to HMRC each month with the amounts paid to each employee, and any Pay As You Earn (PAYE) deductions for Income Tax and National Insurance. With payroll software, PAYE deductions will be automatically calculated to minimise errors and save on HR time.

You should also inform HMRC when you hire a new employee, and when an employee reaches State Pension age. An annual report is required at the end of each year, which will provide information about any expenses or benefits.

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11. Pensions

For employees over the age of 22 and earning over £10,000 a year, you’ll need to enrol them in a workplace pension scheme. A scheme needs to be put in place as soon as you hire your first employee, and you must pay at least 3% of your employee’s ‘qualifying earnings’ into it. You can check the pension scheme you’re using to find out what counts as ‘qualifying earnings’.

You’ll need to deduct pension contributions from an employee’s pay each month, and pay them into the individual’s pension scheme by the 22nd day of the month. Make sure you keep records of all deductions and payments to show to HMRC if needed.


Our HR software will make it much easier for you to get your small business up and running.

Get in touch at info@citrushr.com or give us a call on 0333 014 3888 to find out more about our easy to use HR Software.

Or start your free trial today.


The content of this blog is for general information only. Please don’t rely on it as legal or other professional advice as that is not what we intend. You can find more detail on this in our Terms of Website Use. If you require professional advice, please get in touch.

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