If you are thinking about starting a website, one of the first things you may be wondering is if you need to register your site as a business. The answer to this question depends on a few factors, including what type of website you plan on running and what kinds of activities you’ll be doing through your site. Strictly, you do not register a website. You register yourself, or a company, with HMRC once the income it produces goes past a certain point, and there are rules about what a website that sells has to tell its customers.
Consider Whether You Need to Setup a Business
First and foremost, you need to consider whether you ever intend to make money from your website. If you don’t and just wish to create a website for personal reasons, then go ahead and start building your website; read no further.
If you do, you will most likely need to register your business. The point at which you do so will depend on a few factors.
Company Structure
When registering your website as a business, the company structure is an important thing to consider. If you are running the website as an individual with no other parties involved, you have a choice of how you legally set up your business. You can choose the simple self-employment route, or you can create an Ltd company that may take a little more thought.
If you are running your website with other people, you should consider setting up as a limited company or partnership. Which to choose, however, is a topic of its own.
Will you earn more than £1,000 from your website?
In the UK, individuals have a £1,000 trading allowance. If your total gross income from trading, including your website, is £1,000 or less in a tax year, you do not need to register as self-employed or declare it. You can read more about the allowance on GOV.UK.
Note that the allowance is based on gross income, not profit. Sales of £1,500 with £800 of costs is over the limit, even though the profit is only £700. Once you go over, you register for Self Assessment by 5 October after the end of the tax year in which you started, and either deduct the £1,000 allowance or your actual expenses, whichever is better.
Online marketplaces and platforms now report sellers’ income to HMRC under the digital platform reporting rules, so income from selling through them is visible to HMRC whether or not you declare it.
Do I need to register my website if I’m only using advertising?
Income from advertising, affiliate links or sponsorship is trading income just as much as selling products. The same £1,000 allowance applies across all your trading income combined. Above it, you need to register as self-employed or run the website through a limited company.
What other laws do you have to observe?
Registration is only part of it. A website that sells or collects data has other obligations:
- The Consumer Contracts Regulations 2013 set out the information you must give online customers before they buy, and their right to cancel most orders within 14 days.
- The Consumer Rights Act 2015 sets the standards goods, services and digital content must meet.
- UK data protection law applies if you collect personal information, such as names and email addresses through a contact form or newsletter. You will need a privacy notice, and you may need to pay the annual data protection fee to the Information Commissioner’s Office.
- Cookie rules under the Privacy and Electronic Communications Regulations mean you need consent before setting non-essential cookies, such as most analytics and advertising cookies.
- If you trade as a limited company, the Companies Act and the trading disclosure regulations require your website to show the company’s registered name, company number, place of registration and registered office address.
Whatever the legal minimum, it is good practice to show a privacy policy, clear contact details and your terms of sale.
What are the benefits of running my website through a limited company?
Some of the main reasons people incorporate:
- Limited liability. The company is a separate legal entity, so your personal assets are generally protected if the business cannot pay its debts.
- Tax planning. Company profits pay Corporation Tax, currently 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between. You can then take money out as a mix of salary and dividends. Whether this saves tax depends on how much profit the website makes and how much of it you need to draw.
- Credibility. Some customers and suppliers prefer to deal with a limited company.
- Ownership. Shares make it straightforward to bring in a partner or investor.
There are costs too: annual accounts and a confirmation statement at Companies House, a Corporation Tax return, stricter rules on taking money out, and a public record of your details. The dividend allowance, which used to be £2,000, is now £500, so the tax advantage is smaller than it was.
For a fuller comparison, see choosing the right legal structure for your UK business, and if you are a sole trader with a significant income, check whether Making Tax Digital applies to you.
Planning the business behind the website
If the website is going to be a business rather than a hobby, it is worth planning it like one: what it will sell, to whom, what it will cost to build and run, and how long it will take to earn enough to be worth your time. SquarePlan’s software builds the cash flow and profit forecast from your answers and works out the tax for you. There is also a guide to starting an eBay business if you are selling through a marketplace rather than your own site.