The Basics of Setting Up an E-Commerce Business in the UK

Starting an e-commerce business in the UK is one of the most accessible and scalable ways to enter the market. With online sales now accounting for over 25% of total retail spending, the digital economy continues to offer huge opportunities for entrepreneurs across every sector.

Whether you’re selling handmade goods, operating a dropshipping store, or building a fully-fledged digital brand, success in the UK’s competitive e-commerce space depends on more than just having a great product. You’ll need to understand the legal, financial, and operational foundations that underpin compliant and sustainable online businesses – from choosing the right company structure to registering for tax and ensuring your website meets consumer protection standards.

This quick start guide from Formations Wise walks you through the essential steps for setting up an e-commerce business in the UK. You’ll learn how to form your company, register with HMRC, understand key e-commerce laws, and prepare your online store for long-term success.

1. Choose the Right Business Structure

Before launching your online store, it’s essential to decide how your business will operate legally. Your chosen structure affects everything from your tax obligations and liability to how investors, suppliers, and customers view your brand.

The main options for UK e-commerce entrepreneurs are:

• Sole Trader: The simplest structure to set up. You trade as an individual and keep all profits after tax, but you’re personally responsible for any business debts.
• Limited Company: A separate legal entity that provides limited liability protection, access to more tax-efficient options, and increased credibility with suppliers, banks, and customers.
• Partnership: Two or more people share ownership and responsibility for the business. Profits are divided according to the partnership agreement, and partners are jointly liable for debts.

For most e-commerce businesses, forming a UK limited company offers the best balance of legal protection, professionalism, and long-term scalability. It also makes it easier to open a business bank account, register for VAT, and separate your personal and business finances.

You can register a limited company online in as little as 24 hours through Companies House. To simplify the process, Formations Wise provides a fast, compliant formation service – handling all setup steps, documentation, and legal requirements on your behalf.

Useful link: Register your company with Companies House

2. Register for Taxes

Once your business is officially registered, the next step is to ensure you meet all relevant UK tax obligations. Registering for the correct taxes on time is essential for compliance and avoiding HMRC penalties.

• Corporation Tax: If you’ve formed a limited company, you must register for Corporation Tax with HMRC within three months of starting to trade. Corporation Tax is paid on company profits, and you’ll also need to file annual accounts and a Company Tax Return.
• Income Tax: Sole traders must register for Self Assessment and pay Income Tax on their business profits each year. This is done via an annual online tax return submitted to HMRC.
• VAT (Value Added Tax): You must register for VAT if your taxable turnover exceeds the current VAT threshold. However, many e-commerce businesses choose to register voluntarily to reclaim VAT on business expenses and appear more established.

You can register online using the official GOV.UK services:

• Register for Corporation Tax
• Register for Self Assessment
• Register for VAT

Tip: Keep accurate digital financial records from day one. Under the Making Tax Digital (MTD) scheme, most VAT-registered businesses are now legally required to maintain and file tax records using approved accounting software. This not only ensures compliance but also helps streamline your bookkeeping and reporting processes.

3. Choose a Domain Name and Build Your Online Store

Your domain name is a vital part of your brand identity – it’s often the first thing customers see and remember. A strong domain name should be short, relevant, and easy to spell, while reflecting your products or brand values. Once you’ve chosen a name, register it through a trusted UK domain registrar such as Nominet (the official registry for .uk domains) or reputable providers like GoDaddy.

Next, choose a reliable platform to build and manage your online store. The best option depends on your technical skills, budget, and long-term goals:

• Shopify: Ideal for beginners, offering all-in-one tools for website design, payments, shipping, and inventory management.
• WooCommerce (WordPress): A flexible, open-source platform perfect for those who want more control over design, functionality, and SEO.
• BigCommerce or Squarespace: User-friendly platforms ideal for growing businesses looking for scalability and simplicity.

Tip: Make sure your website complies with the UK E-Commerce Regulations and online trading rules. These laws protect consumers and ensure transparency for online sellers. Your website must clearly display:

• Your business or trading name and registered address
• Your company registration number and VAT number (if applicable)
• Transparent pricing, delivery, and refund policies
• Contact details, including a valid email address

Official guidance: UK E-Commerce Regulations on GOV.UK