How to Start an Online Business in the UK

Free companion tools Use this guide alongside the Little Otter Business Costs & Pricing Calculator and Website Audit Tool to check your numbers and strengthen your online presence before launch.

Introduction

Starting an online business can feel exciting and overwhelming at the same time. There's a lot of advice out there, and much of it is written as if you already know what a "sole trader" is, or what VAT stands for, or what HMRC actually wants from you.

This guide doesn't assume any of that. It's written for someone starting from scratch, explaining each step in plain English before it introduces any official term.

We've paid extra attention to Step 9, which covers tax and record keeping. This is the step where most new business owners get stuck, put things off, or worry they've done something wrong. We've broken it down into small, plain pieces so it stops feeling like a wall of jargon.

Who Is This Guide For?

• Anyone thinking about starting an online business who isn't sure where to begin.
• Sole traders and hobby sellers who want to sell online properly.
• People setting up their first website or online shop.
• Side-hustle sellers ready to make things official.
• People who find business jargon confusing or off-putting.
• Anyone who wants clear, plain-English steps rather than a wall of legal language.

It covers the basics that apply whatever you plan to sell: physical products, digital products, or services.

What You'll Learn

• What you're actually selling, and who you're selling it to.
• The simplest way to set your business up properly.
• Where you can sell: your own website, marketplaces, or both.
• What your online business really costs to run.
• How to price things so you actually make money.
• What a good website or shop needs to have.
• How to handle payments and delivery.
• The legal pages your website needs (and why).
• Tax and record keeping, explained simply, step by step.
• Simple habits that keep your business running smoothly.
• How to build a business people trust and come back to.

Step 1: Decide What You're Selling and Who It's For

Before you build anything, get clear on the basics. Grab a notepad and answer these in your own words:

• What am I actually selling? (A product, a digital download, a service?)
• What problem does it solve, or what does it give someone?
• Who is it for? Picture one real person you'd sell it to.
• Why would someone choose me over the alternatives?
• Do I have any evidence people actually want this?

Little Otter Tip Don't skip this step to get to the "fun" parts like the website. Talk to a few real people first, even informally. It's much cheaper to learn nobody wants something now than after you've built a shop and bought stock.

Step 2: Choose Your Business Structure

This step just means deciding how your business officially exists. In plain terms, there are two common options for someone starting out:

Sole trader means you and your business are legally the same thing. You keep the profits, but you're also personally responsible if something goes wrong. It's the simplest option and what most people starting an online business choose.

Limited company means your business is its own separate legal "person", with its own finances. It involves more paperwork and reporting, but can offer more protection and tax planning options as you grow.

Most beginners start as a sole trader and switch to a limited company later if it makes sense. Here's what to actually do:

1. Decide: sole trader (simpler) or limited company (more setup, more protection).
2. If sole trader, tell HMRC you're self-employed. If limited company, register with Companies House.
3. Pick a business name.
4. Open a bank account just for the business, separate from your personal one.
5. Set up a simple way to track money in and money out (even a spreadsheet is fine to start).
6. Check whether you need any business insurance for what you're selling.

Little Otter Tip Not sure which to choose? As a rough rule of thumb, if you're testing an idea or earning a modest side income, sole trader is usually enough for now. You can always change later.

Step 3: Choose Where You'll Sell

You don't have to build a fancy website on day one. Most people sell in one (or a mix) of these places:

• Your own website: full control over branding and fees, but you build your own audience from scratch.
• Marketplaces (like Etsy, eBay or Amazon): built-in customers looking to buy, but you pay marketplace fees and follow their rules.
• Social selling (Instagram, Facebook Shops, TikTok): good for building an audience and testing products with low set-up cost.

Little Otter Tip A common, low-risk path: start on a marketplace or social selling to prove people want to buy, then build your own website once you understand your products and customers better.

Step 4: Understand What It Actually Costs to Run

A lot of new business owners set their prices before working out what things actually cost them. That's the single biggest reason people end up working hard for very little profit. Before you price anything, add up:

• Your website address (domain) and hosting, if you have a website.
• Any fees your selling platform or marketplace charges.
• Payment fees (the small cut taken when a customer pays you).
• Marketing or advertising, if you use it.
• Packaging and delivery, if you sell physical items.
• Any subscriptions or tools you pay for.
• Insurance or professional fees.

All of these quietly reduce how much you actually keep from a sale, so it's worth knowing them before you set a price, not after.

Use the Little Otter Business Costs & Pricing Calculator Pop your numbers in and our free calculator will show you your real costs and what you're likely to keep from a sale. Takes a few minutes, and it's much less guesswork than doing it in your head.

Want to Go Deeper?

Our Advanced Business Pricing Calculator (Little Otter Pro) also works out your VAT position, profit margin, mark-up, break-even point, and gives you a rough personal tax estimate, all in one place.

Step 5: Price Your Product or Service Properly

Once you know your costs, pricing is really just one question: what do I need to charge to cover everything and still make a fair profit? It isn't just about matching what everyone else charges. Think through:

• What the materials, stock, or delivering the service actually costs you.
• Packaging and delivery, if relevant.
• Fees taken by your platform or payment provider.
• Your own time. Yes, your time is a real cost.
• Any marketing spend.
• VAT, if that applies to you (more on this in Step 9).
• The profit you actually want to make, not just break even.

Little Otter Tip "Free delivery" isn't really free, it just means you've built the cost into your price instead of charging it separately. Make sure it's actually in there.

Step 6: Build a Website or Shop People Trust

Your website or shop page is where someone decides whether to trust you enough to buy. It doesn't need to be fancy, but it does need these basics:

• Simple, consistent branding (a logo, colours, and a tone that sounds like you).
• Clear pages explaining what you sell.
• Good, honest photos.
• An easy way to actually buy or get in touch.
• A short "About" page. People like to know who they're buying from.
• A few answers to common questions (FAQs).
• A design that works well on a phone, since most visitors will be on one.

Little Otter Tip People compare options quickly online. Clear photos and honest descriptions answer their questions before they have to ask, which means more sales and fewer messages to reply to.

Step 7: Sort Out Payments and Delivery

This is about how money gets to you, and how your product or service gets to the customer. Decide, before you launch:

• Which ways you'll let people pay (card, PayPal, etc.).
• Which payment provider you'll use to process it.
• How you'll deliver physical items, and which couriers or postage options you'll offer.
• Whether delivery is charged separately or built into your price.
• How quickly you can realistically get orders out or services delivered.
• Whether you'll add tracking to deliveries.
• How you'll package items so they arrive in one piece.

Little Otter Tip Always build packaging and delivery costs into your price. Boxes, tape, and postage add up fast, and they quietly eat your profit if you forget them.

Step 8: Add the Legal Pages Your Website Needs

These sound intimidating, but they're really just clear, honest explanations of how you do business. Every UK website selling to customers should have:

• Terms and conditions: the basic rules of buying from you.
• A privacy policy: a plain explanation of what customer information you collect and what you do with it.
• A cookie policy, if your website uses tracking cookies.
• A clear returns or cancellation policy.

One thing that surprises a lot of new sellers: for most online sales, customers have the legal right to change their mind and cancel within a set period, even if there's nothing wrong with the item. This is sometimes called a "cooling-off period." Your returns policy needs to allow for this, not try to block it.

What Are Distance Selling Laws? (In Plain English)

"Distance selling" is just the legal term for any sale where the customer isn't standing in front of you when they buy, so online, by phone, or by mail order all count. If you sell to customers this way, a set of UK rules called the Consumer Contracts Regulations automatically applies to you, whether your returns page mentions them or not.

Here's what they actually mean in practice:

• Customers get 14 days to change their mind and cancel, starting from the day they receive the goods (or, for services, from the day they place the order). This applies even if there's nothing wrong with the item, they simply changed their mind.
• Once they've told you they're cancelling, they then have another 14 days to actually send the item back to you.
• You then have 14 days from getting the item back (or proof they've posted it) to give them their refund.
• The refund must include the original delivery cost, at least the cheapest standard option you offered. See the section above for how that works.
• If you didn't clearly tell the customer about their right to cancel before they bought, this 14-day window can extend, in some cases up to 12 months.

There are a few sensible exceptions where the 14-day change-of-mind right doesn't apply, including:

• Personalised or made-to-order items (like something engraved or custom-made for that customer).
• Perishable goods, such as fresh food or flowers.
• Sealed items that can't be returned for hygiene reasons once unsealed, such as earrings or cosmetics.
• Digital downloads, once the customer has started downloading or streaming them (and agreed to lose the right to cancel).

Little Otter Tip You must tell customers about their right to cancel before they buy, usually on your terms and conditions or returns page. Skipping this doesn't remove the right, it just extends how long they have to use it. It's a five-minute job to add and saves a lot of confusion later.

If a Customer Returns Something, What Do You Refund?

A common mistake: only refunding the price of the item. In most cases, you also need to refund what the customer originally paid for delivery.

Simple version: if they paid £3.50 for standard delivery and return the item, you refund the item price plus that £3.50. If they paid extra for speedy delivery (say £6.50 for next-day), you only have to refund what your cheapest standard delivery option would have cost, not the upgraded amount.

Little Otter Tip Build the possibility of refunding delivery costs into your pricing from the start. And remember, your returns policy can never take away a customer's legal rights, even if you write it that way.

Step 9: Tax and Record Keeping, Explained Simply

This is the step that trips up more new business owners than any other. Not because it's actually that complicated, but because it's usually explained using jargon nobody has time to look up. So let's slow down and go through it piece by piece, in plain English.

First: Do I Need to Tell Anyone About My Business?

Short answer: if you're selling things with the aim of making money (rather than just clearing out your old stuff), HMRC (the UK's tax authority) will usually want to know about it.

There's one exception worth knowing: the trading allowance. This simply means you can earn up to a certain amount from self-employment in a tax year before you have to tell HMRC or pay any tax on it. If your income from selling is under that amount, you may not need to register at all.

If you go over that amount, you'll usually need to:

• Register with HMRC as self-employed (this is a form, not a big commitment. It just tells them you exist).
• Fill in a Self Assessment tax return once a year. This is simply a form listing what you earned and what you spent on the business.
• Pay tax on your profit (what's left after business costs), not on everything you sold.

Little Otter Tip If in doubt, register anyway. It costs nothing to register as self-employed, and it's far less stressful than wondering whether you should have. You can always tell HMRC you had no income to report.

Second: What About VAT? Do I Need to Worry About It?

VAT (Value Added Tax) is a tax added to the price of most goods and services. For most people starting out, the short answer is: not yet.

You only need to register for VAT once your business's total sales (not profit, total sales) go over the UK's VAT registration threshold in a rolling 12-month period. This threshold is set by the government and does change occasionally, so it's worth checking the current figure on the HMRC website rather than relying on an old number.

Until you reach that point, you simply don't charge VAT or deal with VAT returns. Many small online businesses trade for years before this becomes relevant.

Little Otter Tip Don't worry about VAT until your sales are approaching the threshold. When they are, that's the moment to check the current figure and, ideally, have a quick chat with an accountant.

Third: What Records Do I Actually Need to Keep?

This part is simpler than it sounds. "Keeping records" just means holding on to proof of money coming in and money going out. A folder (physical or digital) with the following is genuinely enough to start:

• What you sold, and for how much (your sales).
• Any refunds you gave.
• Receipts for anything the business paid for: stock, packaging, delivery, tools, advertising.
• Fees taken by your platform or payment provider.
• Business mileage or travel, if relevant.
• Anything else the business spent money on.

You don't need special software to begin. A simple spreadsheet with a row for each sale and each expense will do the job. The important habit is doing it regularly (weekly is plenty) rather than trying to remember everything at tax return time.

In Plain English: Step 9 Summed Up

Plain English Summary Selling to make money? Tell HMRC, unless you're under the small trading allowance. VAT only applies once your total sales pass a set yearly threshold. Check it doesn't apply to you yet, then move on. "Keeping records" just means saving proof of what you sold and what you spent, in one place, regularly. None of this needs to be perfect on day one. It needs to exist, and it needs to be honest.

Step 10: Build Simple, Steady Habits

None of these take long, but doing them regularly is what makes running a business feel manageable instead of overwhelming.

• Keep business money and personal money in separate accounts.
• Save every receipt, even small ones.
• Download your sales and payment reports regularly.
• Log sales by the date the order happened, not the date the money lands in your account.
• Check your profit, not just your sales total, on a regular basis.
• Check what fees you're actually being charged after each sale.
• Keep delivery receipts and tracking numbers somewhere safe.
• Back up your records somewhere other than just your laptop.
• Look at what isn't selling and ask why.
• Update your prices when your costs change. Don't just set and forget.

Step 11: Build a Business People Trust

Trust doesn't appear overnight, it's built order by order, message by message. From your very first sale, aim to:

• Get orders out, or services delivered, when you said you would.
• Add tracking where it makes sense.
• Reply to messages quickly.
• Describe things honestly, even the imperfect bits.
• Avoid cancelling orders unless you really have to.
• Sort out problems calmly and fairly.
• Ask happy customers for reviews.
• Make the whole experience feel easy for the customer, start to finish.

Common Mistakes New Online Business Owners Make

• Setting prices before working out actual costs.
• Forgetting to include packaging and delivery in pricing.
• Charging too little for delivery.
• Forgetting that delivery costs often need refunding too.
• Promising delivery times that aren't realistic.
• Using poor-quality photos.
• Launching without terms, privacy, or returns pages.
• Copying someone else's wording, prices, or branding.
• Writing a returns policy in unclear or vague language.
• Putting off tax registration out of confusion, not necessity.
• Mixing business and personal money.
• Never actually checking whether they're making a profit.
• Ignoring messages or return requests.

Little Otter Resources for Online Business Owners

The Little Otter Business Hub Toolkit has a growing set of resources to help you build your online business with more confidence.

Free Resources

No sign-up needed:

• Business Costs & Pricing Calculator.
• Website Audit Tool.
• Business Setup Checklist.
• Fact Sheets.
• Starter Guides.
• Podcasts.
• Blogs.

Premium Resources

Available with a Little Otter subscription:

• Advanced Business Pricing Calculator.
• Premium Website Audit.
• Premium Guides.
• Business Templates.
• Additional Calculators.
• New tools as they're released.
• Discounts on direct support packages.

Before You Launch Checklist

Before you launch, check off the following:

☐ I know what I'm selling and who it's for.

☐ I've chosen sole trader or limited company, and registered.

☐ I've opened a separate business bank account.

☐ I've decided where I'll sell (own website, marketplace, or both).

☐ I've worked out my real running costs.

☐ I've checked my prices actually leave a profit.

☐ My website or shop page is built and double-checked.

☐ My photos and descriptions are accurate.

☐ My payment method is set up and tested.

☐ I know how I'll handle delivery or fulfilment.

☐ My terms and conditions are in place.

☐ My privacy policy is in place.

☐ My returns policy covers delivery refunds and the 14-day distance selling cancellation right properly.

☐ I understand whether I need to register with HMRC.

☐ I know roughly where the VAT threshold is, even if I'm nowhere near it yet.

☐ I have a simple system ready to log sales and expenses from day one.

Further Reading

• Understanding Your Online Business Costs, Simply Explained.
• Building a Website People Actually Trust.
• Delivery and Returns Made Simple.
• Tax and VAT for Beginners, No Jargon.
• Record Keeping When You Hate Admin.
• Building Reviews and Repeat Customers.

FAQs

Do I really need to register as self-employed?

If you're selling to make a profit and your income goes above the small trading allowance, yes. It's a short form, not a big commitment, and it protects you from problems later.

How much does it actually cost to start an online business?

It varies, but common costs include a domain and hosting (or marketplace fees), payment processing fees, packaging and delivery, and any marketing. Our free calculator can help you see your real numbers before you set prices.

What are distance selling laws, in simple terms?

They're the UK rules (called the Consumer Contracts Regulations) that apply automatically whenever you sell to a customer who isn't in front of you, so online, phone, or mail order. They give customers 14 days to change their mind and cancel, another 14 days to send the item back, and you then have 14 days to refund them, including their original delivery cost.

If someone returns an order, do I refund the delivery cost too?

Usually, yes, the original standard delivery cost, not any upgrade they paid for. If your standard delivery was £3.50 and they paid extra for next-day, you only owe the £3.50 back.

Do I need to set up a limited company?

No, not to start. Most people begin as a sole trader, which is simpler, and consider a limited company later once the business has grown.

When do I actually need to think about VAT?

Only once your total sales (not profit) pass the current VAT threshold in a rolling 12 months. Until then, you don't need to charge it or file anything for it.

What's the minimum I need before I launch?

Clear pricing that leaves a profit, honest photos and descriptions, a working payment method, and your terms, privacy and returns pages in place.

How do I improve my website or shop after it's live?

Review it regularly: look at your product pages, photos, pricing and any customer feedback. The Little Otter Website Audit Tool can flag quick wins.

Key Takeaway

You don't need to understand every rule perfectly before you start. You need a clear idea of what you're selling, honest pricing, the basics in place, and a simple habit of keeping track of money in and out.

Tax and record keeping feel intimidating mostly because of the language used to describe them, not because the actual tasks are hard. Break Step 9 into its three small pieces, and it stops being a wall you can't get past.

Use the Little Otter Business Hub Toolkit to help you at every stage, from your first sale to a steady, growing online business.

Disclaimer

This guide is provided for general information and educational purposes only. It is not intended to constitute legal, tax, financial or professional advice.

While every effort has been made to ensure the information is accurate at the time of publication, platform policies, UK legislation and marketplace rules may change. Always refer to the latest guidance from HMRC and other relevant authorities before making business decisions.

Where appropriate, seek advice from a qualified accountant, legal professional or other suitably qualified adviser.

The author accepts no liability for any loss or damage arising from reliance on the information contained within this guide.

Copyright

© 2026 Little Otter Business Hub. All rights reserved.

This guide is for personal use only. No part of this publication may be reproduced, distributed, stored in a retrieval system or transmitted in any form or by any means without prior written permission from the copyright holder.

Guide Version: 2.0

Last Updated: July 2026