The Law Shop is now closed. Please click here to find out more.

Starting an Online Business

Anyone looking to start an internet-based enterprise needs to be aware of the legal obligations which apply to online businesses.

Consumer Contracts Regulations

An important piece of legislation for anyone thinking of setting up an online business to take note of is the Consumer Contracts Regulations. These regulations give the customer certain consumer rights when buying ‘at a distance’, which includes buying online.

Providing information

One obligation that these regulations place on online sellers is to provide certain information when selling to a customer. You must provide:

  • your details, including a phone number and physical address
  • a description of the goods or services being sold, including how long any commitments made by the customer will last
  • the total price, or how it will be calculated if it cannot yet be determined
  • the cost of the delivery of items bought
  • how returns will be paid for and the price of these
  • details of the customer’s right to cancel, and a standard form for doing so (or at least directions on how to find one)               
  • if you are selling digital items, details of which hardware they are compatible and incompatible with

As a seller you are expected to provide these details in a “durable medium” so that the customer can keep it to refer to later. This could be provided on paper or by email. You can communicate this information in a more fleeting manner at the time of purchase, but you must provide it in a permanent form afterwards.

If you fail to provide this information in an acceptable way, the customer may have the right to cancel for up to a year after the purchase.


You should deliver any goods bought from you in the time frame you promised at the time of purchase. If a delivery date was not specified then you should make sure that they arrive within 30 days of the purchase at the very most, although you should not delay sending the goods unnecessarily.

Cancellation rights of the customer

Any customer that buys a product or service from your new online business has the right to cancel the item from the time of the order until 14 days after it is received.

If a customer informs you of their intention to cancel the items within the allowed period and returns them within 14 days of telling you, you should refund the price within a 14-day period, starting either from when you receive the goods back or when you have proof that they have been sent back, whichever is first.

If a customer buys a service from you online, they have a right to a refund which lasts for 14 days from when they signed up for it.

Other rules

There are a few other rules contained under the Consumer Contracts Regulations that you need to be aware of as the manager of an online business.

  • Sellers are not allowed to charge for additional items on an order by way of pre-ticked boxes.
  • Customers can only be charged at the basic rate for any calls made to enquire about the order.

Becoming VAT-registered

If your business is based in the UK and you expect your VAT taxable turnover to exceed £81,000 in a 12-month period then you must register your online business for VAT.

VAT taxable turnover means the total value of everything you sell which is not exempt from VAT.

In most cases you will be able to register online.


Your online business will need to pay tax. The nature of this will depend on whether your enterprise is set up as a limited company or you are operating as a sole trader.

Data protection

Those who run online businesses need to have an awareness of data protection principles. This is because when making an online transaction you will need to collect personal information about your customers.

When handling customer data you must comply with the data protection principles set out by the Data Protection Act. The data you hold must be:

  • used fairly and lawfully
  • used for limited, specifically stated purposes
  • used in a way that is adequate, relevant and not excessive
  • accurate
  • kept for no longer than is absolutely necessary
  • handled according to people’s data protection rights
  • kept safe and secure
  • not transferred outside the UK without adequate protection

Information your website must contain

There is certain information which your website must include:

  • your address and contact details
  • a privacy policy
  • terms and conditions
  • an exchange and refund policy
  • a quality commitment
  • information about delivery and payment
  • a shopping cart function
  • a secure environment in which customers can submit payments

Collecting payments

If your online business intends to collect money from customers by way of credit or debit card payments then you will need a merchant account. These accounts are different from a business bank account.

There are a number of companies providing this service, such as PayPal and SagePay, but some banks can also set you up with a merchant account. There will be a fee for using your merchant account – some providers will charge periodic fees, while others may be per-item or percentage-based.

Other legal topics that may interest you