However new or modest your business may be, it’s important to know the basics of UK consumer protection law and how it relates to your business activities.
Understanding the law can be a bit daunting so in this guide we unpick whether you need to comply with consumer protection and trading laws. And remember, if your business needs start-up or consumer protection laws guidance our commercial solicitors can help.
Is your business caught by consumer protection law?
For many entrepreneurs or part-time side hustlers, the first time they realise that their business is caught by consumer protection law is when they encounter a problem. From a commercial solicitor’s point of view, that isn’t a great way to meet a client; we would prefer to advise you on how your business is affected by consumer protection law and to ensure that you have the right policies, procedures, and contract paperwork in place so your business can thrive and grow.
Many start-ups and small businesses think consumer protection law isn’t relevant to them as they don’t have business premises or a shop or their turnover is modest or they are only selling to businesses. None of those things matter as it’s whether your activities amount to a business under consumer protection legislation (although your customer’s rights and the extent of your obligations will depend on whether you are selling to a customer or a business).
Broadly there are 4 trading categories with corresponding abbreviations:
- C2C – consumer to consumer
- C2B – consumer to business
- B2C – business to consumer
- B2B – business to business
In the first two categories, your consumer protection obligations are fairly modest but if your activities count as a business and you are selling to a consumer or another business it is essential to know the basics of consumer protection law, have standard paperwork in place to protect your business, and to know when to get help before a situation escalates into a dispute.
Are you operating a business?
You may think that you are not operating a business because you aren’t incorporated as a company or because you don’t have a separate business bank account but the test for whether you are a ‘business’ is wider than that.
Ask yourself these questions and if you answer yes to any of them there is every possibility that you fall within the definition of a business and, if you are B2C, you will need to comply with the more stringent consumer protection legislation for consumers. If you are B2B you will be held to a lower standard of consumer protection.
- Are you a registered company or partnership
- Do you have a business name or premises?
- Do you pay to advertise your goods or services
- Are you registered for VAT
- Is your operation generating a significant proportion of your income?
- Are you buying and selling goods at a profit or delivering services?
Commercial solicitors look at regulation 2 of the Consumer Protection from Unfair Trading Regulations 2008 as their starting point for whether activities should be classed as a business but the definitions in the regulations are vague enough for start-ups to need specialist advice on their status.
In the 2008 regulations, a business is said to include a trade, craft, or profession, and a trader is loosely defined as a person who in relation to a commercial practice is acting for purposes relating to his business. These general definitions don’t say you need a registered company or a shop to be in business. So, if you answered yes to any of the questions you probably are in business because as the old adage goes ‘’if it looks like a duck, it probably is a duck’’.
For further reading and information take a look at:
- Everything you need to know about start-up business structures
- How to choose the right business structure
- 9 types of legal documents you need for start-up success
FAQ on whether you are running a business
Some of our commercial solicitors have been the first to help entrepreneurs who have developed from a bit of trading on their smartphone to companies with multi-million-pound turnovers. The question is when do you become a business or trader? Here are a few scenarios our business lawyers regularly come across:
- The weekend business – you may be employed during the week but have a little side-line operating at the weekends. If it is a bit of recycling on Gumtree or eBay or the occasional car boot sale then you are OK. It’s when your weekend activities generate a chunk of your income that you need to start looking carefully at whether your side-hustle has morphed into a business. The answer lies in the frequency and quantity of your sales rather than the legal status of your business or whether you have formalised your business with a bank account, logo, or letterhead
- The non-VAT registered business – it is an urban myth that if your business isn’t registered for VAT then you don’t need to worry about consumer protection legislation. It again comes down to the degree of trading – if you are selling novelty hot water bottles online then the likelihood is that you will be classed as a trader and subject to consumer protection legislation, including product safety
- The helping a friend business – if you are a bathroom fitter by day or semi-retired you could be roped into fitting a friend’s bathroom or walking their dog. A one-off activity does not necessarily make it a business but it comes down to scale. You are more likely to be found to be in business if you are fitting the occasional bathroom rather than walking a dog because of the amount of work and profit involved
B2C consumer protection essentials for start-ups
When a consumer sells to a consumer (C2C) or to a business (C2B), the seller has limited obligations and it is a case of buyer beware. The legal position changes when your enterprise is classed as a business and you fall within B2C trading as you must comply with a wide range of consumer protection laws, such as:
- Information provision
- Description of goods
- Product safety
- Cancellation rights
If you are also selling to both consumers and trading as B2B then your business buyer will still have implied rights, such as product safety, but the consumer protection obligations are far less onerous. However, your profit margins between B2C and B2B probably reflect this.
For an in-depth look at consumer protection law have a look at our article: Comply with distance selling regulations and consumer protection
Why start-ups need to consider consumer protection compliance
When you are running a side-line quasi business or trying to grow a start-up company it is all too easy to ignore consumer protection legislation and to focus on your growth. Commercial solicitors say that whilst that approach is understandable, it is also short sighted because:
- If you don’t comply with consumer protection legislation you leave yourself open to complaints, poor online reviews or a referral to a relevant trade or professional organisation or trading standards
- You could be sued by a consumer. For example, because your goods are not as described or not fit for purpose or they don’t meet the relevant safety standards. If you are not trading as an incorporated company or limited liability partnership you could face having to pay substantial damages and costs out of your own pocket. If you want to know more about limiting your business liability have a read of our article here.
- Consumer protection complaints can result in your reputation not getting off the ground, making it more difficult to grow and expand your business
If you are looking for help our commercial and corporate solicitors can assist you with:
At Harper James we specialise in joined up commercial legal advice and work with new and small businesses to make sure you have the information and tools in place to make your business a success.