How to Start a Cake Making or Baking Business in the UK

Baking is one of the most popular ways to start a business from home in the UK. Whether you specialise in celebration cakes, artisan bread, cupcakes, or biscuits, turning your passion into a proper business is entirely achievable — you just need to get the regulatory and financial foundations right.

Food Hygiene and Registration

Before you sell a single cake, you must register your food business with your local council. This is free and must be done at least 28 days before you start trading. You register even if you are working from your home kitchen.

Once registered, an environmental health officer may visit to inspect your premises. They will check:

• Your kitchen is clean and in good condition
• You have proper food storage and refrigeration
• You can demonstrate food safety awareness
• You have allergen information available for customers

You should also hold a Level 2 Food Hygiene Certificate. While not strictly mandatory for every local authority, it is expected and many customers will ask about it. Courses are available online for around £20–£30 and take a few hours.

Allergen Labelling (Natasha's Law)

Since October 2021, Natasha's Law requires all food businesses selling pre-packed for direct sale (PPDS) food to include full ingredient lists with the 14 major allergens emphasised on the packaging. If you sell cakes at markets, fairs, or through a shop, this applies to you.

For made-to-order cakes (custom orders), you must still be able to provide allergen information verbally or in writing when asked.

Sole Trader or Limited Company?

Almost all home baking businesses start as sole traders. It is simple, free to set up, and involves minimal paperwork. You register with HMRC, keep records of your sales and expenses, and file one tax return per year.

A limited company is rarely necessary unless your baking business grows significantly. If your profits consistently exceed £40,000–£50,000, you might consider incorporating, but that is a bridge to cross later.

Registering with HMRC

Register for Self Assessment with HMRC within three months of starting your business. You can do this online at GOV.UK. You will receive a UTR (Unique Taxpayer Reference) by post.

Remember the trading allowance — if your total self-employment income is below £1,000 per year, you do not need to register or file a return. Above that, you must.

VAT registration is required if your turnover exceeds £90,000. Most home bakers will not reach this level, but it is worth knowing about. Note that most food items (including cakes and bread) are zero-rated for VAT — you do not charge VAT on them. However, some items like confectionery, biscuits partly covered in chocolate, and hot food are standard-rated at 20%. The rules around what counts as a cake versus a biscuit for VAT purposes are famously complicated — the Jaffa Cake ruling is the classic example.

Insurance

• Public liability insurance — essential if you sell at markets or deliver to customers. Covers you if someone is injured.
• Product liability insurance — covers you if someone becomes ill from eating your products. This is particularly important for food businesses.
• Employers' liability — required if you hire staff, even occasionally
• Contents insurance — check your home insurance covers business use of your kitchen equipment

Specialist food business insurance typically costs £100–£300 per year.

Claimable Expenses

You can deduct business expenses from your income to reduce your tax bill:

• Ingredients — flour, sugar, butter, eggs, chocolate, decorations, and all baking supplies
• Packaging — cake boxes, bags, labels, ribbons, tissue paper
• Equipment — mixers, ovens, tins, moulds, decorating tools, display stands
• Home kitchen costs — a proportion of your gas, electricity, water, and council tax based on business use
• Market stall fees — pitch fees, table hire
• Delivery costs — fuel or mileage at 45p per mile (first 10,000 miles)
• Website and online shop — hosting, platform fees, payment processing
• Marketing — business cards, flyers, social media advertising, photography
• Food hygiene training and certificates
• Insurance premiums
• Packaging materials and postage
• Professional subscriptions — membership of baking or food industry bodies

Keep every receipt and record every sale. Accounted makes this easy — photograph your receipts and everything is categorised automatically.

Pricing Your Products

Pricing is one of the biggest challenges for home bakers. Many underprice their work because they forget to account for their time and overheads.

When calculating your prices, include:

• Ingredient costs — the actual cost of everything in the product
• Packaging costs
• Your time — at a fair hourly rate (£15–£25 per hour is a reasonable starting point)
• Energy costs — gas or electricity for baking
• Delivery costs — if applicable
• Overheads — insurance, website, marketing, equipment depreciation
• Profit margin — aim for at least 30% on top of your costs

Do not compete on price with supermarkets. You are selling a handmade, personalised product — charge accordingly.

Selling Your Baked Goods

There are several channels for selling:

• Direct orders — custom cakes for birthdays, weddings, and events
• Markets and fairs — great for building a local reputation
• Local shops and cafés — wholesale supply (lower margin but regular orders)
• Online platforms — your own website, Etsy, or social media
• Subscription boxes — regular deliveries to subscribers

Each channel has different margin profiles. Track your income by source so you know which are most profitable.

Industry-Specific Tax Rules

Zero-Rated vs Standard-Rated

Most plain cakes, bread, and pastries are zero-rated for VAT. But the rules get specific:

• Cakes and flapjacks — zero-rated
• Biscuits without chocolate — zero-rated
• Biscuits partly or wholly covered in chocolate — standard-rated (20%)
• Confectionery (sweets, chocolates) — standard-rated
• Hot food sold for immediate consumption — standard-rated

If you are VAT-registered, getting this right is essential. If you are below the threshold, it does not affect your prices but is worth understanding for the future.

Trading from Home

If you use part of your home for business, you can claim a proportion of household costs. The simplest method is HMRC's flat rate — £6 per week if you work 25 or more hours per month from home. Alternatively, you can calculate the actual proportion based on the rooms and hours used.

Be aware that using your home for business could theoretically affect your capital gains tax exemption on your home, though in practice this is very unlikely for a small home baking business using a shared kitchen.

Bookkeeping Tips

• Separate your business and personal money — a dedicated bank account makes everything clearer
• Record every sale — even small cash sales at markets
• Keep ingredient receipts — they add up quickly and are fully deductible
• Track your time — especially for custom orders, so you can price accurately
• Set aside money for tax — 25–30% of your profits
• Invoice for custom orders — get a deposit upfront and the balance on delivery

Accounted connects to your bank and uses AI to sort your transactions. It is built for UK sole traders and handles everything from receipt capture to tax return preparation.

Key Deadlines

• 31 January — Self Assessment tax return and payment deadline
• 31 July — second payment on account
• Annually — food business registration renewal (if required by your council), insurance renewal

Getting Started

Starting a baking business is one of the most accessible ways to become self-employed. Register with your council, get your food hygiene sorted, register with HMRC, and keep proper records from the start.

Ready to keep your baking business finances in order? Sign up for Accounted and let Penny take care of the bookkeeping while you focus on what you love.