Fristly, good luck with your venture.
You need to call HMRC to tell them that you will be setting up a small business - you need to do this within 3 months of start up. They are very approachable and extremely helpful. You should then keep accounts (places like Staples do good fill in yourself books for this). Or you can do it on a spreadsheet. You just need a column for purchases and one for sales and the difference is your profit (hopefully). There are also several good free computerised accounts packages but you will need a bit of knowledge to do this and they can be quite time consuming.
You do not need to "set up" a business with anyone. You do not need to contact companies house. You can trade as something like - DeckTheHalls T/A Arty Crafty Things. You will then be a sole trader.
If you plan to accept payment by credit/debit cards, there are other things you need to do (if you want to do this I can let you have some info).
Keep ALL receipts relating to the business and once a year you will have to fill in a self assessment form (if you don't have a receipt you can't claim it as a purchase which will increase your taxable income). You can register to do this online and it is simple to fill in and has lots of online help too. For self assessment any tax due is payable in arrears. It's probably best to have an account that you can put money into for future possible tax payments.
You will not need to register for VAT as you will be under the threshold. You will not be able to reclaim any VAT you pay (unless it is a significant purchase. It was £2k but may have changed). Also, you cannot charge VAT on your sales. It will be just a total.
Also, keep a record book of all sales. Either in a notebook or a duplicate book if you wish to give your customers a receipt.
Open a separate account for all business finances as this will help with your tax forms.
I run my own business and do all of the administration, including the accounts. If you've got any specific questions, do feel free to drop me a PM and I'll try to help.
If this is your only income, you should probably talk to the national insurance people as well to keep up your contributions.
Don't be daunted by all of this. It is all quite simple. My best advice is to keep ontop of the paperwork. Weekly or monthly, otherwise you may forget stuff/get bogged down with it.