6 Oct 2020
If you are working for yourself and are not directly employed by a company, you will probably need to register as self-employed with HMRC. Registering as self-employed means that you become responsible for paying your own tax and national insurance contributions.
You can find out if HMRC considers you to be self-employed by using their online Employment Status Indicator tool. However, you’re probably self-employed if you:
Note that you can be employed by a company and registered as self-employed at the same time.
Before registering as self-employed, you will need to decide what type of business structure best suits you and your business.
The most popular choice is to register as a sole trader. This means you run your business as an individual and are able to keep all the profits after you have paid tax. You will also be personally responsible for any losses your business incurs.
If you are running your business with someone else, registering as a partnership might be the option for you. This is where you share the responsibility of running your business with somebody else and will pay tax on your share of the profits.
By setting up a limited company, your business will be legally separate from you and the other people who run it. This means your personal finances are protected should the business run into trouble. A limited company pays corporation tax on any profits made, which can then be shared among shareholders in the form of dividends.
Whether you decide to register your business as a sole trader, partnership or limited company, you will need to file a Self-Assessment tax return.
It is good practice to register as self-employed as soon as you start working on a self-employed basis. Legally, however, you are obliged to register as self-employed with HMRC before 5th October in your business’s second tax year.
1. To register, visit the gov.uk website.
2. You will need to complete an online form, giving details about yourself and your business.
3. Following this, you will be sent a Unique Taxpayer Reference (UTR) code in the post. Once you receive this code, you will be able to set up your online account for Self Assessment.
4. You will need to choose a name for your business. This could be your own name or something else. However, it is important that it is not already the name of an existing business.
Once you have registered as self-employed, you will be required to file a Self Assessment tax return by 31st January each year. This return will include information on how much income you have earned as a result of running your business. As well as income tax, you will also need to pay Class 2 and Class 4 National Insurance Contributions.
You should keep accurate records of your business’s sales and expenses. You do not need to send these records when you file your tax return, but it is important to keep evidence (like receipts, invoices, etc.) so that you can keep track of your income and outgoings, and in case HMRC asks to see your records.
The easiest way to file your Self-Assessment tax return is through HMRC’s online portal. It will automatically calculate how much tax you owe, and when you will need to pay your tax by.
If your business’s turnover is above the VAT threshold of £85,000 per year, you will need to register for VAT. However, you may choose to voluntarily register for VAT even if your turnover is below the threshold.