So you’ve decided to take the leap and set up as self-employed? Congratulations! You’re at the beginning of an exciting journey.
However, before you really get started, there are a few things that you need to make sure you have covered. The first of these is setting up as self-employed with HMRC and, most likely, registering as a sole trader.
- Going self-employed in the UK: a guide to getting started
- What can I claim as self-employed tax deductible expenses?
- Self-employed business ideas in the UK
- Learn more about insurance for the self-employed
How to register as self-employed with HMRC – step by step
We’ll take you through the process in depth, but here’s a quick overview of how to register:
- Check your work counts as self-employment using the Employment Status Indicator
- Create a Government Gateway account
- Await your details, which will arrive by post
- Complete your registration using your Government Gateway details, as well as information about your business, like trading name and contact details
Once registered you will have certain legal obligations. Keep reading to get the full picture.
Why do I need to register as self-employed with HMRC?
If you’re self-employed, you are legally obliged to register as such with HMRC so that they know how much you’re earning and can properly collect tax. So how do you know if you’re self-employed?
HMRC offers a tool called the Employment Status Indicator which can help you decide. However, you are likely to be considered self-employed if you:
- run your business for yourself
- have more than one customer simultaneously
- decide how and when you work
- have the option to hire other people
- provide most of the equipment needed to do your work
- take responsibility for completing unfinished or unsatisfactory work in your own time
- charge a fixed price for your work, agreed with a client or customer
- sell goods or services for a profit, apart from when you are just selling unwanted items on an ad hoc basis.
If you fulfill these criteria, you probably need to register as self-employed.
Registering as self-employed
Registering as self-employed is a reasonably easy task. In order to register, first you’ll need a Government Gateway account. This grants you access to the government’s range of online services, the most important of which is HMRC’s Self Assessment portal. You can get your Government Gateway login here.
Government Gateway details are sent by post. You’ll have 90 days to use your login details for the first time. Once you’ve done that, return to the link above to complete your registration. You’ll need to give some basic details about yourself and your business, including contact details and the nature of your work.
You’ll also need to decide on a name for your business. You can choose this as you wish, although many people choose to trade under their own name. However, if you choose a specific trading name, it’s important you check online to make sure that there are no existing businesses using the same name in order to avoid confusion.
When do I need to register as self-employed?
According to HMRC, you should register at the earliest opportunity. However, there is a deadline: you are legally obliged to register by the 5th October of your business’s second trading year.
You should think carefully about leaving the registration this late, however, because if anything goes wrong and you’re unable to register by the deadline, you could find yourself with a very large tax bill.
Do I need to register as a sole trader?
Being self-employed doesn’t necessarily mean that you’re a sole trader. If you work for yourself, on your own, you are probably a sole trader and should register as such, but there are other options.
If you are in a business partnership, you need to register as self-employed, but not as a sole trader. Instead, you should register as a partner. If you set up a limited company, things are a little more complicated: you’ll be considered both an owner of a company, and its employee. Your tax and National Insurance calculation will also be different.
Your responsibilities once you’ve registered as self-employed
Once you’ve registered, you need to fulfill a series of key legal obligations.
The most important of these is that you must keep adequate records, particularly of any sales or outgoings connected with your business. Then, by 31 January every year, you must file your Self Assessment tax return. Bear in mind that you will need to make payments to HMRC on 31 January and 31 July, although you may be able to stagger these payments with the prior agreement of HMRC. As well as income tax, you’ll have to pay both Class 2 and Class 4 National Insurance Contributions (NICs).
If your annual turnover is above the VAT threshold (£85,000 for the current tax year), you must register for VAT. However, you may choose to register even if your turnover is below this level. The individual circumstances of your business will determine whether or not this is right for you.
Have you had a good experience registering as self employed? Found it a bit of a nightmare? Let us know in the comments!
Looking for self-employed insurance?
With Simply Business you can build a single self employed insurance policy combining the covers that are relevant to you. Whether it’s public liability insurance, professional indemnity or whatever else you need, we’ll run you a quick quote online, and let you decide if we’re a good fit.