Being your own boss isn’t an uncommon aspiration. By the end of 2022, there were 4.2 million self-employed workers in the UK. If you’re thinking about taking on the exciting, but rather daunting challenge of joining them, you’ll need to know the ins and outs of how to register as self-employed to keep on top of your tax and National Insurance payments.
What this guide covers:
Reasons to register as self-employed
Who needs to register as self-employed
Self-employed registration deadlines
How to register as self-employed
Post-registration considerations
Why it’s necessary to register as self-employed
When you embark on the exhilarating journey into the world of self-employment, it is crucial that you register as self-employed with HMRC.
This gives HMRC an insight into your business’ earnings, which is then used to calculate the correct taxation. Missing this step may result in a penalty, so registering sooner rather than later is in your best interest.
Is self-employment registration difficult?
For many, the rules and regulations involved in running your own business can be off-putting. But conceding defeat before you’ve begun would be an injustice, because with a little know-how, setting up and registering as self-employed can be a hassle-free process.
Who needs to register as self-employed?
Before you do anything at all, it’s worth checking your employment status and earnings to find out whether you genuinely need to register with HMRC as not everyone requires it.
Employment status
Your work may be classified as self-employment if the following statements are true to your situation:
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- You run a business for yourself.
- You have more than one customer simultaneously.
- You’re responsible for deciding when, how and where you work.
- You are able to hire other people at your expense.
- You charge an agreed fixed price for your work, goods or services.
Employment status can be quite complex and if you’re unsure, you should seek professional advice.
Do I have to be a sole trader to register as self-employed?
Being a self-employed worker doesn’t necessarily make you a sole trader. In the nitty gritty sense, sole trader refers to business structure rather than how you pay your taxes. If you provide for yourself and alone, you are likely a sole trader but there are further options such as working as a freelancer or independent contractor.
There are many advantages and disadvantages tied up with being a sole trader, but one benefit is that it’s fairly simple to register as a sole trader with HMRC.If you’re registering as a business partnership or registering as a limited company, your tax and National Insurance will be calculated slightly differently.
Earnings
You only need to register as self-employed if your annual income (not profit) exceeds £1000, thus requiring you to send a tax return. Needless to say, once your income hits this limit you may start to pay tax.
HMRC’s recommendation
Despite this, there are many reasons you may want to register as self-employed before reaching £1000 income, which may cover the following:
- If you expect your turnover to surpass this in the near future.
- If you’re concerned about missing the registration deadline and want to avoid possible HMRC penalties.
- If you want to record a tax loss to set against future taxable income.
HMRC encourage anyone classed as a self-employed worker to register for Self Assessment and National Insurance, regardless of income.
When should I register as self-employed, is there a deadline?
First things first you don’t need to register as self-employed immediately. You’ve got a three-month window to confirm your earnings whether that’s full-time or alongside another role so there’s no urgency.
That said, you should note down this date or make use of an accounting calendar to ensure you meet the deadline. If you don’t register by 5 October in your business’s second tax year, you may incur a financial penalty.
How to register as self-employed step by step
Notifying HMRC
When you’re ready to take the plunge, you will need to get started by contacting HMRC. To do so, you will need to head over to the government Self-Assessment registration portal.
Here, you will need to provide HMRC with some information, namely your details and trading activities. Next, it’s over to HMRC; they will set up your records for Self Assessment, National Insurance and PAYE for any employees you may have.
Specific information you need to provide
- Your name, date of birth and National Insurance Number
- Contact information, including UK address, email and phone number
- Business name, description and start date.
- Identification such as passport and driving licence
- Payslips or P60.
Using the information provided, HMRC will register you and your business. Typically, you will have to wait up to 28 days for HMRC to review and accept your application.
Final steps
Once HMRC have given you the go ahead, you will receive a 10-digit Unique Taxpayer Reference (UTR), plus an activation code for your government gateway account. With the code you can complete the set up of your account, enabling you to manage your taxes and send your annual tax return.
I’m registered as self-employed, now what?
Once you’ve completed the process of self-employment registration, you’ll be provided with an online account for Self-Assessment. After this, you will take on several responsibilities which you will be liable for in future. You will need to think about:
National Insurance
Once registered, you will need to start paying self-employed National Insurance Contributions, known as Class 2. Currently this is set at £3.15 a week, which you can pay via Direct Debit.
Registering for VAT
When your business hits the threshold of £85,000, you will need to register for VAT online by the end of the following month.
Registering as an employer
When you take on your first employee, you will also need to register as an employer with HMRC. This requires completion before your employees first payment.
Sorting bank accounts
Opening a business bank account is one of the earliest steps you should take to keep things in professional working order.
Limited companies require separate accounts in the company name whereas sole traders may use one account for personal and professional expenses although this is not best practice.
Insurance
Another key consideration is acquiring business insurance, specific to the type of business you have. This may cover public liability, professional indemnity, employer insurance or business building insurance.
Record keeping
Establish a system for keeping accurate records of all income and expenditure, from day one. This involves keeping all business invoices, receipts and bank statements and ensuring they remain organised.
Going digital
Adopting a cloud-based accounting solution (such as Xero), if you are comfortable using online software, can help cut down your admin burden. If your budget allows for it, looking into accounting software may prove time-efficient and convenient.
Need more advice?
If you have further questions on how to register as self-employed, it’s a good idea to talk to a specialist. Contact our focused and friendly team for proactive and thoughtful support.
