Once you have decided that you’re going to begin working for yourself and you’ve decided which structure your new business is going to have (Sole Trader vs Limited Company – which is right for your business?) there are a few things you need to make sure youve got covered. Firstly you’ll be required to set yourself up as self-employed with HMRC for income tax purposes.
In this step by step guide we’ll take you through the process, however heres a brief overview of how to register:
- Use the Employment Status Indicator to determine if you are required to register
- Create a Government Gateway account
- HMRC will send the details through the post.
- Use the details sent by HMRC to complete your registration using the Government Gateway account, your trading name and contact details.
Having completed the registration process you will then have certain legal obligations which you will need to adhere to.
Why do I need to register with HMRC?
Having decided that you’re going to begin working for yourself you are legally required to inform HMRC so that they can properly collect tax.
You may be wondering what determine actually being self-employed, you can use the HMRC Employment Status Indicator (mentioned above), however you are likely to be considered self-employed if you:
• run your business yourself
• if you’re doing work for more than one customer at one time
• you decide how and when you work
• have the control to hire other people
• provide most of the equipment required to complete your work
• responsible for completing unfinished or unsatisfactory work in your own time
• charge a fixed price for your work, agreed with client/customer
• sellinf goods/services for a profit aside from when you’re selling unwanted items on an ad hoc basis
If you meet this criteria you will probably be required to register with HMRC as self-employed.
Registering as self-employed
Setting yourself up as self-employed is a reasonably simple thing to do. The first thing you will need is a Government Gateway account, which grants you access to governments online services, you can acquire your Government Gateway details here .
Once you have registered your account your Government Gateway details will be sent through the post and you will then have 90 days to use these details to log in for the first time. When you’re registering you’ll also need to give some basic details about your business including your contact details and nature of the work you’ll be carrying out.
You will also be required to provide the name for your business. Many people decide to trade under their own name, however if you decide to use a specific name to elimnate any confusion you should ensure that you check online to make sure that thereare no existing businesses using that name.
When do I need to register as self-employed?
You should inform HMRC and register as self-employed at the earliest opportunity. There is also a deadline to register: you are required to register by the 5th October of the second year which your business has been trading.
However if you leave the registration late you may find yourself with a large tax bill if anything goes wrong or you’re unable to register by the deadline.
Registering as a sole trader?
Registering as self-employed isn’t neccessarily the same as being a sole trader, if you work for yourself on your own you are probably a sole trader and should register as such, however there are other options.
For instance if you are working in a partnership you will still need to register as self-employed although not as a sole trader, you should register as a partner of the business. Things get a little more complicated if you have set up a limited company as you will be considered as both the owner of the business and an employee.
Reponsiblities once registered as self-employed
As previously mentioned once you have registered as self-employed with HMRC you will then have to fulfill a series of key obligations.
Firstly you must keep adequete records including any sales of outgoings/expenses connected with the business. Then by the 31st January every year you will be legally required to file a self-assessment tax return. Any tax due to HMRC must also be paid by 31st January and 31st July (however you may be able to stagger these payments with HMRC). Along with income tax you will also be responsible for paying both class 2 and class 4 National Insurance Contributions (NICs).
You may also be required to register for VAT if your annual turnover (not to be confused with profit) is over a certain amount (£85,000 in current tax year). However you may voluntarily choose to register for VAT if the individual circumstances for your business determing if it is right for you.
If you would like more information or advice on setting yourself up and registering as self-employed by all means drop us a message or arrange a free consultation by using the Contact page.