27 MAR 2024
8 MIN
READ
Do I need to register as self-employed?
Are responsible for your business and its success or failure
Provide the equipment and resources that the business needs to run
Decide your own place of work, hours and ways of working
Sell goods or services for a profit
Still struggling to work out if this applies to you? HMRC have a free tool that you can access online.
Solder trader vs self-employed
Self-employed
If you don’t work as an employee for someone else and you earn income outside of the PAYE system, you would be classed as self-employed. The term self-employed doesn’t define the structure of a business, instead it indicates that the person works for themselves.
Sole trader
If you’re self-employed and own your business you would be classed as a sole trader. The term sole trader refers to the structure of your business.
When do I need to register as self-employed?
If you’re self-employed within the UK, you’re legally required to register as self-employed by 5 October, after the end of the tax year that you became self-employed.
For example, if you went self-employed with your business on 2 March 2024, you would need to register by 5 October 2024.
How do I register as self-employed?
- Start by visiting gov.uk to register and make your online HMRC account
- Once you’ve done this, you can then log into your account
- From there, select the ‘Add Tax’ option, and add ‘Self-Assessment’
- You’ll be presented with a list of options, select ‘Sole-Trader’
- You’ll then be prompted to start date for your self-employment
- Submit further info required, including your NI number
- Describe the work you do in basic terms, for example “Customer jewellery designer”
- Review the info you’ve shared to make sure it’s all correct and complete
- Submit your information
Once you’ve completed the above steps, you’ll receive your unique taxpayer reference (UTR) number by post. You’ll also be sent a separate letter with an activation code inside. These will be sent out you within 10 working days.
UTR stands for Unique Taxpayer Reference. This is a 10 digit code used by HMRC to identify you and your business. Your UTR is vital for managing any tax requirements and filings.
Does it cost to register?
Self-registering as self-employed on the HMRC website is free.
What to do if you’ve registered before?
It may be the case that you’ve registered for self-assessment before. However, if you’ve previously registered but you didn’t submit a tax return last year, you’ll need to register again. If you’ve registered and you’re still waiting on your UTR or to hear back from HRMC, you should contact HMRC directly.
When do I need to register for self-assessment?
Within the UK you can earn up to £1000 tax-free each tax year without being legally required to inform HMRC. This is due to the UK’s trading income allowance, and applies to small business owners, as well as anyone who earns income from a side hustle.
If you are self-employed and earn up to £1000 within the same tax year, you must register with HMRC for self-assessment.
Self-assessment is the system that HMRC uses to report your income and collect tax. To learn more, you can read our handy guide here.
This is not a real-life example but may help illustrate a specific scenario in which your small business does not meet the threshold for self-assessment:
Gemma is a small business owner, who sells homemade candles on Etsy and has made £875 within the year from selling her products. As this is under £1000, Gemma wouldn’t be legally required to register for self-assessment. Should Gemma’s business make over £1000 the following year, she would then be required to legally register for self-assessment.
Undeclared income
People may fail to report their income due to one or more of the following reasons:
They’re unsure of the correct process
They’re unaware of their legal obligation to inform HMRC
They’re unsure that they will be able to pay the tax amount
If you fit the criteria to be classed as self-employed and haven’t declared income earned that reaches the threshold, you should act to inform HMRC as soon as possible.
HMRC and undeclared income
HMRC investigates undeclared income a few different ways, including the use of technology that’s designed to analyse data for signs of tax evasion. On occasion, they may investigate individuals who have filed their tax credit or return applications incorrectly or inaccurately.
What to do after I’ve registered?
With the legal part ticked off, you can get back to building your new business and growing your customer base. And now that you’ve declared yourself as self-employed, you can enjoy the flexibility and freedom that comes with it.
Planning ahead
Why not start as you mean to go on by practicing good bookkeeping habits early on? Find a way that works for you to keep a record of your income, expenses, profits and any other relevant financial info for your business. Future You will thank you for tracking your finances throughout the year, especially when it comes to reporting to the HMRC.
Your responsibilities once self-registered
In addition to bookkeeping, you’ll also need to:
- Complete a self-assessment tax return each year, so that HMRC cam let you know how much tax you owe
- Pay the calculated income tax amount on any profit you make
- Pay tax on Class 2 and Class 4 National Insurance
If you’re worried about your finances, HMRC offer a free online calculator to help budget for your tax bill.
Any payments due to HMRC must be made on or before the 31st Jan of the following year. As there may be chargers for any later payments.
Benefits of registering as self-employed
Although registering as self-employed is a legal requirement, that doesn’t mean there aren’t additional benefits gained from doing so. Once registered you’ll benefit from the following:
Access to free online services provided by HMRC’s website and app
Freedom to publicly advertise and promote your products without fear of being reported as an unregistered business
HMRC will calculate your tax amount for you to ensure you pay the correct amount
Peace of mind knowing that you’ve legally declared your employment status
Now that you’re ready to self-register your business, you’re one step closer to taking control of your own earnings and profits.
Protect the future of your business
Running a business is hard work, so you want to protect the work you put in to make your business a success. Do a little thing today that can make a big difference to your business tomorrow. Get AXA Business Insurance and Future You will thank you.
Protect Future You
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