Why do I have to register as self-employed?
Registering as self-employed is a legal requirement, but it will also ensure that you pay the right amount of tax and National Insurance based on your income and expenses.
If you decide to run your own business, you need to tell HM Revenue & Customs (HMRC).
Does my work count as self-employment?
Being self-employed means that you’re working for yourself, although you can take on employees to help or even do the work for you.
You’re probably self-employed if you:
Run the business yourself
Sell goods or services to make a profit
Decide when, where and how you work
Have more than one customer at any one time
Can hire other people at your own expense
Provide most of the equipment you need to do your work
Agree a fixed price for your work with clients or customers
Are responsible for finishing off incomplete or unsatisfactory work in your own time.
If you’re not sure whether you qualify as self-employed, HMRC’s Employment Status Indicator can help you work it out, although it will only give you an indication rather than a definitive answer.
How to register as self-employed
The easiest way to register is by doing it online or through the HMRC app. You can manage your account and file your tax returns that way too. Here’s a step-by-step guide to setting up a business tax account online:
1. Create a Government Gateway account
As a first step, you’ll need to set up a Government Gateway account if you don’t already have one. This gives you access to a range of online government services.
To set up your business, go to gov.uk, search ‘Sign in to your HMRC business tax account’ and follow the link to create your sign-in details.
2. Register for self-assessment
Self-assessment is the system HMRC uses to collect tax and National Insurance Contributions (NICs) from self-employed people.
You’ll need to log into your Government Gateway account to access your business tax account. Select ‘get online access to a tax, duty or scheme’ and choose the self-assessment option from the list.
You’ll then be taken through a series of steps to complete the set-up process. This will involve providing information about your business, including:
The date you started trading
Your company details and the name you’ve chosen for it
Your home address and contact details
The type of self-employed work you do
Your National Insurance number (you’ll find this on payslips, benefit letters or any other correspondence from HMRC).
If your circumstances or a particular condition makes it difficult for you to complete your registration, extra support is available from HMRC.
3. Wait for your details to arrive
A Unique Taxpayer Reference (UTR) will be posted to you, usually within 15 working days of you completing your registration. If you have the HMRC app, you should get it sooner.
This 10-digit number confirms you’re now officially registered as self-employed and allows HMRC to keep track of your tax records.
Tax if you work in the construction industry
HMRC treats you differently if you work as a subcontractor in the construction industry – for example, as a roofer or plumber carrying out work for a building contractor.
If you’re a self-employed subcontractor, you should register for the Construction Industry Scheme (CIS), otherwise you’ll pay 30% tax instead of 20%.
If I’m self-employed, am I a sole trader?
If you work for yourself, you’re probably a sole trader and HMRC will want to know this when you register for self-employment. But there are other options.
If you’re in a business partnership, you’re still seen as self-employed. But rather than calling yourself a sole trader, you register with HMRC as a partner.
Alternatively, you may be running your own limited company. If this is the case, you’re both the owner and an employee so you’re not self-employed.
A limited company is legally separate from the people who run it. This means your personal finances are separate from those of the company. In the UK, limited companies must be registered with Companies House.
When should I register as self-employed?
It makes sense to register with HMRC as soon as you start working as self-employed. Legally speaking, the very latest you can register is by 5 October after the end of the tax year during which you became self-employed. Leave it any longer and you may face a fine.
What happens after I register as self-employed?
Unlike when you’re an employee in a full-time job, your tax and National Insurance won’t be deducted at source from your income. In most cases, it will be up to you to make the payments required.
For this reason, you need to keep careful records of your sales, income and any outgoings or expenses connected with your business. This means hanging on to important documents like receipts, bank statements and invoices – you’ll need them when it comes to doing your self-assessment tax return.
Tax deadlines
You need to complete your tax return every year by 31 January. Payments are usually made in two instalments with deadlines of 31 January and 31 July. You also have to pay Class 4 NICs.
Class 2 NICs were scrapped in April 2024 for self-employed people with profits above £12,570 a year. But those earning less than £6,725 can still pay them voluntarily to qualify for certain benefits.
The gov.uk website provides a free service to help you estimate your tax and NICs for the current tax year. You can then put money aside whenever you get paid to make sure you’ve got it covered.
You need to keep your business records for at least five years after the 31 January deadline in case HMRC wants to review them. Accounting records need to be kept even longer – for six years.
Do I need self-employment insurance?
If you have one or more employees who aren’t part of your immediate family, you’re legally required to have employers’ liability insurance. This could cover you if one of your employees becomes ill or is injured as a result of working for you.
As a self-employed person, you may also want to consider:
Public liability insurance – may cover you if someone is injured or their property damaged because of your business. This may also include people who visit your home for business purposes.
Working from home insurance – even if you already have home insurance, it may not give you the level of cover you need to protect your business equipment if you’re working from home. You might need extra cover for your business activities.
Product liability insurance – could offer you protection against compensation pay-outs and legal costs if someone is injured or their property is damaged by a product you sold them. This is often added as a paid-for extra to public liability insurance.
Professional indemnity insurance – allows you to recover losses from compensation claims made against you. It also helps protect your good name or that of your business and may cover you if you’ve made a mistake or been negligent and that’s resulted in damage or injury.
Self-employed income protection – you won’t have access to employee benefits if you’re self-employed, so you might want to think about income protection cover in case you become ill or are injured and unable to work.
Always read the small print to make sure you’re getting the level of cover you need.
FAQs
What should I call my business?
You can use your own name when you register your business for self-assessment, but you might like to be more creative.
You could choose a company name that reflects your personality, your values or the product or service that you offer. This can help you stand out and make an impact with your prospective clients or customers.
Do I get taxed on everything I earn as a self-employed worker?
There’s a certain amount you’re allowed to earn before you have to pay tax, which is known as your personal allowance. For 2024/25, this is set at £12,570.
The amount of personal allowance you’re entitled to may increase if you claim marriage allowance or blind person’s allowance, and it decreases if you earn over £100,000.
Do I need to register for VAT?
You’ll only need to register for VAT (value added tax) if your VAT taxable turnover is above a certain threshold. For the 2024/25 tax year, this stands at £90,000.
The VAT threshold is measured on your turnover of the previous 12 months, which is the total amount of revenue generated by your business that’s not exempt from VAT. You’ll find more details on the government website.
You can also register voluntarily for VAT even if you have a lower turnover – for example, if you sell to other VAT-registered businesses and want to claim back the VAT.
Can I be employed and self-employed at the same time?
Yes, you can. Whatever you earn from your employer will be taxed at source through PAYE (Pay As You Earn). The income you earn through self-employment will need to be declared by you through your self-assessment tax return.
You’ll also have to make separate National Insurance payments, but will only have one personal allowance even though you have two incomes. This is usually applied to whichever HMRC decides is your main employment.
If you’re juggling different roles, you might find it helpful to use an accountant to keep track of your finances.
What should I do if I registered as self-employed but never started my business?
A change in circumstances can mean that you never actually get around to trading – for example, if you get an unexpected job offer that tempts you back into full-time employment.
Make sure you contact HMRC to tell them about your situation and de-register your self-employment.
This also applies if you’ve made an income from self-employed work but then decide to stop working or go to work for someone else.
You don’t need to be registered as self-employed if you earn £1,000 or less in a tax year as a sole trader.
With almost 15 years’ experience in the insurance industry, Mubina is an expert from one end to the other. From leading the introduction of new products, marketing them, innovating them, all the way to handling claims with customers. At some point in her career, she’s done it all.
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