How do I register as self-employed with HMRC?

Whether you’re new to self-employment or you need a reminder of what’s involved, this guide will help you find your feet. With a step-by-step guide on registering as self-employed and tips on managing your responsibilities as a sole trader, we’ll help you get your venture off to a flying start.

Whether you’re new to self-employment or you need a reminder of what’s involved, this guide will help you find your feet. With a step-by-step guide on registering as self-employed and tips on managing your responsibilities as a sole trader, we’ll help you get your venture off to a flying start.

Emily Kindness
From the Business team
8
minute read
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Posted 15 JUNE 2021

Why do I have to register as self-employed?

If you decide to run your own business, you need to tell HM Revenue and Customers (HMRC). 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.

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 – your step-by-step guide

You can register by phone or print off a form and post it to HMRC. However, doing it online is likely to be the easiest route and you can manage your account and file your tax returns that way too.

  1. Make sure you match the self-employment criteria – you need to be a sole-trader running the business on your own, rather than with a business partner or as a limited company.
  2. Register for Self Assessment – which covers tax and your National Insurance Contributions (NICs). As a first step, you’ll complete a form which sets you up with a Government Gateway account.
  3. Wait for your details to arrive – a Unique Taxpayer Reference (UTR) and your account activation code will be posted out to you. Keep them safe.
  4. Complete your registration – you’ll need your Government Gateway user ID and password, plus your company details including the name you’ve chosen for it.

To register as self-employed, you’ll also need to provide your National Insurance number. You’ll find this on payslips, benefit letters or any other correspondence from HMRC.

If you can’t find it or you’ve forgotten it, go to gov.uk and use your Government Gateway details to see it online or ask to have it sent to you.

If your circumstances or a particular condition makes it difficult for you to complete your registration, extra support is available from gov.uk.

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. 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.

The tax year runs from 6 April to 5 April the following year. This means if you set up your business in July 2021, you’d need to let HMRC know by 5 October 2022. Leave it any longer and you may face a fine.

Now I’m registered as self-employed, what do I have to do?

Unlike being 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.

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 – and you have to pay Class 2 and Class 4 NICs too.

The gov.uk website provide a free service to help you estimate your tax and national insurance contributions for the current tax year. You can then put money aside whenever you get paid to make sure you’ve got it covered.

And remember, you need to keep your business records for at least five years after the 31 January deadline in case HMRC want 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 your employees fall ill or are injured as a result of working for you.

You may also want to consider:

  • Public liability (PI) insurance – which 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.
  • 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, and it is likely to not cover you for business purposes.
  • Product liability insurance – This 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 which has 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.

Frequently asked questions

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 2021-22, this was 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 is likely to decrease if you earn over £100,000.

Do I need to register for VAT?

VAT (Value Added Tax) is tagged onto the cost of most goods and services.

Your VAT taxable turnover is the total value of everything you sell that’s not exempt from VAT. If you expect it to be more than £85,000 in the next 30 days or your business had a taxable turnover of more than £85,000 over the last 12 months, you must register for VAT.

The VAT registration threshold can change every year. £85,000 covers the 2020/21 tax year. 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.

Once you’re registered, you’ll need to submit VAT returns too, so make sure you keep your VAT records and a VAT account.

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 have an accountant on board to help you 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 have 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.

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