Starting a Business as Self-Employed: What You Must Know

Working for Yourself: How To Register as Self-Employed

The big draw of self-employment is being your own boss, along with the flexibility of when and how you work. Another attraction is the potential to earn big sums of money, but of course, the income is not fixed and can vary throughout the year. If you are thinking of becoming self-employed or already working in a self-employed capacity, it is important to register with the HMRC. In this article, we’ll look at who is classed as self-employed and how to register as a sole trader.

What are the rules to be become Self-Employed in the UK?

As soon as you start to work for yourself and run a business, you are classified as a self-employed person (also known as a sole trader). A person is classified as a trader if they sell services or goods, and if an individual is a trader, they are self-employed. A person is a trader if they:

• • Make things to make a financial gain
• • Sell things regularly for a profit through car boot sales, classified adverts, or online
• • Earn a commission through selling services and goods on behalf of others
• • Receive a financial remuneration for any kind of service they provide

The great thing about self-employment is that one can keep all the profits after paying taxes on the generated revenue. It contrasts with being an employee, where the person will receive a small percentage of the profits produced from the business.

Do I have to register as self-employed?

You will need to set up as a self-employed person if:

• • After 5 April 2022 and before 6 April 2023, you earned over £1000 a year from self-employment
• • You need to prove self-employment, for instance, to request Tax-Free Childcare
• • You wish to pay Class 2 NI Contributions to claim benefits or a state pension

Do you need some financial help to get your business to the next level? Check if you qualify for a Start-Up Loan here.

How To Set Up As A Self-Employed Person

To officially become a self-employed person, you will need to register for self-assessment. After the registration process, you can pay your taxes through the self-assessment process. Follow this link to visit the UK government website and register for self-assessment.

To register, you will need a Government Gateway user ID and a password; you can create one through the link if you do not already have one. The portal will ask a series of questions to see if you are a self-employed individual. You will need to provide the following:

• • Full name
• • Gender
• • Date Of Birth
• • National Insurance number
• • Full address
• • Email address
• • Telephone number

Once it has been determined you are self-employed, HMRC will register you as a sole trader and send a Unique Taxpayer Reference (UTR) within 15 days. Using the UTR, individuals can file their self-assessment when the tax documents are due.

Registering for self-employment is free, and the registration process is straightforward. People can complete the process themselves or use the services of a professional such as an accountant or a lawyer, but the latter will attract a financial cost.

I have registered as self-employed, Now what?

As a self-employed person, you will need to:

• • Keep a record of expenses and business records
• • Complete a self-assessment tax return each year
• • Pay income tax on any profits made
• • Make Class 4 and Class 2 NI contributions for a pension and benefit purposes.

What are business records?

As a self-employed individual, you will need to keep all records of:

• • All income and sales
• • VAT records (if registered for VAT)
• • PAYE records (if employing people)
• • Records of all personal income (for example, investments, savings, and pension)
• • Grants obtained (for example, The Prince’s Trust)

What can I deduct from my self-assessment?

A person will only pay taxes through self-assessment on the profits made. Profits will exclude expenses. It is important to keep a record of expenses along with receipts when making a purchase. Using these records, expenses can be subtracted when completing a self-assessment. You can find out more about expenses on this UK government website.

Should you pay Value Added Tax (VAT)?

A sole trader must be VAT registered if their turnover exceeds £85,000 annually. Others can register for VAT if it suits their business needs. For example, if dealing with other businesses that require VAT to be added, by registering for VAT, the self-employed individual can claim back the Value Added Tax.

I no longer work as self-employed, can I de-Registering As A Sole Trader?

Self-employment is not for everybody. Though it has the potential for high financial rewards, some negatives are associated with self-employment. These include an inconsistent income, no paid leave, and high-stress levels.

If you have decided to go back to full-time employment, it is important to de-register as a sole trader to avoid potential penalty fees. You must simply call the HMRC on 0300 2003310 and inform them that you are no longer self-employed. When contacting the HMRC, you must provide your National Insurance Number and Unique Tax Reference (UTR).

Reaching New Heights

Many become self-employed as they prefer to be their own boss. As a self-employed individual, you are responsible for when you work and finding clients to sell them goods or services. After becoming self-employed, it is important to register with the HMRC to file a self-assessment and declare taxes. If you’ve recently become self-employed, we wish you the best of luck with your business venture.