Freelancers, business owners, entrepreneurs, and contractors are considered self-employed in the UK. If you are among these or meet the eligibility criteria, you have to register as self-employed to comply with the legal and tax obligations. Seems complicated and tiring? Actually, it is a straightforward process that can be completed online. In this guide, we will give you the essential steps to register yourself as self-employed.
Who Needs to Be Registered as Self-Employed in the UK?
Many people question themselves: Do I have to register as self-employed? Here we have gathered a few important questions you need to ask yourself before registering with HMRC:
- Do you regularly sell goods or services with the intent of making a profit?
- Do you own a business?
- Do you create items specifically to sell for profit or work on projects to earn income?
- Do you sell items consistently, either online, at car boot sales, or through classified ads?
- Do you earn a commission from selling goods on behalf of others?
- Are you paid for providing services to clients or customers?
- Do you occasionally sell personal items or rent out property? If so, have you checked whether you need to report this income to HMRC?
- Are you responsible for the success or failure of your business?
- Do you manage multiple customers or clients at the same time?
- Do you have control over when, where, and how you work?
- Do you hire employees or contractors at your own expense to help with your business?
- Do you provide the tools and equipment needed for your work?
- Are you accountable for fixing any unsatisfactory work in your own time or at your own cost?
- Do you agree on a fixed price with your customers or clients before performing the work?
If your answer is “yes” to most of the questions above, you are required to register as self-employed to file your tax bill. If you are not sure, you can also check out HMRC’s employment status tool.
Types of Self-Employed Businesses
Self-employed people can operate under various business structures. Here are the main types of self-employed businesses in the UK:
- Sole Traders: A sole trader refers to an individual who operates their own business and is solely responsible for all aspects of it.
- Business Partnership: It involves two or more individuals who share the responsibility for managing and operating a business.
- Limited Liability Partnership (LLP): It is a hybrid business structure as it combines the flexibility of a partnership with the limited liability protection of a company.
- Limited Company (Ltd): It is a separate legal entity, meaning the business is distinct from the owner, who is only liable for the amount invested in the business.
- Freelancer: They are self-employed individuals who offer specialized services to clients on a temporary or contract basis.
- Gig Economy Worker: These individuals typically work on a short-term basis as they complete tasks or provide services through digital platforms or apps.
- Contractor: They work on a temporary or project basis for businesses but are self-employed.
What Documents Do I Need if I am Self-Employed?
As a self-employed individual in the UK, you need to keep records of your income, expenses, and any VAT you’ve charged or paid.
Key documents include:
- Invoices, receipts for business expenses,
- Bank statements,
- Tax returns,
- National Insurance contributions.
- Contracts,
- Insurance documents,
- Any records related to employees or subcontractors, if applicable.
3 Basic Steps to Register as Self-Employed for the First Time
If it is your first time registering as self-employed to inform HMRC, you do not need to worry about the process, as it follows the same steps as the filing of a self-assessment tax return. Here is the step-by-step registration process.
Step 1: Create a government gateway account
Initially, self-employed people need to start by creating an account on the government gateway. By creating this account, you will be able to reach out to HMRC’s online services.
Here, it is necessary to highlight that if you are not a sole trader, you have to register here. You will need:
- Your National Insurance number
- Your UTR (Unique Taxpayer Reference), if available
- The start date of your self-employment
- The date you became a partner
- The partnership’s name, address, and UTR
- The Company Registration Number (CRN)
Note that only the nominated partner might be responsible for handling the registration process online. If you cannot register online, you need to register by submitting the SA4001 form via post.
Step 2: Fill in the registration form and submit
After the self-employed registration process is complete, the self-employed person needs to log in with an ID and password. Then, you will need to fill in the online form by giving this information:
- Your name,
- Address,
- National Insurance number,
- Your work plan
- Your company’s start date
Then, you need to submit it to the online portal.
Step 3: Receive your UTR number
Once you submit your registration, you will receive a 10-digit UTR number within 15 to 21 days. You will use this number for your future tax returns. Plus, it will officially announce you as self-employed.
When Do You Need to Register as Self-Employed?
Though you can register as self-employed once you start your business; however, you must register by 5 October in the second year of your business. This is a general requirement for submitting your self-assessment tax return for other reasons, like earning rental income.
How Do You Register for Self-Assessment?
When you register as self-employed, you also need to register for self-assessment. If you are not self-employed, you can still register for self-assessment by creating a Government Gateway account and completing the necessary form.
Thanks to the trading allowance, you may not be required to register if your self-employment income is under £1,000 in a tax year. However, it can still be worthwhile to register, as doing so allows you to claim business expenses and make National Insurance contributions toward your state pension.
Self-Employed Tax Liabilities
As a self-employed individual, you have to pay taxes on your income. Here are some of them.
Income Tax
Each year, you are required to submit a self-assessment tax return. This will help HMRC determine the amount of income tax you owe based on your earnings, after you claim business expenses or pay National Insurance Contributions.
If you are filing on paper, you must submit by 31 October for the previous tax year. For online submissions, the deadline is 31 January. Additionally, you may need to make advance payments, called payments on account, for your next tax bill, with the deadline for these set at 31 July.
National Insurance Contributions
If your profits exceed £12,570, you are required to pay Class 4 National Insurance contributions, which are settled through your self-assessment tax return.
Starting from 6 April 2024, you will no longer be required to pay Class 2 National Insurance. However, if your profits are £6,725 or more, your contributions will be automatically credited to your National Insurance record.
If your profits are under £6,725, or if you are in a specific profession like an examiner or property owner, you may not be paying Class 2 National Insurance through self-assessment. In this case, you may still be able to make voluntary contributions to maintain your National Insurance record.
VAT
When your business turnover surpasses £90,000 (formerly £85,000) in 12 months, you must register for VAT. Thus, you will be responsible for charging VAT to your customers and submitting the VAT you collect to HMRC quarterly.
Additionally, you can recover the VAT you have paid on your business expenses. To stay compliant, you will need to complete and submit a VAT return four times a year.
How to Stop Being Self-Employed
Once you decide to be no longer self-employed, you need to deregister. At this stage, you must sign in to your Government Gateway account. Then, you must fill in the online form by stating the date you stop being self-employed.
However, HMRC will require you to fill in one last a final Self Assessment tax return for the previous tax year if you earn more than £1,000
If you do not let HMRC know that you have stopped working as self-employed, you will be expected to file self-assessment tax returns and pay taxes. So, make sure you exit before getting a fine.
FAQs on Registering as Self-Employed
How much does it cost to register as self-employed?
There is no cost to register as self-employed with HMRC.
How much tax will I pay as self-employed?
You’ll pay Income Tax based on your profits (after expenses) and National Insurance contributions (Class 2 and Class 4).
How long will it take to register as self-employed?
It typically takes a few minutes online, and you’ll receive your UTR within 15-21 working days.
How do I pay National Insurance as self-employed?
You pay national insurance through your self-assessment tax return annually.
How long can I work self-employed before registering?
You must register within 3 months of starting your self-employment to avoid penalties.
