How to register as self employed
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Register with HMRC to tell them you are becoming self employed
\r\nHMRC suggests that you should register with them as soon as you become self-employed. However, you do not have to register as a sole trader until the 5th of October in your business’ second tax year.\r\n\r\nFor example, if you started a new business working as a sole trader in March 2016, you have until 5 October 2016 to register. However, if you first undertake self employed work in May 2016, you have until 5 October 2017 to register as a sole trader with HMRC.\r\n\r\nDepending on your personal circumstances, you will need to register with HMRC by one of these three different methods;\r\n
1. Going self employed for the first time and HAVE NOT previously completed a tax return
\r\nIf you have not previously submitted a self assessment tax return, you should register your new business online with HMRC here or call HMRC directly by Phone on 0843 922 7003.\r\n\r\nBy doing this, you will be registering for Self Assessment tax and Class 2 National Insurance at the same time.\r\n
2. Going self employed for the first time and HAVE previously completed a tax return
\r\nIf you are becoming a sole trader for the first time and have previously completed a Self Assessment Tax Return in an individual capacity – for example, if you have received an income which isn’t taxed at source such as rent or investment income – you must register as self-employed and for Class 2 National Insurance by completing form CWF1.\r\n\r\nDoing this will enable you to keep your existing Self Assessment account.\r\n
3. You have been registered as a sole trader previously
\r\nIf you have previously been registered as self employed, and are looking to re-register, you should do this with form CWF1.\r\n
Decide on a name for your new business name
\r\nWhat are you going to call your business? For many new business owners, this is the most exciting start-up task and one that lots of time is spent on!\r\n\r\nSome people simply trade under their own name, or say they are; ‘Your Name trading as Business Name‘. For example, if you were John Smith you could opt for, ‘John Smith trading as John Smith Plumbers’.\r\n\r\nDon’t forget to check that no-one else is using the same name. There is no register of business names used by self-employed people so you should do an online search to see whether someone is already running a business with your preferred name.\r\n\r\nIf someone has beaten you to it, then you’ll need to think again, and come up with an alternative name for your new business.\r\n
Being self-employed means you are responsible for your own tax and National Insurance liabilities
\r\nOnce you have registered as self-employed with HMRC you will become responsible for calculating and paying your own tax and National Insurance liabilities. This means that you will need to complete and submit a self-assessment tax return to HMRC every year.\r\n\r\nThe vast majority of sole traders get their accountant to deal with their tax affairs. A good accountant can safely negotiate this complex area, and can advise you on ways of paying less tax.\r\n\r\nA smart move is to put tax money aside in a separate bank account from day one. If you do this, you will never find yourself scrabbling around and looking behind the sofa to find the money to meet a tax payment. Your accountant will be able to guide you on how much tax you can expect to pay.\r\n\r\nAs a sole trader, you will also be responsible for paying your own National Insurance Contributions (NICs).\r\n\r\nYou will need to pay Class 2 NICs – currently £2.80 a week. Sole traders must also pay Class 4 NI contributions which are currently; 9% on annual profits between £8,060 and £43,000 and 2% on profits above this (2016/17 tax year).\r\n\r\nThe rules aren’t straightforward, so it’s wise to consult your accountant for advice specific to your financial situation.\r\n
Should you register for VAT?
\r\nIf your business has, or is likely to have, an annual turnover of more than the current VAT registration threshold, you will need to register for VAT. The registration threshold for the year from April 2016 is £83,000.\r\n\r\nYou will need to keep a close eye on how well your new business is doing, because once your annual turnover passes the threshold, you only have 30 days to register.\r\n\r\nYou don’t have to wait for your turnover to reach the threshold to register for VAT. You can become VAT-registered at any time.\r\n\r\nIn some cases, it might be beneficial for you to register for VAT as soon as you start up.\r\n
Other licences
\r\nWith some types of business, you need to get a licence before you can start working. For example, if you want to set up as a taxi driver you will need to apply for a licence from your local authority.\r\n\r\nIt’s the same for many other types of work, including being a child minder running a restaurant or pub, or being a market trader. And to get a licence, you will typically have to do some specific training and gain relevant qualifications.\r\n\r\nYou may also have to go through an inspection to ensure your business is shipshape and legal.\r\n
Should you go self employed, or set up a limited company?\r\n
\r\nWhen you are starting a new business the decision on whether to become self employed or to form a limited company is an important one.\r\n\r\nYou should carefully consider the benefits and drawbacks of the options, and discuss with your accountant before jumping in.\r\n\r\nContact HMRC on 0843 922 7003.\r\n\r\n
