Do I need to register for self-employment?All self-employed people need to register with the HMRC (HM Revenue & Customs) so that they can pay tax on money earned through self-employment. Registering with the HMRC will not automatically register you for benefits. Registering with the HMRC is very simple. Simply head over to their online portal and enter your details. You’ll receive a unique, ten-digit UTR that will give you online access to a range of government services and resources. If you have additional needs, the HMRC does offer other forms of support and different ways in which you can register. Most people choose to trade under their own name but you could choose a business name that is different, just make sure that it isn’t already taken.
When should I register as self-employed with the HMRC?The HMRC recommends that you register your business as soon as it is possible for you to do so. However, there is a cut off involved with registering your business, and it is 5 October after the end of the tax year that you began your self-employment. For example, if you started a business/ became self-employed in July 2020, you’d need to register your business by 5 October 2021 at the very latest. You should not wait until the last minute before you begin the registration process just in case something goes wrong. You don’t want to rush. If you do not meet the stipulated deadline, you could find yourself having to pay a penalty which you could easily have avoided. Not registering your business before this period could land you in some big legal issues for you and your business.
How do I register for benefits if I am self-employed?One of the biggest disadvantages when it comes to being self-employed is how difficult it is to claim and register for benefits. There is no one way to do this. Instead, you’ll need to go to local councils and departments individually and let them know you are self-employed and enquire which benefits are available to you. For instance, you won’t be able to qualify for traditional maternity leave and pay, but you may be able to qualify for a maternity allowance. When it comes to benefits, the best thing you can do is keep yourself informed and apply for any sorts of benefits that may be applicable to you and your situation. There are many programs that are there to help those with additional needs, as well as programs that can assist you with funds to start your business.
Am I able to get working tax credit if I’m self-employed?It is unlikely that many more claims will be accepted for working tax credit, but if you are already receiving working tax credit, you may be able to carry it on into your self-employed life. You’ll need to be working full time in order to receive working tax credit. Many other factors come into play, such as if you’re responsible for a minor and how much you’re making each month.
How long can you trade before registering as self-employed?While you may be able to get away with trading without being registered as self-employed for over a year (as you need only register by October after you begin your self-employment), you will save yourself some hassle and potentially avoid fines if you simply register as soon as you become self-employed. It is a quick, easy and painless process, so there is no reason for it to be avoided. Many self-employed people try and get away with trading under the radar for as long as possible, and while some people do get away with it, if you do happen to be reported or found out about, or suddenly come into a large sum of money, it could present many problems for you and may even result in the fall of the business that has worked so hard on.
Am I able to register as self-employed if I am currently employed?If you currently have a full-time or a part-time job, you will still be able to register yourself as self-employed if you do self-employed work or own a business. It is still a legal requirement to register as self-employed. The main reason why you may not be able to register yourself as self-employed is if your current employment contract prohibits you from doing so because of a conflict of interest. Then you may need to choose between being employed or self-employed or seek out employment that allows you to run a business in your own time.
Why should I register as self-employed?Apart from the primary reason for it being a legal requirement to register yourself as self-employed, there are other benefits to registering as self-employed with HMRC, which include:
- Having free access to services and benefits provided by the HMRC.
- By registering yourself as officially self-employed, you may feel more motivated to work towards your business goals.
- After having registered, you’ll be required to keep precise track of income and finances, as you’ll need to submit a self-assessment tax return, and this may assist you when it comes to budgeting.
- Your tax will be properly calculated by the HMR, and you will have peace of mind knowing that you are paying the correct amount of tax.
- Officially contribute to the economy.
- If you don’t register your business with the HMRC, you run the risk of someone reporting your business. In an effort to lay low, you may not advertise as much as you should and become careful about who you tell about your services, and this will only be detrimental to your business in the long run.
Should I register as a sole trader or a limited company?Most people who work for themselves and work their own hours etc. would register as sole traders. Most self-employed people are sole traders, and it is probably the most straightforward process when it comes to registering as self-employed. Sole traders are solely responsible for the running of their business and can keep all proceeds. However, all debts will also be completely your responsibility. You can also register as a partner if you own a business in conjunction with other parties. Registering as a limited company is slightly more complex as you will need to register your company, and you’ll most likely have to register yourself as an employee of the company too. A limited company is a distinct company with a brand identity. You may need to assess your self-employment goals when deciding whether you want to register as a sole trader or a limited company. It may also help to speak to a professional financial advisor.
Other responsibilities of being self-employed in the UKBesides registering as self-employed with the HMRC, there are other responsibilities involved with being self-employed in the UK. One of your biggest responsibilities will be paying your own National Insurance Contribution. National Insurance is a legal tax requirement for anyone earning money. Most self-employed people need to pay Class 2 NIC, and if you make above a certain amount, you may also need to pay Class 4 NIC. The other major thing that you will become responsible for as a self-employed person is submitting your Self Assessment tax return to the HMRC. Once this tax return is submitted, the HMRC will calculate your tax bill and send it to you to be paid. In order to submit an accurate Self Assessment tax return, you’ll need to keep detailed records of your business expenses, transactions and income. The deadline for online Self Assessments is the 31st of January. If your annual turnover for your business is over £85,000 for the tax year, you’ll need to register for VAT as well. As a self-employed business owner, it is expected that you are aware of the various responsibilities that you have. You won’t be able to claim ignorance should you not meet any legal requirements. That is why you should take the time to become business savvy and inform yourself on all the legal-requirements of a self-employed person.
What if I earn very little from self-employment? Do I still need to register and submit a self-assessment?If you currently make under £1,000 from self-employment within a tax year, you will not need to submit a Self Assessment tax return as you’ll be covered under the trading allowance. If you are both self-employed and working for an employer, you will still be required to submit a Self Assessment tax return if your income from self-employment is over £1,000. There is a slight grey zone here as all people who have registered as self-employed are required to submit a Self Assessment tax return, even if they made no money at all or under the personal allowance.
What about insurance if I am self-employed?As a self-employed person, you are fully responsible for your own insurance. While most of the time, it will be up to whether you want insurance for certain assets and situations, depending on the type of industry you’re in, certain types of insurance will be a legal requirement. If you are using a vehicle for your business to buy stock or drop off goods etc it is highly recommended that you get vehicle insurance. Things can always go wrong with cars, and if your car gives up on you, you may have to give up on your business if you don’t have insurance or the means to replace it. Another type of insurance that is highly recommended is professional liability insurance. This way, you are protected if a customer attempts to sue you over small, technical issues of the service you’ve offered them. Many people know that small businesses sometimes don’t have this type of insurance, and they will make attempts to sue with the hopes that they’ll be paid out. Accountants are legally required to have this type of insurance.
What do I do once I have registered as self-employed?Once you have registered as self-employed, your next steps will depend heavily on what stage you are at with your business, products and services. The first thing you need to do is ensure that you have an efficient system in place for recording income, expenses and other finances. The more detailed your financial records are, the more likely you will be able to satisfy the HMRC when it comes to your tax returns. Next, you’ll want to research some of your other rights and responsibilities of a self-employed person and come up with a customised action plan for going forward. One of the things you should look into is health and safety compliance and ensure that your business premises and operations comply with all industry standards. Speaking to other self-employed people will help you gain insight and knowledge on what to expect going forward. Now that you are officially self-employed, you can start working towards your business goals and advertising your products and services to the public without the risk of someone reporting you to the HMRC. It’s time to start officially building your business and enjoy all the advantages and freedoms that come with being self-employed.
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