As a business owner in the UK, there are many different responsibilities and obligations that befall on you. It can be tricky to know when exactly you need to register your business and for what. But it’s very important to be hyper-aware of what’s expected of you because you won’t be able to feign ignorance when the HMRC or Companies House come after you. It’s best to keep everything above board and get all of your registrations and paperwork did with time to spare.
At the end of the day, all the hassle of registering your company is well worth the effort when you look at the advantages and freedom that comes with being a business owner.
In this article, we’ll look at when exactly you’ll need to register your company and for what. Whether you’re a sole trader or limited company, you should gain valuable insight into what exactly is expected of you as a business owner in the UK.
When do you need to register a business with the HMRC?
There can sometimes be a bit of a blurred line when it comes to when a side hobby becomes a full-fledged business, and this can lead to confusion as to when exactly you’ll need to register your business with the HMRC. you’ll need to register with the HMRC if…
- You are making a profit from your ‘hobby’/ business
- You are buying certain items with the intention of selling them for profit
- You are charging money for certain services you’re offering
- You may have borrowed money for capital to get things up and running
- The number of transactions taking place suggests that you are in fact running a business
What you need to remember is that although some business ideas may seem very casual and run from your home, at the end of the day, these are still businesses. You never know when your business could take off and catch the attention of certain parties, so it is better that you register as soon as possible to avoid any issues.
In other cases, it is very apparent once you have started a business, and in these cases, it is best to register your business with the HMRC as soon as possible.
Deciding between a limited company or sole trader
When registering with the HMRC, you have two main options available to you. You’ll be able to register as a sole trader or a limited company. There are dozens of pros and cons associated with both of these options, and what you choose should depend on what type of industry you’re in, whether you plan to run your business full-time or part-time, and other contributing factors. You should also fully understand the tax implications of each option before making a decision.
Most people start off their businesses as a sole trader as it is far easier to convert from a sole trader to a limited company than to take a limited company and turn it into a sole trader structure.
Tips for registering your business with the HMRC?
Registering with the HMRC is a very simple and straightforward process and should not be put off. It can all be done through the gov.uk website and creating an online account. The entire process should only take around an hour or two of your time. Just make sure that you have all of your business and personal details available to you before you start the process. Once you have registered, you’ll receive your UTR number and other details by post. You can then complete your registration using Government Gateway details.
While registering is simple and straightforward, it is still a big step as you’ll now be responsible for submitting self-assessment forms and paying tax.
When is the absolute cut-off for registering your business
While you should never leave things for the last minute as there is always something that could go wrong, the absolute cut-off for registering your business with the HMRC is the 5th of October after the end of the tax year of which you first became self-employed. An example would be if you began your self-employed journey on 2 May 2020, the latest you could register would be 5 October 2021. Anything after this, and you may be facing some issues.
To avoid having to deal with any trouble, it’s a good idea to just register with the HMRC as soon as possible. You’ll only have to start paying tax after a certain threshold, so there is no deterring factor for new businesses not to register immediately.
What happens now that you’re registered
Whether you are a sole trader, a limited company, or are in a limited liability partnership, you’ll need to step up to the plate now that you are officially registered. You’ll be expected to submit a tax return in the form of a self-assessment each year. To make this process easier, you should keep meticulous records of all of your business income and expenses. Sole traders should look at opening up a separate business account to keep their personal and business finances separate.
When do you need to register a business with Companies House
Another important registration that some businesses need to undertake is registering with Companies House! Companies House in the UK keeps a detailed record of all registered businesses and provides the public with downloadable data about these businesses. Being registered with Companies House gives your business a certain sense of trustworthiness and respectability.
The only time you need to register with Companies House is when you are a limited company or limited liability partnership. Sole traders need not register with Companies House.
Tips for registering with Companies House
Registering with Companies House may be a little more tricky than registering with the HMRC. While it is completely possible to do it yourself, many business owners pay third parties to handle all of the admin involved with registering on Companies House. You’ll need to have information such as a unique company name, director’s details, an address etc. You can either register online or through the postal service. There are minimal fees involved that will need to be paid before your registration is official.
When is the cut-off date for registering with Companies House
Just like with registering with HMRC, you should register with Companies House as soon as possible. If you are a limited company or limited liability partnership, you’ll have to register with Companies House as soon as you’ve registered with the HMRC. Don’t leave it more than a few days after your HMRC registration has been completed if you don’t want to face any major fines.
What if sole traders want to register their business on the Companies House register?
If sole traders want to register their business with Companies House, the only way in which they’ll be able to do so is by changing over from a sole trader to a limited company. The process is fairly simple and is very similar to simply registering with Companies House as a limited company.
When do you need to register your business for VAT?
Both sole traders and limited companies may need to register for VAT should they go over a certain threshold. Once you start making an £85,000 turnover in a 12-month consecutive cycle, you’ll need to sign up for VAT. Being VAT-registered means that you’ll need to charge value-added tax (usually 20%) on all of your goods and services. While this may push up your prices, your company may become more attractive to investors and other VAT-registered buyers and suppliers.
Is registering for VAT voluntary?
If your business is currently making less than £85,000 turnover within 12 consecutive months, you do not need to register for VAT, but you do have the option to! Why would a company register for VAT if they don’t need to” Wouldn’t that just mean that they’d have to charge more on their products, as well as pay VAT to the HMRC?
While this is true, there are actually a lot of benefits when voluntarily registering for VAT. But these benefits are not applicable for every business structure, so ensure that you do thorough research before deciding to sign up for VAT voluntarily.
Tips for registering for VAT
Registering for VAT is all done through the HMRC and can be done online yourself or through an appointed agent. It is a fairly simple process and should not take very long to do. Before you get started, you will have to determine which VAT category your business falls under and have all your business credentials and accounts on hand.
When is the cut-off for registering for VAT?
When it comes to registering for VAT, you will be legally liable to register at the end of any month where your consecutive 12-month turnover exceeds £85,000. You’ll have to register within 30 days of the end of that month. This is why it is very important to keep track of all your financial records.
The £85,000. Applies to total turnover and not profit, so even small businesses may find themselves in an unexpected position of having to register for VAT.
If you don’t stick to this deadline, it will show up when you submit your tax report to the HMRC, and you could be in trouble and find yourself having to pay substantial fees. If you register late, you’ll still need to pay what you should have paid if you had registered in time.
What happens if your turnover goes over the threshold temporarily?
If your turnover goes over the threshold temporarily, you may apply for an exception. You’ll have to write to the HMRC and provide them with evidence as to why you believe that your turnover will not exceed the deregistration amount of £83,000 in the next year. If you don’t apply for an official exemption, you may find yourself being forced to register.
When do I need to register my business for National Insurance Contributions?
When you register your business with the HMRC, you’ll automatically be registered for NICs, although you’ll only need to start paying NICs when you start earning over a certain amount. Therefore, you’ll technically need to indirectly register for NICs as soon as you begin your journey as a self-employed person.
Do I need a National Insurance number?
If you don’t have a national insurance number when it comes time to register your company, you will need to apply for one.
When do I start paying NICs?
You will need to start paying NICs if you start earning over your personal allowance. Self-employed people usually pay Class 2 and Class 4 NICs. You’ll pay Class 2 if your profits are more than £6,515 for the year, and you’ll have to pay Class 4 if your profits are more than £9569 for the year. You are also able to pay voluntary Class 3 NICs if you wish to do so.
Why should I register my business?
While you probably could get away with running your business unregistered for a while, it is always better to stick within the legalities and register your business as soon as possible. It will be necessary when you start dealing with things like insurance, and it is the only way for your business to be legally recognised.
Keep in mind that you may need to register as an employer as soon as you start employing people, and the only way you can do this is if your business is already registered.
Ensure that you are fully informed about when your business needs to be registered. Keeping organised and ensuring that your business is all above board will reduce the stress involved with running a business and help you avoid hefty fines in the future. If you’re ever unsure about what is required from your business in the UK, get in touch with a trusted financial advisor.