You’ll need to register as self-employed with HMRC as soon as you start your new business. Even if you’ve completed tax returns before, you’ll need to register for Self-Assessment and Class 2 National Insurance as a self-employed individual. If you haven’t registered by 5 October in your business’s second tax year, you could be hit with heavy fines.
Setting up as self-employed
If you’re in the early stages of making the decision or the move to self-employment, take a look at our guide to going self-employed. It’ll give you an overview of what to expect from going self-employed.
Registering as self-employed
How you register as self-employed will depend on the business model you choose. You can be a sole-trader, partnership, or a limited company. This section will show you how to register as self-employed. There are additional steps for registering as a partnership or a limited company, which we cover below.
Register as self-employed in 9 steps
- To register as self-employed sole trader, you’ll need to create a Government Gateway account. This will require your full name, email address and a new password. They’ll send you a user ID for the next steps.
- Use your ID and password to sign in on this page. Next, register as self-employed for Self-Assessment tax and look for the option to add a tax, duty or scheme.
- You’ll be asked “what type of tax do you want to add?” Choose Self-Assessment, then choose your category – sole-trader, partnership or trust.
- Now add the date you started trading, which is the day you started working for yourself and getting paid.
- HMRC will need some extra information, including your National Insurance number, home address, contact details and other information related to your new business model.
- You’ll be asked what sort of self-employed work you do. This is so HMRC make sure you’re taxed appropriately, and can help you if you claim tax back. Give a basic summary, such as “photographer” or “builder”.
- Double check your information and submit.
- Once your application has been received, HMRC will send you a letter with a 10-digit Unique Taxpayer Reference (UTR), which you’ll use on tax payments. You can also add it to other taxes you’ll need to pay, such a VAT.
- You’ll also be enrolled for Self-Assessment, with which you’ll officially be self-employed!
Setting up as a sole-trader
If you choose to register as a sole-trader, then you’ll find there’s less paperwork than the other routes. You’ll be able to do much of this paperwork yourself, especially with our software on hand to help you stay in control.
As a sole-trader, your business information doesn’t need to be made public, so it can’t be obtained from Companies House or services like Duedil.
The main disadvantage of being a sole-trader is that there’s no legal distinction between private and business assets. This means you have unlimited liability for business debts. It’s therefore essential that you properly manage your books.
Registering as a sole-trader
Just follow the above steps to start registering as a sole trader. There’s no fee for registering, but there are fines if you forget to do it.
If you don’t have a National Insurance number, you can get one here.
Setting up as a partnership
There are a couple of advantages to setting up as a partnership. Generally speaking, involving more partners will result in more start-up capital being available. There’ll also be more input into decision making and the creative process, which can be less isolating than being a sole-trader.
On the other hand, it can create arguments and friction. Another disadvantage of a partnership is that all partners are liable for any debts. Also, if partners join or leave, you’ll probably have to value all partnership assets – which can be costly.
Registering as partnership
All individuals in the partnership will need to register as self-employed, as above.
You won’t need to notify Companies House or deal with any of the paperwork required of limited companies. You will, however, have to submit individual paperwork and tax returns, the same as if you were sole traders.
In addition to your individual Self-Assessment, a “nominated partner” will have to submit information on behalf of the company / partnership as a whole. The nominated partner must register your partnership with HMRC and take responsibility for keeping the company’s books and sending the partnership tax return.
Do note that, even though there is a nominated partner, all partners are personally liable for company debts.
Setting up as a limited company
The main advantage of setting up as a limited company is that your personal and business assets are separate. This means that, should your business collapse, your personal belongings can’t be seized to cover losses.
You’ll be an official Company Director, which allows you to established a different credit rating for your business – as opposed to your individual credit rating. Additionally, bigger business tend to feel more comfortable dealing with limited companies.
If your profits are less than £300,000, you’ll pay Corporation Tax of 20%. This means you can pay your salary with a low wage (lowering PAYE and National Insurance contributions) and dividends. Which basically means you get to keep more of the money you make.
There are, however, disadvantages to being a limited company. There’s more paperwork involved, and information about yourself, the company’s directors, accounts, annual returns etc. will be publicly accessible through Companies House.
Registering as a limited company
There are two ways to register as a limited company.
First, register online. You can do this if your company is limited by shares and uses “standard articles of association”. It costs £12 and will take about 24 hours for you to be registered.
Alternatively, register by post. This takes 8 to 10 days and costs £40. If you want to be registered on the same day, you need to get your application in by 3pm and pay £100. In both cases, you use form IN01 and make cheques payable to Companies House.
One you’ve registered, you’ll get a “certificate of incorporation”, which confirms your limited company legally exists. It’ll also give the company number and date of formation.
Your next step will be to register for Corporation Tax within 3 months of starting business. You can learn more about Corporation Tax here.
KashFlow’s Accountancy Partners
If you’re not sure about which business model best suits you, or you need extra advice on getting registered and set up, you can contact one of our trusted Accountant Partners on this page.
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Learn about your tax liabilities, options and reliefs, as well as how you should manage National Insurance as self-employed, in our blog on Tax and National Insurance for the Self-Employed