Are You Self-Employed? Don’t Forget To Tell HMRC!

You’ve decided to go it alone and create your own job like Richard Branson or Mark Zuckerburg, but is there anyone you need to tell? Yes, the Queen.

Well, more specifically, Her Majesty’s Revenue and Customs (HMRC) will want to know so that you can pay the correct amount of tax and National Insurance contributions for the year.

The important date to remember is 5th October. You have by 5^th October of your second financial year of business to register with HMRC.

Which year do I have to register for self-assessment?

It’s clearer if we use an example. For tax purposes, the year ends on 5^th April. If you set up in business on, say, on 1 March 2017, your first trading year ended on 5^th April 2017, so 5^th October 2017 is in your second year of trading and it’s your deadline to declare the fact to HMRC.

However, if you started self-employment in August 2017, your first trading year ends on 5^th April 2018, so you have until 5^th October 2018 to tell HMRC.

Of course, you can register with HMRC at any time before these dates and there’s no advantage in putting it off – you’re just more likely to forget, in which case you could face a fine or prosecution because you’re not paying tax on your income.

Why do I need to declare that I’m self-employed?

You are responsible for paying tax and National Insurance on your self-employed income. For HMRC to calculate how much you owe, you need to fill in the self-assessment tax return form SA100, recording all of your earnings and expenses for the year. HMRC will allocate you a 10-digit Unique Taxation Reference and you can set up an online account to file your tax returns and pay what’s due via the internet.

Am I self-employed?

There are lots of terms to describe the self-employed: sole trader, contractor, partner, trader, but you’re considered self-employed if you sell services or products for a profit, taking full responsibility for your venture’s success or failure. You aren’t paid through PAYE, and you don’t have the employment rights and responsibilities of employees.

You may employ other people but it’s not necessary. You may also be working with a business partner, in which case both of you must register with HMRC as self-employed.

You can be both employed and self-employed at the same time, for example if you work for an employer during the day and run your own business part time.

Self-employment can include trading goods directly, by mail or over the internet. Even selling at a car boot sale counts if you do it regularly and for profit. However, selling a few unwanted items on eBay probably doesn’t count, but you should seek advice.

Strangely, if you own a limited company you’re not classed as self-employed by HMRC because you’re considered to be both an owner and employee of your company.

If you’re not sure whether what you do counts as self-employment then contact HMRC for advice.

How do I register for self-assessment?

You must visit the HMRC website to register as self-employed. You need to give them your personal details and decide on a trading name for your business, which must follow some basic, common sense rules. There is more advice about naming your business on the website.

National Insurance – for now

As a sole trader you currently need to pay Class 2 NI Contributions (NIC) on your income, £2.85 a week, unless your profits are less than £6,025 a year. However, Class 2 NIC will be abolished in April 2018 so you won’t have to worry about them after that.

Self-employed workers also need to pay Class 4 NICs. For the tax year 2017/18 you pay nothing on annual profits below £8,164, 9% on profits up to £45,000 and 2% on any profits above £45,000.

Do I need to register for VAT?

You must register for VAT if your business has an annual turnover of £85,000 or more.

If in doubt seek expert advice