If your day job is no longer satisfying your ambition, you want more freedom and to reap the rewards of your work – you can start working for yourself.
There are 1.4 million of self-employed in the UK and the number is growing.
If you are self-employed, according HMRC, you are a sole trader and you need to register with HMRC to pay taxes.
HMRC provides us with a list of the main characteristics of self-employed or freelance professionals:
- People who run their business for themselves and take full responsibility for success of their business
- They have several customers
- They can hire people to help run their business
- Self-employed have necessary equipment and tools to fulfil their work
- They charge an agreed price for their work, and sell goods and services to make a profit
It is important to understand that you can work as an employee for an employer during the day and run your own sole trade business in the evening. It implies that you need to pay taxes on your self-employment income and pay National Insurance contributions.
In this blog we look at how to register as self-employed and submit your tax return.
So, what counts as self-employed?
If you are self-employed, you need to do these four things:
- Register as self-employed with HMRC: https://www.gov.uk/set-up-sole-trader/register;
- Keep records of your income and expenses, such as invoices of anything you buy for your business and your customers;
- Submit a Self Assessment tax return and pay income tax on your profits each year. It is usually done in two payments on 31 January and 31 July. Once you submit your tax return online, it will be easy to check when your next tax return is due;
- Pay VAT if your turnover is more than £82,000.
You need to register as self-employed with HMRC for income tax and National Insurance contributions as soon as possible, but the latest you can register is 5 October in the second tax year of your business if your accounting year runs from April to March following year.
Self-employment tax return
If you are a new sole trader who has not submitted a tax return before, then this is what you need to do:
- Register as a new business and automatically register for a Self Assessment tax return and Class 2 National Insurance
- Submit your self-employment income through tax return after the end of each tax year
You need to have this information handy when you register your sole trade business:
- Name and address
- National Insurance number
- Date of birth
- Email address and your business telephone number, which can be your personal phone number
- The nature of your business
- Start date of self-employment
- Business address, which can be the same as your home address
- Unique Tax Reference (UTR), only if you were within self-assessment previously
You need to submit your Self Assessment tax return by 31 October if it is a paper return or by 31 January if it is an online return.
You can use this useful online tool, tax calculator, to estimate your income tax bill. This will give you a good idea of how much money you need to put aside.
You need to register for Class 2 NIC even if you are paying Class 1 earning contributions as an employee. However, if your earnings are lower than the Small Earning Exception threshold, you do not need to pay Class 2 contributions.
You usually pay two types of National Insurance if you are self-employed:
- Class 2 if your profits are £5,965 or more a year
- Class 4 if your profits are £8,060 or more a year
How to register as self-employed and submit your tax return – a conclusion
We have covered the main steps of how to register as self-employed and submit your tax return – and what you need to do to stay on top of your tax matters.
Tax matters can be confusing especially if you are new to this. If you need any further advice on how to register as self-employed and submit your tax return, or National Insurance, your best bet is to get in touch with specialist contractor accountants.