If you have decided to take a step and establish yourself as self-employed, you are beginning a thrilling journey.
With the living cost creeping higher, it’s a fantastic idea to discover additional income sources and perhaps initiate a new small business venture that may help ease your financial difficulties.
However, you must first register as a self-employed person before you start working.
In this blog post, we will check out how to register as self-employed. We will also describe the duties that come with being self-employed.
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Table of contents
- How do I know if I’m not classed as self-employed?
- When do I register as self-employed?
- How to register as self-employed?
- Your responsibilities once you’ve registered as self-employed
- Final thoughts
How do I know if I’m not classed as self-employed?
The recent trend of companies moving employees off the payroll and into self-employment has given rise to the gig economy.
Case law has been gaining ground with this situation and is deciding whether people are or are not genuinely self-employed.
You are not likely to be self-employed, according to the law and rules, if you:
- Are necessary to provide a service individually – you cannot hire another individual to undertake the job for you.
- You are under supervision, direction, or control for how the work is carried out – you have no real freedom of action regarding how you work.
- Both sides have a mutual obligation – the company you are contracted to is obliged to provide a job, and you are obliged to make yourself accessible to do it.
Understanding your status is critical because it affects how you pay taxes and whether you have employment rights.
If you are unsure, use the HMRC’s online employment status checker.
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When do I register as self-employed?
Registering as self-employed as quickly as possible is better so that your profits and taxes can be accurately recorded within that year, and you can avoid any penalties.
However, there are a few dates to remember:
- Within any yearly period, April 5 is the earliest date for new registration (this is the start of the tax year)
- October 5 is the deadline;
- Furthermore, you have until January 31 to pay the national insurance or any taxes that may have accrued before the start of the new tax year.
How to register as self-employed?
Follow the 4 steps below if you want to know how to register as self-employed.
Step 1: Use the employment status indicator
Using the Employment Status Indicator provided by the HMRC, you can quickly determine if you should be classified as self-employed.
This assists in determining how you should be taxed. Also, for those who are self-employed, self-employment tax and income tax are handled differently.
Step 2: Register online
Self-employment registration is now easier than ever, thanks to the internet!
The HMRC offers an online registration process, but you must first create an account to use it.
You can create an account on gov.uk with an email address. It will also collect other data, like your physical address.
Step 3: Await further details by post.
After you’ve registered online, you’ll receive a packet of information in the mail from the HMRC.
This information is related to the procedure, which you will complete online. The process is halted until this data is received.
Step 4: Complete the registration
After you’ve received your details in the post, you’ll be directed to the Government Gateway to complete your registration.
You’ll have a 10-digit Unique Taxpayer Reference and an online account full of information and references. At this point, you’ll also be choosing a name for your company. Make it a good one! A unique name can make all the difference.
Your responsibilities once you’ve registered as self-employed
After registering, you have a set of responsibilities.
The most crucial thing is to keep precise records, especially for any sales or outgoing expenses related to your business. I
It’s also useful to keep any correspondence you receive from HMRC. You may quickly and easily finish your tax return with the help of these letters and documents.
You should also file your Self Assessment tax return online by January 31.
You must pay HMRC on January 31 and July 31. If HMRC agrees, you may be able to stagger these payments. You also need to pay Class 2 and Class 4 National Insurance Contributions apart from income tax.
You must register for VAT if your annual revenue exceeds the threshold for VAT (£85,000 for the tax year 2022–2023).
However, you are still free to register even if your turnover falls below this level.
The individual circumstances of your company will determine whether this is appropriate for you.
Tax for self-employment
As a self-employed individual, the tax you’ll pay income tax on your business profits.
Self-employed people only have to pay income tax on the trading profits they make, not on their entire income. You can easily subtract your business expenses from your total income to determine the trading profits on which you’ll pay income tax.
Also, the amount of income tax you pay will be determined using your trading profits;
- £0 to £12,570 will pay no income tax on their profits
- £12,571 – £50,270 will pay a 20% income tax
- £50,001 – £150,000 will pay a 40% income tax
- Over £150,000 will pay a 45% income tax
- For 2023-24, the 45% rate will kick in at £125,140.
As a self-employed person, If your profits for the 2022–23 tax year are at least £6,725, you must also pay Class 2 National insurance contributions.
Class 4 NI contributions are due if profits are £9,880 or more in 2022–23.
Although these contributions are voluntary, they can help obtain benefits like State Pensions.
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Final thoughts
Starting a small business is profitable and can help you make additional income.
Registering as a self-employed individual is necessary to comply with HMRC. So follow the above steps to easily register as self employed.
Hiring an accountant will make this process simpler since they will be able to provide you with the best advice on things like tax efficiency and expenses, as well as ensure that your company is doing everything the right way possible.
