How to register as self-employed

If you’ve decided to take the leap and work for yourself, it's vital that you register as self-employed. This is so HMRC knows how much you’re earning and can, therefore, charge you the appropriate amount of tax.

Here, exclusively for ContractorUK, I want to explain everything you need to know about registering in the UK as a self-employed person, writes Zeeshan Anwar, head of compliance at Dolan Accountancy.

What does it mean to be self-employed?

First of all, you should check whether what you’re doing counts as self-employment to ensure you are getting taxed the right amount. 

A self-employed person is someone who runs their business for themselves and takes responsibility for its success and failure.

HMRC can help you determine whether you should be classed as employed or self-employed for tax purposes, although it is prudent to first talk over the determination with a trusted adviser, like an accountant.

Broadly though, you’re likely to be classed as self-employed if the following statements apply to you:

• You run your own business
• You decide how and when you work, as well as what you work on
• You provide most of the equipment you need to do the job
• You have more than one customer simultaneously
• You have the option of hiring other people
• You receive income that isn’t taxed under PAYE

When do I need to register as self-employed?

It’s recommended to register as self-employed as soon as possible so that your tax can be accurately recorded for that year. You have to register as self-employed for tax and National Insurance purposes since these aren’t normally deducted from your income. 

Legally speaking, you must register for Self-Assessment and Class 2 National Insurance by October 5th in your business’s second tax year. For example, if you started your limited company in September 2023, you must register by October 5th 2024. Failure to register in time could result in a HMRC penalty. 

How to register as self-employed

Registering online is the quickest and easiest way is as follows: 

Step 1: Create a Government Gateway account.

You can create an online account here using your full name, email and password. You’ll then be sent a user ID to the email address you registered with.

Step 2: Apply for self-assessment and specify your business type.

Step 3: Submit information details such as National insurance number, business/home address, contact details and business description

Step 4: Once the form has been submitted and received, HMRC will send you a letter with a 10-digit Unique Taxpayer Reference (UTR), which will be used on your tax payment

If you have previously been registered as self-employed and are looking to re-register, you can do this with a CWF1 form

Am I a sole trader, partner or limited company?

All individuals who work for themselves are self-employed, but only those who work primarily alone are sole traders. 

You need to set up as a sole trader if you earned more than £1,000 from your self-employment within any 12 months. If you work for yourself, you’re probably a sole trader but there are other options.

If you’re in a business partnership, you are still seen as self-employed, but you will need to register with HMRC as a partner.

The other option is you are running your own limited company. In this case, you are both the owner and an employee so are not classed as self-employed. 

Instead, you will have to register a company name, and the company itself on Companies House.

Key things to consider:

Unlike being a full-time employee, once you have registered as self-employed with HMRC you will become responsible for paying your own tax and National Insurance liabilities.

You need to keep careful records of your sales, income and any expenses. This means keeping hold of important documents like receipts, bank statements and invoices. You will need to complete your tax return every year by January 31st. 

It is also advisable to keep a record of your last five years’ income and expenditure -- at a minimum. It’s vital that you have the following records potentially ready for HMRC, if by any chance they’re ever requested: 

• Your business’ full accounts (i.e. company bank statements).
• Details of your expenses, including receipts.
• Invoices.
• Details of all taxes you’ve paid.
• Your self-assessment tax returns.

If you feel that little list is a bit onerous, you’re not alone! That’s why many sole traders (like limited company directors) hire an accountant to deal with their affairs and take care of their taxes. An accountant can also take a look at your finances and complete your tax return accurately, as well as offer advice on the most efficient ways to operate, such as whether it might be more advantageous for you to incorporate your self-employed sole trader business and become a limited company.