If you have decided to take the plunge and run your own business as a sole trader there are a few things you need to do. One of these is to tell HM Customs and Revenue that you are now Self-Employed and register for Self-Assessment.
Registering for Self-Assessment simply means rather than paying tax and national insurance through your pay packet and that you (or more likely your accountant!) will calculate your tax and file a self-assessment tax return every year based on your businesses accounts. Don’t panic though, it’s not as scary as it sounds.
It is important to register as soon as you can after you start trading. It doesn’t hurt, but there are penalties for not telling them, and I’m sure a £100 fine will hurt your pocket.
You can inform them and register either by phone or online.
Registering by phone is easy but you can wait a while on hold to get to speak to someone. When you do though it should only take 10/15 minutes and was very easy.
To register online you will first need to sign up for a Government Gateway account which can be done on the HMRC website. You will be sent an activation code in the post so this will take approx. 7 days before you can actually enter any information and register. However you will need one for submitting your tax return so it’s not wasted time.
Once you have your codes head over to HMRC Self Employed Section and select the, confusingly named, “Register a New Business for Tax and National Insurance” area and follow through the prompts.
For both methods you will need to provide your
• National Insurance number
• Personal contact details – e.g. address
• Business details – e.g. business address, date you started trading, expected income etc.
After you have registered you will be sent your Unique Taxpayer Reference or UTR. It can take up to several weeks to come through the post and unfortunately you won’t be able to ask for it over the phone. You will use your UTR to complete your Self-Assessment Tax return. You will also need this if you intend to claim and tax credits as a self-employed person.
As well as paying your own tax, you will be responsible for paying Class 2 National Insurance Contributions. At the time of writing (2013-14) this was £2.70 a week, payable monthly or 6 monthly. If your proposed profits are under £5,725 however you can apply for Certificate of Small Earnings Exemption. There are other reasons for exemption so it is worth having a look on the their website.