Ultimate Guide to Register as Self Employed: Tax Tips and Steps for 2024

Feb 19, 2024

Updated on: Mar 26, 2024

Although the vast majority of our clients still tend to be limited company contractors, we have certainly noticed an increase in new clients using our sole trader accounting service who are self-employed. Those who are newly self-employed often have questions around getting set up as a self-employed freelancer, and they also want to know what the ongoing compliance and record keeping requirements are. So today we have to pin article specific thing contractors and freelancers who are starting out as self-employed workers.

If you’re looking to become self-employed, registering with HMRC is an essential first step. Our guide cuts through the complexities of the registration process, providing you with the exact steps to register self employed, an understanding of tax requirements, and the deadlines that cannot be missed. Get all the critical information you need without any fluff, ensuring your transition to self-employed status is compliant and penalty-free.

Key Takeaways

  • Self-employed individuals must register with HMRC, manage their tax obligations.
  • After registration, self-employed workers are required to keep detailed records of sales, income, expenses, and if applicable, payroll. They must also meet tax deadlines to avoid penalties, including the January 31st deadline for Self Assessment tax return filing.
  • Certain industries, like the construction sector, have unique self-employment considerations such as the Construction Industry Scheme (CIS) and differing tax treatment for registered and non-registered subcontractors.

Understanding Self-Employment and Its Implications

Self-employed individual working on finances

Self-employment refers to earning income directly from a trade or business rather than being employed with a consistent salary or wage. This often requires skills in specific occupations like writing, freelancing, or lawyering. The benefits of self-employment include autonomy and flexible scheduling for work-life balance. It also has the potential for personal fulfillment. Yet, for gig economy workers, this can mean a lack of guaranteed work and absence of standard employee benefits.

A significant aspect of self-employment is managing your own tax obligations. Typically, clients do not withhold taxes for self-employed individuals. If you source your freelance work through recruitment agencies, it’s essential to note that they usually do not work with contractors who operate as sole traders due to the Agency Regulations (ITEPA s44-47).

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Registration Process for Self-Employed Individuals

Online registration form for self-employment

Registering as self-employed with HMRC is a very important step in ensuring the legal operation of your business and compliance with tax regulations. The process is straightforward. To register as self-employed in the UK, follow these steps:

  1. Visit the government’s online registration portal.
  2. Enter your email address and provide necessary personal details, business start date, and job information.
  3. Register with HMRC promptly once you begin trading, and no later than by 5 October after the end of the tax year in which you commenced self-employment.
  4. Failure to register when required can result in a penalties imposed by HMRC.

Completing the Online Registration

Setting up a Government Gateway account, an integral part of the registration process, facilitates access to HMRC’s online services for self-employment. Government Gateway accounts are categorized into three types:

  1. Individual accounts: can be used to register for Self Assessment, set up a personal tax account, manage tax details, and claim tax refunds.
  2. Organization accounts: can be used to manage tax details for a business or organization, including handling their business tax account.
  3. Accounts for agents: can be used by tax agents to manage their clients’ tax affairs.

As a self-employed freelancer you will want to set-up an Individual account. A key element you’ll need to manage your tax affairs is a Unique Taxpayer Reference (UTR). Self-employed individuals utilize this ten-digit number to file tax returns and engage with HMRC.

Post-Registration Obligations

Organized financial records for self-employment

Once you’ve registered as self-employed, you’re required to fulfill certain obligations. One of these includes retaining records of:

  • all sales and income
  • expenses
  • payroll records if there are employees
  • pertinent documents such as receipts, bank statements, and invoices

To make record keeping less confusing, set up a separate bank account to handle all of your self-employed income and expenses. Do not mix these transactions into your personal bank account.

Additionally, these relevant documents, including one’s national insurance number, should be held for a period of five years for tax purposes. After registering as self-employed, individuals are responsible for paying income tax and both Class 2 and Class 4 National Insurance Contributions on their taxable income.

Paying National insurance Contributions

It’s worthwhile at this point having a separate section about making National Insurance contributions for self-employed workers because the rules surrounding them are changing from 06 April 2024.

Firstly let’s cover of Class 4 National Insurance contributions. To pay tax these are calculated as part of preparing your annual personal self-assessment tax return and the main rate for Class 4 NIC is reducing from 9% to 8% effective of 06 April 2024 with the top rate of 2% staying in place. What this means is (a) annual profits from 12,570 to £50,270 will be be subject to the 8% NIC main rate, and any profits over £50,270 will attract 2% in NIC contributions.

Class 2 National Insurance contributions are effectively being abolished from 06 April 2024 onwards, but there is a caveat here that you need to be aware of, and it relates to your entitlement to the state pension. If your self-employed profits exceed £6,725 then you will not need to pay any Class 2 NIC and your entitlement to state pension remains intact (that is, the year will count as a qualifying year towards your entitlement to the UK state pension).

If your self-employed profits are less than £6,725 then you pay Class 2 NIC but it’s not compulsory. If you do pay, then the year will count as a qualifying year towards your state pension. If you don’t pay, then it won’t count as a qualifying year. So if you are self-employed income is below this threshold and you still require further qualifying years to count towards your state pension then we suggest you make the voluntary Class NIC payments.

Record Keeping Essentials

Keeping accurate and organized records is a fundamental aspect of self-employment. To ensure compliance and facilitate tax reporting, self-employed individuals must keep accurate records of:

  • Sales and income
  • Expenses
  • Payroll
  • Bank statements
  • Invoices

Accounting software such as Joypilot, which is specifically built for freelancers, can be a great help in achieving this.

Maintaining detailed billing practices with itemized tasks can help prevent disputes with clients over invoices, thereby sustaining client satisfaction and trust.

Meeting Tax Deadlines

Meeting tax deadlines is a vital part of being self-employed. Self-employed individuals need to be vigilant about tax deadlines to ensure compliance with tax regulations and avoid financial penalties. Staying informed about tax deadlines helps in meeting tax requirements and minimizes the risk of incurring penalties. Self-employed individuals in the UK need to file their Self Assessment tax return online by January 31st following the end of the tax year.

Missing the Self Assessment tax return deadline results in an automatic £100 penalty from HMRC, irrespective of tax owed or tax paid on time. Additional penalties for late tax return filing include £10 daily charges up to 90 days post-deadline, plus 5% of the tax due or £300 after 6 months, and another 5% or £300 if over 12 months late.

As a self-employed person tax deadlines are simple. File your tax return by 31 January following the end of the tax year and also make sure your taxes are paid by this date.

Special Considerations for Specific Industries

Self-employed construction worker at a site

Certain industries have specific considerations when it comes to self-employment. Take the construction industry, for instance. Self-employed individuals in this industry are required to enroll in the Construction Industry Scheme (CIS). Under this scheme, individuals must register as self-employed for tax and NIC purposes, and separately register as a subcontractor.

Contractors must deduct tax at 20% from CIS registered subcontractors, which are treated as advance payments towards their tax and National Insurance. Subcontractors not registered with CIS are subject to a 30% tax deduction from contractor payments. Subcontractors can register for CIS by contacting the Newly Self-employed Helpline or CIS Helpline if they are already self-employed. Without CIS registration, construction workers might unknowingly pay a higher tax rate of 30% instead of the standard 20%.

If a self-employed individual registered with CIS stops trading, they must inform HMRC as soon as possible via the CIS helpline.

Transitioning from Employment to Self-Employment

Transition from employment to self-employment

Transitioning from traditional employment to self-employment can be an exciting but challenging journey. It requires a disciplined approach, especially for those with significant responsibilities such as a family. A gradual shift to self-employment can be beneficial, starting by transitioning to part-time work to maintain some income while building the new business.

Harness your specialised skills and passions to carve out a unique niche in the freelance market. Yes, dipping into self-employment brings its share of unknowns— navigating financial stability and mastering self-discipline can seem daunting. But, it also opens up a world of flexibility, autonomy, and the chance to truly own your achievements. Connect with fellow freelancers and lean into the diverse opportunities out there.

When You’re No Longer Self-Employed

When the time comes to end your self-employment journey, there are important steps to take. You need to notify HMRC by providing your name, address, UTR number, and the date you stopped being self-employed either by phone, post, or through an online form. A final Self Assessment tax return must be submitted before the deadline detailing your trading income, allowable expenses, capital allowances, and any Capital Gains Tax on assets you’ve sold.

Failing to inform HMRC before the Self Assessment deadline that you do not need to file a return can result in a penalty, even if no tax is due. However, if HMRC agrees that you do not need to file, they will send a confirmation letter.

Records of business transactions should be kept for at least five years following the cessation of self-employment.

Summary

In the journey of self-employment, understanding the registration process, maintaining accurate records, meeting tax deadlines, and knowing industry-specific requirements can be a lot to handle. However, with this guide, you’re armed with the necessary knowledge to navigate the course of self-employment. From registering with HMRC, to setting up a Government Gateway account and understanding your post-registration obligations, we’ve got you covered.

Remember, self-employment is not just about being your own boss. It’s also about understanding your responsibilities, especially when it comes to tax compliance. The journey may seem daunting, but with careful planning and diligence, you can successfully navigate the path of self-employment. And remember, you’re not alone. Many have walked this path before you and many more will follow. So, step forward with confidence and embark on your self-employment journey.

Frequently Asked Questions

How do I register as self-employed UK?

To register as self-employed in the UK, you can create a HMRC online account and select “Sole Trader” when adding a tax through the Self Assessment section.

How do I get my UTR?

You can find your UTR number by logging onto the government gateway portal and accessing your account summary or the self-assessment tax section, or by contacting HMRC to request a copy, which will be sent to you by post within around 10 days.

Does it cost anything to register as self-employed?

No, registering as self-employed is quick, easy, and costs nothing.

What is self-employment?

Self-employment is when individuals earn income directly from a trade or business rather than being consistently employed with a salary or wage. It often involves specific occupational skills like writing, freelancing, or lawyering. A common alternative for freelancers is to work through their own limited company.

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