https://www.gov.uk/working-for-yourself/overview
Overview
What counts as self-employed
What you need to do
1. Overview
If you start working for yourself, you’re classed as a sole trader - even if you haven’t yet told HM Revenue and Customs (HMRC).
You must register and follow the rules for self-employed tax and National Insurance.
Check what counts as self-employed if you’re not sure about your status.
Other ways to work for yourself
There are other business structures apart from being a sole trader.
You can:
- become a partner in a business partnership
- set up your own limited company
If you set up a limited company, you’re not classed as self-employed but as both an owner and employee of your company. You’ll follow different rules on tax and National Insurance.
Planning and funding
Read more if you want advice on starting up in business and funding your idea.
2. What counts as self-employed
Sole traders and partners are classed as self-employed by HM Revenue and Customs (HMRC).
You’re probably self-employed if you:
- run your business for yourself and take responsibility for its success or failure
- have several customers at the same time
- can decide how, where and when you do your work
- can hire other people at your own expense to help you or to do the work for you
- provide the main items of equipment to do your work
- are responsible for finishing any unsatisfactory work in your own time
- charge an agreed fixed price for your work
- sell goods or services to make a profit
Many of these also apply if you own a limited company but you’re not classed as self-employed by HMRC. Instead you’re both an owner and employee of your company.
You can be both employed and self-employed at the same time, eg if you work for an employer during the day and run your own business in the evenings.
Use HMRC’s Employment Status Indicator or contact HMRC for advice if you’re still not sure what your employment status is.
Selling goods or services
You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.
You’re likely to be trading if you:
- sell regularly to make a profit
- make items to sell for profit
- sell online, at car boot sales or through classified adverts on a regular basis
- earn commission from selling goods for other people
- are paid for a service you provide
You’re probably not trading if you sell some unwanted items occasionally or you don’t plan to make a profit. You can’t use any losses you make as part of a hobby to reduce your tax bill.
Contact HMRC for advice if you’re not sure whether you’re trading
3. What you need to do
To become a sole trader, you’ll need to:
- register as self-employed with HM Revenue and Customs (HMRC) to make sure you pay the correct Income Tax and National Insurance
- keep records of your business income and outgoings
- pay your tax each year, usually in 2 payments on the 31 January and 31 July- use HMRC’s calculator to help you budget for this
Read more if you want to become a partner in a business partnership or set up a limited company.
VAT
You must register for VAT if your business turnover is over £82,000. You can register voluntarily if it suits your business, eg you sell to other VAT-registered businesses and want to reclaim the VAT.
Construction Industry Scheme
Register with HMRC for the Construction Industry Scheme (CIS) if you’re working in the construction industry as a sub-contractor or contractor.
Help and support
You can sign up for business support emails from HMRC to help you if you’re working for yourself.
Set up as a sole trader
1. Overview
Sole traders must register with HM Revenue and Customs (HMRC) and follow certain rules on running and naming their business.
If you’re a sole trader, you run your own business as an individual and are self-employed.
You can take on staff - being a sole trader means you’re responsible for the business, not that you have to work alone.
Your responsibilities
You’re responsible for:
- keeping records of your business’s sales and expenses
- sending a Self Assessment tax return every year
- paying Income Tax on your profits and Class 2 and Class 4 National Insurance - use HMRC’s calculator to help you budget for this
- your business debts
- bills for anything you buy for your business
- registering for VAT if your turnover reaches the VAT threshold
- registering with the Construction Industry Scheme (CIS) if you’re a contractor or sub-contractor in the construction industry
Naming your business
You can use your own name or trade under a business name - read the rules for naming your business.
You must include your own name and business name (if you have one) on any official paperwork, like invoices and letters.
Self-employed National Insurance rates_______________________________________________________________
You usually pay 2 types of National Insurance if you’re self-employed:
- Class 2 if your profits are £5,965 or more a year
You work out your profits by deducting your expenses from your self-employed income.
- Class 4 if your profits are £8,060 or more a year
How much you pay
You can see National Insurance rates for past tax years.
Class Rate for tax year 2015 to 2016 Class 2 £2.80 a week Class 4 9% on profits between £8,060 and £42,385
2% on profits over £42,385
How to pay
Most people pay Class 2 and Class 4 National Insurance through Self Assessment.
You must tell HM Revenue and Customs (HMRC) when you become self-employed as a sole trader or partnership.
Special rules for specific jobs
Some self-employed people don’t pay National Insurance through Self Assessment, but may want to pay voluntary contributions. These are:
- examiners, moderators, invigilators and people who set exam questions
- people who run businesses involving land or property
- ministers of religion who don’t receive a salary or stipend
Last updated: 28 May 2015
- people who make investments for themselves or others - but not as a business and without getting a fee or commission
Self-employed ready reckoner introductionBudgeting for your first self-employed tax bill
When you start working for yourself, you do not get your first tax bill for a while, so it may help your budgeting to start putting money aside now.
The ready reckoner tool can help you with this. It shows you roughly how much money you might need to meet your Income Tax and Class 4 National Insurance bill. It doesn't take into consideration any Payments on Account you may have to make.
You will need to pay your Class 2 National Insurance contributions separately.
The ready reckoner tool is for self-employed people who have no other taxable income and are entitled to a basic Personal Allowance. You fill in your estimated weekly or monthly profit. Your profit is your income less any business expenses. It is assumed that you will make your accounts up to the 5th April each year.
You only know the exact amount of Income Tax and/or Class 4 National Insurance contributions you owe once you have completed your Self Assessment tax return.
Go to the Self-employed ready reckoner
Self-employed ready reckoner
Enter your estimated profit below then select whether this is weekly or monthly and click the 'Calculate' button
You must answer both questions
2. Register
Register as soon as you can after starting your business. At the latest, you should register by 5 October in your business’s second tax year.
Example
If you start working as a sole trader between April 2014 to March 2015, you should register before 5 October 2015.
If you start working as a sole trader between April 2014 to March 2015, you should register before 5 October 2015.
If you register later than this, you won’t get a penalty as long as you send your Self Assessment tax return and pay your bill on time.
How to register
This depends on your circumstances.
New sole trader who’s not sent tax returns before
Tell HM Revenue and Customs (HMRC) you want to be a sole trader byregistering as a new business. You’ll register for Self Assessment tax returns and Class 2 National Insurance at the same time.
You’ll then be able to report your self-employment income through a tax return after the end of each tax year.
New sole trader who’s sent tax returns before
You may have sent Self Assessment tax returns before as an individual, eg for rental or investment income.
You now need register as self-employed and for Class 2 National Insurance using form CWF1. You can keep your existing Self Assessment account.
You need your 10-digit Unique Taxpayer Reference (UTR) from when you registered for Self Assessment, so HMRC can link your accounts.
You can find your UTR on previous tax returns, your online account or other documents from HMRC. If you can’t find it, call the Self Assessment helpline.
Former sole trader who wants to start up again
You need to reregister using form CWF1. You’ll need your UTR for the same reasons as new sole traders already in Self Assessment.
How long it takes
Allow 10 working days to complete the registration process because HMRCneeds to post you an activation code. You’ll be prompted for this when you first log in to your online account (also known as a Government Gateway account).
Allow 21 days if you’re abroad.
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