Registering As A Self Employed: All You Need to Know
Deciding to become self-employed is an exciting decision. However, it can be a complicated process. Some people are effectively self-employed without realizing it, depending on the nature of their work.
Registering as self-employed will create opportunities to claim expenses and the potential for open-ended income. However, there are also important compliance and taxation considerations to keep in mind.
Here’s everything you need to know when registering as self-employed.
Check if You’re Required to Register as Self-Employed
Before you take steps to register as a self-employed individual, you need to confirm if you are eligible or required to do so. You must register as a self-employed individual if you:
- Make over £1,000 from self-employment activities within one calendar year;
- Sell products you make;
- Sell personal or business services;
- Sell products or services for another business or individual on commission; or
- Regularly sell products online or in marketplace settings.
Most people who flip items in marketplace listings, partake in online auctions, or even garage sales often aren’t aware that their sales activities count as self-employment. Many of those making commissioned sales for another business often run into confusion about this.
There are also reasons to voluntarily register your business. Those hoping to take advantage of government programs for entrepreneurs and small businesses often require proof of self-employment. Owning a registered business is the most straightforward way to accomplish this task.
If you ever have doubts about your eligibility or requirements, you can use the official Employment Status Indicator.
Limited Company vs. Sole Trader
Your business registration model will depend on the nature of your business activities. If you’re working for yourself (i.e., not partnering with another business owner), you will either register as a sole trader or start a limited company.
Registering as a sole trader is the simplest option. You and your business will be treated as one entity, with streamlined taxes and minimal paperwork. You will be required to pay tax on your profit as well as Self-assessment taxes and register for National Insurance. As a sole trader, you’ll be required to maintain business expense and income records.
If you’re working on a commission for another business or selling handmade products, you’ll likely be a sole trader. However, there are downsides to this business for some individuals. As you and your business will be viewed as a single entity, you are personally at risk if your business acquires debt.
Limited companies have a bit more complexity. If you are running a for-profit business, you’ll register a “limited by shares” company. A limited company is treated as a separate entity from the owner. Unlike a sole trader business, you’ll be protected from financial implications.
However, a limited company comes with a lot of responsibilities and requirements. You’ll be required to adhere to the Director’s Fiduciary Responsibilities, which outlines the accounting paperwork you’ll have to file, the identification of key stakeholders, etc.
As there’s so much variability and complexity in setting up a limited company, the focus going forward will be on a sole trader business model.
Registering for an Online Account
The self-employment application process is relatively straightforward. Head to the government website’s online registration portal. Enter your email address and some basic personal information. Then, you wait. You’ll receive your unique login and identification number in the mail with instructions on how to access your account.
Once you access your online account, you can select the self-assessment tax option and enter your business name. This name will require approval: it must not use any trademarks or offensive language.
When registering as self-employed, the government mandates that you complete the registration by October 5th after the tax year during which you became self-employed.
Setting Up a Bank Account
Once your business is registered, the next step is to set up a bank account. This step is crucial, even for sole traders. Your bank account will act as a way to separate your personal and business finances for prolonged financial health. In the event of an audit, this simple distinction could save you tremendous amounts of money.
Simplify your banking by using an online business-oriented service like Amaiz.com. Using automation and centralization will reduce the time-consuming tasks that often go hand-in-hand with administrative tasks.
Filing Taxes When Self-Employed
As a sole trader, you’ll be required to send in an annual Self Assessment tax return, detailing your business income and expenses. You will be required to pay income tax on your profits, as well as Class 2 and Class 4 National Insurance. You will only have to pay VAT if you make over £85,000 per year.
With all of these moving parts in place, you’ll be ready to run a successful, compliant business.