During the May 2022 Facebook Live, I talked about how to register as self-employed.
A lot of people start businesses at home for many reasons – to generate a second income, to fit around childcare or health issues and some people don’t even realise that they are running a business – they think they are just enjoying a hobby.
It is important to note that if you are running a self-employed business, you will need to register with HMRC by October 5th after the end of the first tax year to avoid any penalties, though it is a good idea to register asap.
How do I know if I am running a business or if it is a hobby?
There are a few indicators set out by HMRC to help you to figure out if you are running a business or if it is a hobby.
- Are you buying/making goods with the intention of selling them for a profit?
- What frequency are you making and selling the items? For example, if you are making cakes and selling them every week/month – it is not a hobby.
- What are you charging for the item? Have you provided a fixed cost for the item and the buyer has agreed to that price? If so, this is a contract.
- Are you responsible for fixing errors with the item in your own time?
- Are you able to hire people at your own expense to help you do the work?
While these are indicators that you are indeed running a business, if you decide you are just doing a hobby – HMRC will contact you and potentially fine you, if they think you are running a business. There is another blog post I have written about whether you are running a hobby or a business and you can read it here.
When do I need to register?
Now that you’ve determined that you are running a business, you need to ensure that you are keeping accurate records for your accounts.
If your self-employed business makes less than £1,000 in the tax year, you do not need to register as self-employed. You still need to keep your accounts though so that you can prove your income. However, as soon as your income goes over £1,000, you do need to register – even if the next year your income is lower.
You will also need to register if you need to prove you are self-employed or want to make voluntary Class 2 NI contributions to help you qualify for benefits.
How do I register?
To register as self-employed visit www.gov.uk/register-for-self-assessment and click on the link “Register if you’re self-employed”. Follow the steps outlined.
If you have never filed a self-assessment before, you will need to register through your business tax account. Don’t worry if you don’t have one as you can create one at the time.
Once you have registered, HMRC will post out your Unique Taxpayer Reference (UTR) and login details for your Government Gateway account along with any additional instructions. Make sure you keep these details safe as you will need them.
There are different instructions for how to register if you have filed a return before and these are provided on the page.
What else should I think about?
Once you have registered as self-employed, there may be other tax services you need to register for.
- VAT – if your turnover goes above the VAT threshold of £85,000, you will need to register for VAT, so it is very important that you keep on top of your accounts and monitor your income.
- If you are working as a contractor or a subcontractor in the construction industry, you will need to register for the Construction Industry Scheme.
- If you start to employ staff, you will need to register as an employer.
There are also other items you need to take into consideration like business insurance and whether your product needs any sort of safety testing.
You want to ensure that you are not only meeting your legal requirements in terms of taxes and accounts but also all responsibilities of a business owner.
Make sure you start to record all your income and expenses correctly from the start and even start out using a separate bank account for the business. These two things can really help you to keep on top of your accounts and grow your business.
If you would like further information about how to register as self-employed, feel free to e-mail me.