Do I need to register as a self-employed sole trader?

By: Mike Parkes, GoSimpleTax

Date: 18 September 2019

An interior designer is working with architect's drawings, material and colour samples representing self-employment concept

Understanding your employment status and whether you’re self-employed can help you establish your tax obligations and responsibilities. HMRC will penalise you if you exceed your trading allowance, so it’s worth knowing precisely where you stand.

But there’s an incentive too… Knowing your employment status helps you access tax relief which could reduce your tax liability – plus you won’t have to worry about being incorrectly taxed.

The trouble is, it can be confusing to determine if you’re regarded as self-employed. Thankfully, Mike Parkes from GoSimpleTax outlines below who needs to register as self-employed to stay compliant, and how to do so.

What is self-employment?

There are certain distinctions that set those that are self-employed apart from regular employees. Generally, this means you:

  • operate a service that relies solely on you
  • have multiple customers at the same time
  • have the freedom to hire others at your own expense who help deliver or develop your offering

It’s worth mentioning that you could be doing all of the above – and more – in addition to your employment. For example, if you work in a 9-5 role and sell goods in the evening to make a profit, you are both employed and self-employed.

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How do I know if I’m self-employed?

If you earn more than £1,000 from self-employment within a single tax year, the chances are that you are operating as a sole trader. However, if you’re uncertain of your status, take HMRC’s test.

Sole traders run their own business as an individual. They’re entitled to keep all the business’ profits after tax has been paid, are liable for any losses the business makes, and must stick to rules surrounding running and naming their business.
Once you’ve determined your employment status, all that’s left to do is register. After registering, you’ll need to keep records of all business sales and expenses following your status change. Plus, you’ll be required to send an annual Self Assessment tax return as well as pay income tax on your earnings.

How do I register as a self-employed sole trader?

It’s simple: log on to HMRC and register yourself for sole trader status. Once done, you’ll receive a 10-digit unique taxpayer reference (UTR) number. With this, you’ll be able to set up your account for the Self Assessment online service.

Alternatively, you can choose to fill out an online form, print it, and then post it to HMRC. The downside to this method is that you won’t be able to save the document and return to it at another time. Everything will need to be complete and sent in one sitting.

You must have registered by the 5th October during your business’ second tax year. Failing to do so could result in being fined.

Once registered, you need to submit your Self Assessment tax return by 31st October (paper returns) or 31st January (online returns) – and pay any tax owing. Additionally, if you make advance payments towards your tax bill, your second payment on account is due on 31st July.

Copyright © 2019 Mike Parkes of GoSimpleTax, providers of tax return software that can help you manage your self-assessment tax return. Sign up for a free 14 day trial now.

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