The Challenges of Self-Employment: Registering with HMRC

by Jake Martin, Title Text

3 min read

When you’re outside looking in, self-employment seems like a delicious fantasy. Imagine: flexible hours, higher income potential, independence. So you take that step and join the ranks of the 4.6 million other Brits who serve no master and have to register with the HMRC. Then the panic starts; you’re on your own.

The responsibilities begin to weigh down on you: you need to find work, decipher expenses, catalogue cash flow, and of course, file your own taxes. And, oh god, what about job security, and benefits, and–

Don’t worry. We’re here to help.

You’ve seen the charms inherent in the life of a sole trader, but now it’s time to contend with the challenges–beginning with HM Revenue and Customs (HMRC) registration.

When do you tell the HMRC?

The moment you begin working for yourself, HMRC considers you self-employed, or a sole trader. The first step of self-employment should be to register yourself with HMRC.

The HMRC considers your business’s active start date to be the earliest of either:

  • The date you begin to market your business
  • The date on which you have goods or services to sell and a customer base.

Make sure to register as soon as possible! Failure to do so within 3 months of beginning your enterprise will earn you a £100 late fee. If you continue to delay, your penalty could swell to as much as £1,600.

self-employment-challenges

How do I tell HMRC that I am self-employed?

There are three ways to inform HMRC that you’re becoming a sole trader. These are:

  1. Register online.
  2. Fill out the CWF1 form and register by post.
  3. Call the newly self-employed helpline at 0300 200 3504.

When registering yourself as self-employed, you’ll be asked to provide personal and business information that HMRC uses to establish your tax records. You’ll also be registering for HMRC online services simultaneously, which allow you to send your tax forms online.

Registering as self-employed means that you’re registering for both Self Assessment tax returns and Class 2 National Insurance.

Benefits of registering

In addition to avoiding hefty fines, registering with HMRC automatically sets up your online account, enabling you to send tax returns online, check payment due dates, register for other applicable business taxes–such as Value Added Tax (VAT), if your annual turnover exceeds a certain amount (currently £82,000)–and view your account status.

HMRC will also furnish you with a Unique Taxpayer Reference (UTR) number. This ten digit number is used to get in touch with HMRC.

Additional responsibilities

Remember that self-employment means that you’re responsible for filling out your own National Insurance Contributions (NICs) along with your tax returns. There are two main types of NICs that you might have to pay:

Class 2 NICs are compulsory and due from the day your self-employment begins. Here are some key facts:

  • Paying into your Class 2 NIC counts towards benefits such as basic state pension, employment and support allowance, and maternity allowance fund.
  • Your class 2 NIC can be paid into weekly, monthly, or biannually in January and July. You can pay this fee through:
  • You may be exempt from Class 2 NIC payments if:
    • You’re under 16-years-old or at state pension age
    • You’re a married woman or widow with a Certificate of Reduced Rate Election
    • You have a Certificate of Small Earnings Exception if your earnings are below a certain amount, which varies year by year.

Class 4 NICs are based on your profits for the fiscal year and are compulsory if your earnings are above a certain amount (currently £8,060).

  • Not a flat rate, but is based on a percentage of your taxable profits, and is changeable year-by-year).
  • Automatically calculated when paying online

All of this is meant to stress the importance of registering with HMRC, but the process is quite simple and painless. For more information, visit Working For Yourself on gov.uk or check out HMRC’s YouTube channel.

Fortunately, save for items like expense reports, your paperwork is more-or-less finished. There are no company formation costs to worry about, and your first step into the world of self-employment is complete once you’ve registered with HMRC.

Find more self-employment resources at our self-employment hub.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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