I've made a few notes on the process highlighting any information you might need and clarifying the options you will need to select.
This process will register you for both income tax and Class 2 National Insurance contributions. Both of these taxes and the relevant payment methods and deadlines are explained further down the page.
Back to registering with HMRC - you will need to select the option that reads 'I want to tell HMRC that I am in business and need to register for a new tax or tell HMRC that the company is now active'.
It is worth reading through the next couple of pages to be certain this service does apply to you. If you are newly self employed and starting a business from scratch there should be no problem. It may not be applicable for slightly more complicated partnerships or companies.
You will need to enter the following information:
- Your name
- Email address (optional)
You will be given a User ID which you need to keep a note of, you will need this anytime you do anything online with HMRC.
Unless you have set up a limited company you will only need to register for 'Self Assessment'.
You then need to select whether you are a sole trader or in a partnership and enter the date you started trading.
You then need to provide the following information:
- National Insurance number
- Full name and date of birth
- Contact details for yourself and the business
- The date you started working for yourself
- What type of self-employed work you do
There are a few more pages to read and click through but you are pretty much finished by this point.
The deadline for registering with HMRC as self-employed is six months of the end of the tax year that you begin trading, e.g. for the tax year 6th April 2013 to 5th April 2014, you need to register by 5th October 2014.
BUT the deadline for letting them know you are liable to Class 2 National Insurance is three months from the end of the month in which you started trading. So if you started trading on the 1st January you need to tell HMRC by the 30th April.
If you set up a limited company, you will need to inform HMRC sooner, within three months of your first accounting period, which will be whatever you choose as your financial year, not the usual tax year dates.
So once you're registered with HMRC all you need to worry about it paying your taxes!
Income Tax
This is the tax you will pay on the profits you earn. It needs to be reported to HMRC on your self-assessment tax return which is due by the 31 January following the end of the first tax year (6th April to the next 5th April) you are trading.
If you have registered with HMRC as self-employed you should receive a number of prompts to get this done.
If you file your tax return online the tax due will be automatically calculated for you, if you complete a paper return (due by 31 October following the tax year of trading) you will need to calculate it yourself.
In your first year of trading the tax due will also need to be paid by the 31 January following the end of the tax year, so the first 5th April after you start trading. If you pay more than £1,000 tax you will need to make payments on account the following year. These will be 50% of the total tax paid in the first year and will be due on 31 January (the same day you need to file your tax return) and the 31 July. If the total amount due is more than this you will need to pay the balance by the following 31 January, when you are also making your first payment on account for the next year.
There are Classes 1, 1a, 1b, 2, 3 and 4 National Insurance (NI). Class 2 is what self-employed people pay.
If you are self-employed and don't pay Class 2 NI you can lose your entitlement to the following benefits:
- Employment & support allowance
- Basic state pension
- Bereavement benefits
- Maternity allowance
Class 2 contributions are paid at a flat rate of £2.70 a week - the easiest way to pay this is to set up a direct debit with HMRC, this can either be monthly or every six months.
If you don't pay by direct debit the actual due dates for Class 2 NI are:
- 31 January - for the 26 weeks from the previous April to September
- 31 July - for the 26 weeks from the previous October to March
Payment Date Amount
10 May 2013 £13.25
14 Jun 2013 £10.60
12 Jul 2013 £10.60
09 Aug 2013 £13.50
13 Sep 2013 £10.80
11 Oct 2013 £10.80
08 Nov 2013 £13.50
13 Dec 2013 £10.80
10 Jan 2014 £10.80
14 Feb 2014 £13.50
14 Mar 2014 £10.80
11 Apr 2014 £13.50
TOTAL ANNUAL AMOUNT £142.45
The six monthly direct debits are £70.20 in January and July.
The direct debit form to set up the monthly or 6 monthly payments can be found here. It's very simple and just needs to be posted to the address at the top of the form.
HMRC won't collect any other amounts of tax due in this way so there's no risk of them collecting money when you haven't agreed to it.
If you expect your annual earnings to be less than £5,725 you can apply to HMRC for a Certificate of Small Earnings Exemption (SEE) which may exempt you from paying Class 2 National Insurance. The HMRC guidance on this can be found here
Hopefully now you feel ready to take the first step to becoming self-employed.
The process of submitting a tax return and paying income tax can seem very daunting at first. I wanted to give a quick overview without getting stuck into the detail for the moment. I will be posting further guides to help you with this so keep an eye out for these.
If you would like some further reading the most helpful and comprehensive guide I have found from HMRC can be found here.
If you have any questions please use the comments box below or drop me an email at tracey@geavesbookkeeping.co.uk.
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