This article is all about working for yourself and how to register with HM Revenue & Customs. I’ll tell you when, how and why you tell HMRC you’ve started working for yourself.
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So when do you tell HMRC that you’ve started in business?
The date you start in business will be: the date you actively start to market your business, such as printing business cards or placing an advert in the local press; or the date when you have goods or services to sell and have a customer for them — for example actively buying stock to sell on, or an EBay sale that was a one off which is now becoming more regular. Whichever date is the earliest will determine when you let them know.
The main way to register your business with HMRC is online.
When you register, you’ll be asked about yourself and your business. Tax records are then set up using the information you’ve provided. By registering as self-employed, you are registering for both Self Assessment tax and Class 2 National Insurance.
Let’s go through how you register your business with HMRC when you start working for yourself.
You can access the registration service for self-employment direct from the HMRC home page. When you register online as self-employed you will also sign up for HMRC Online Services at the same time. This means that you will be able to send your tax returns online and lots more.
So what are the benefits in registering with HMRC?
Well, you can tell HMRC all about your business, so they can set up the right tax records and send you a reference number. You’ll need that whenever you get in touch. Your online account is set up automatically, so you can send your tax return online. When you fill in an online return, your tax and Class 4 National Insurance are worked out for you. You can also view your account and see when payments are due. Conveniently, you can also register for any other business taxes you may need to use — for example, VAT. So the main benefits are:
- getting a reference number,
- getting an online account automatically set up
- registering for other business taxes.
Once you have registered as self-employed we will give you a reference number, called a Unique Taxpayer Reference number, or UTR.
A UTR is a 10 digit number that identifies you to HMRC. Your UTR will be shown on any correspondence from us such as your Self Assessment tax return or letter. You’ll need it if you have to get in touch with HMRC. When you work for yourself you are also responsible for paying your own National Insurance contributions to HMRC. There are two types of National Insurance that you may have to pay: Class 2, payable unless you have an exemption; and Class 4, payable if profits are above a certain limit. Class 2 National Insurance Contributions are due from the date your self-employment starts.
They are payable at a flat weekly rate and count towards some benefits for example:
- BasicState Pension,
- Employment & Support Allowance
- Maternity Allowance.
The weekly rate can be found by visiting the HMRC website. You pay these at a flat weekly rate, monthly or twice a year, in January and July by Direct Debit, or by responding to reminders sent out in October and April. You don’t have to pay Class 2 National Insurance if:
- you’re under 16
- reached state pension age;
- if you’re a married woman or widow who is entitled to pay reduced contributions;
- if your earnings are below a certain level and you have a Small Earnings Exception Certificate.
If your earnings are below a certain level you can apply for a Small Earnings Exception Certificate. This level can change each year so visit the HMRC website for the up-dated amount. However, if you don’t pay Class 2 National Insurance Contributions you may not qualify for a full State Pension. As well as paying Class 2 you might also need to pay Class 4 National Insurance contributions.
Unlike Class 2, Class 4 National Insurance isn’t a flat rate amount. The amount is based on a percentage of your taxable profits above a certain limit. This limit, set by HMRC, can change each year, so you can find the latest amount by visiting the HMRC website.
By sending your Self Assessment return online the amount of tax and Class 4 National Insurance contributions are automatically calculated for you. Both are payable at the same time. So, Class 4 National Insurance contributions: are based on your profits for the tax year; are calculated and paid along with IncomeTax; and unlike Class 2 contributions, Class 4 National Insurance contributions don’t count towards state benefits.