Registering as self-employed is the first serious step in starting your own business, becoming an independent contractor or going freelance, and breaking free from the rat race. 

It’s essential for legal compliance and accurate tax management. It legitimises your work, ensures proper tax submissions, and opens up access to various benefits, establishing a firm foundation for your entrepreneurial success/future. 

And if you want to stay in HMRC’s good books (which we highly recommend) then there’s a few critical boxes you need to tick.

Do I need to register as Self-Employed? The £1000 question

Being self-employed in the UK means running your business as an individual. This status encompasses freelancers, contractors, and sole traders who manage their tax responsibilities directly.

If you earn income outside of traditional employment, you likely need to register as self-employed. This includes those pursuing freelance work, running a business, or earning as a contractor. It's not just about full-time commitment, even side gigs can necessitate self-employment registration.

As per the advice on HMRC’s website; you are likely self-employed if you:

• Operate your business independently, bearing the responsibility for its success or failure.
• Serve multiple customers simultaneously.
• Have the autonomy to choose the manner, location, and timing of your work.
• Employ others at your own expense to assist or complete tasks.
• Supply the primary equipment needed for your work.
• Are accountable for rectifying any subpar work during your own time.
• Set fixed prices for your work based on agreement.
• Engage in selling goods or services with the intention of generating profit.

HMRC has a checking tool you can use to determine your employment status

{{tax-guide}}

It's possible to have dual employment status, being both employed and self-employed concurrently. This might occur, for instance, if you work for an employer by day and operate your own business during the evenings.

You must register with HM Revenue & Customs (HMRC) if your income from self-employment reaches £1,000 or more in a tax year. This threshold of £1,000 is calculated before deducting any expenses that are allowable for tax purposes.

If you earn less than £1000 from self-employment then you don’t need to register. So, for example, you could legally earn £900 from selling pet portraits on Etsy without registering, as this amount falls under the Trading Allowance.

However you may still want to register in order to claim certain benefits for childcare or maternity, or to make national insurance payments. Also, if you have registered for Self Assessment before then you should check HMRC doesn't require one, as they may issue a missed filing penalty.

A Step-by-Step Guide to Registration

If you're not going all-in, and are initially balancing employment with creating your business, explore our advice on managing a small business alongside your job. Additionally, if you're considering leaving your current role, our How to Quit Your Job article may provide valuable insights for this transition.

Preparation: Gather personal details including your National Insurance number and business information before you start.

Registration Process:

1. Online Registration with HMRC - Visit the HMRC website to register for Self Assessment and Class 2 National Insurance.

2. Unique Taxpayer Reference (UTR) - Once registered, HMRC will post your UTR to you. This number is essential for your tax returns.

3. Deadlines and Timelines: Register by 5th October in your business’s second tax year. Late registration can result in penalties.

Remember, you can also register by phone or post, but online is faster and more straightforward.

After Registration: What's Next?

Right after you register, even if you don’t start trading, there are a few things you’ll need to start doing.

Immediate Responsibilities:

• Bookkeeping - Maintain accurate records of your income and expenses. Efficient bookkeeping is vital for managing your finances and preparing for tax submissions.
• Understanding Tax Obligations - Familiarise yourself with tax deadlines, allowable expenses, and how to pay taxes.

Crunch's Support

Software Solutions - Crunch’s award-winning, easy-to-use self employed accounting software can streamline financial management. With our CrunchONE package you’ll get your self-assessment handled by certified accountants and powerful accounting tools that save you time and money.

As well as unlimited access to in-house support from Crunch’s experts for any queries or assistance needed in managing your new self-employed status.

See what successful gaming YouTuber, Elliott Dennahy, now known as 8Bit Dad, says about Crunch helping him manage a complex tax situation when going self-employed. 

{{cta-sole-trader-crunchone}}

Taxes and National Insurance

Self-Employment Tax Responsibilities:

• You must file a Self Assessment tax return annually, declaring your business income and expenses. To estimate your tax obligations, try our self-employed tax calculator for an accurate calculation.

National Insurance Contributions (NICs):

•  If your profits are less than £6,725 then you don't have to pay anything, but can choose to voluntarily pay Class 2 contributions.
• Class 2 NICs if your profits are £6,725 or more annually.
• Class 4 NICs on profits over £12,570 per year.
• These contributions count towards your state pension and other benefits.

Tax Planning Tips:

• Allowable Expenses - Deduct legitimate business expenses to reduce taxable income.
• Payment on Account - Be prepared for 'payments on account' if your tax bill exceeds £1,000, which means paying half your next year’s tax in advance.
• Deadlines - Stay aware of key tax deadlines to avoid penalties. 

Crunch's online accounting software can assist in managing these tax obligations efficiently. 

Living the dream

Registering as self-employed is a big move towards independence and taking control of your career and earnings. 

It's key for legal compliance and precise tax management, legitimising your work and unlocking various benefits, thereby setting a strong foundation for your future endeavours. 

Proper registration with HMRC is something you need to get right in order to set yourself for a smooth exit from your full time job, and to avoid losing money in penalties.

Whether you're a budding entrepreneur or juggling a side gig, hopefully this guide has added a good level of clarity of what’s involved making your independent employment status official.