If you’re planning on removing yourself from the rat race and registering yourself as self-employed, there are some boxes you need to tick to make sure you stay in HMRC’s good books.

Failing to register as self-employed will not only make your life more difficult, but it’ll also bring the risk of hefty financial penalties!

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. 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.

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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.

We've included a helpful video below on how to set up and register your business. You can find more helpful videos on our YouTube channel.

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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

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. 

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Taxes and National Insurance

Self Assessment 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):

National Insurance Contributions work a little differently for the self-employed. And what you pay is slightly dependent on the structure of your business and how much you make. For example, often Limited Company directors will pay themselves a tax-efficient salary so that they pay little or no NI. Instead they'll take the majority of their income through dividends.

If you're wondering how National Insurance works for someone self-employed, we'd recommend checking out our ultimate guide 'Self-employed National Insurance explained'.

Tax Planning Tips:

• Allowable expenses - Deduct legitimate business expenses to reduce taxable income. If you're a Limited Company director, we recommend downloading our Limited Company expense guide to make the most of your allowable deductions.
• 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. The easiest way to do this is by subscribing to our free tax dates calendar.

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.