When do you become self-employed?
Registering as self-employed only takes a couple of minutes, and
it's free, but if you don't do it when you're meant to you could be
breaking the law and be liable to pay a fine. Unless you're setting
up a *limited company*, you need to register as soon as you are
actively seeking work. You need to register even if you already
fill out a self-assessment tax return.
When to register
- You need to register as self-employed as soon as you are
actively seeking work for your business. It doesn't make any
difference whether you start bringing in money the next day or
three years down the line - it's looking for work that counts.
- You need to register at this point whether you are employed in
another job or not.
- If you don't register within three months of the end of your
first month in business you could face a fine of £100.
Exceptions to the rule
- You don't need to register as self-employed if you set up your
business as a limited company. With a limited company, you are
regarded as an employee of the business, so you only need to set up
a PAYE system to pay yourself. Read more about limited
companies.
- Different rules apply to subcontractors in the construction
industry. If this applies to you, you need to register with the HM
Revenue & Customs (HMRC) Construction Industry scheme. To find
out how to do this phone the CIS Helpline on 0845 366 7899.
Download this
guide to find out more.
- In all other cases, whether you're going to take on employees
or not, you need to register as self-employed. You can then set up
a PAYE system for employees afterwards.
The responsibilities
- Once you're registered as self-employed, you become a self
assessment taxpayer. That means that if you don't already, you'll
have to fill in a tax return each year, detailing your earnings and
any other income you get. You'll need to do this whether or not
you're employed in another job.
- You'll also have to keep all financial records for your
business. Find out more about business bookkeeping.
- You'll also have to start paying your own National Insurance
Contributions (NICs). Read more about paying NICs.
- You may also have to pay VAT for your business - get more
information on VAT.
How to do it
You can register by:
- Going online
- Fill out
this form to register as a self-employed sole trader
- And
this one to register as a partnership (your business partners
need to register separately)
- Calling HMRC's newly self-employed helpline: 0845 915 4515
(open from 8 am to 8 pm Monday to Friday, and from 8 am to 4 pm at
weekends)
- Printing out the form at the end of this leaflet, completing it
and posting it to
HMRC.
If you have an agent who will be completing the form for you,
read the information here and make sure they've signed
this form. You can register under your own name, or create a
business name. Read more about choosing a business name.
Registering in any of the ways above is quick and
straightforward. If you have any problems, call the HMRC newly
self-employed helpline on 0845 915 4515.
Checklist
If you're setting up as self-employed, make sure you:
- Find out from HMRC whether you need any permits for your
business
- Register as self-employed
- Set up a direct debit for or put money aside ready to pay bills
for your NICs
- Find out whether your business needs to pay VAT
- Set up a financial record-keeping system
- Put your name on all business stationary, such as invoices,
receipts, cheques and letters
- Find out if you need to pay business rates on your business
property
FAQ
I'm not sure whether or not the work I'm doing counts as
self-employment.
If you receive any payment for work where the person paying you
isn't paying you through a PAYE system or they aren't working out
your tax and NICs on the payment and paying them on your behalf,
that work qualifies as self-employment. Check with whoever's paying
you to find out.
I have a job but I'm starting my own business on the side
- what's my status?
You still need to register as self-employed as soon as you start
actively seeking work for your sideline business.
Should I register as self-employed or set up as a limited
company?
To find out more about which type of company set-up will best suit
you, read the guides in our section on company formats
Am I a sole trader if I register as
self-employed?
No, not necessarily. You can be in a partnership and be
self-employed. If you indicate you're setting up as a partnership
when you register you will automatically be registered as a
partnership. However, if you are the only person responsible for
the business, you are known as a sole trader.
What if I'm going to take on employees and need to set up
a PAYE system?
You still need to register as self-employed, unless you're setting
up a limited company. You can then set up a PAYE system to pay
employees.
What if I'm a freelancer or doing contract work and not
sure whether to register?
You need to register as self-employed if the person paying you for
work isn't paying tax on your behalf, or deducting it from your
pay. Ask the person paying you about this - if they're not, you
need to register and sort out your own tax and NICs.
I'm only going to be working for one company/client - am I
an employee or self-employed?
If you are going to do all the work for one person or firm, you
may actually qualify as an employee rather than needing to register
as self-employed. You need to call HMRC's self assessment helpline
to find out your status - call them on 0845 9000 444. Or, visit
your nearest HMRC office.
I know I'm not going to turn a profit any time soon - do I
still need to register?
Yes, as soon as you start actively seeking work. You'll still need
to fill out a tax return too, even if you're not turning profit
yet.
Jargon buster
PAYE: Pay As You Earn (PAYE) is a system employers
set up through HMRC to pay employees' tax and NICs
automatically.
NIC: National Insurance Contributions (NICs) are
regular contributions made to the government to cover the cost of
public services such as the NHS, and to contribute to your state
pension in the future.
Sole trader: A sole trader is one person who owns
the business entirely, and takes personal and individual
responsibility for accounts, debts and the running of the business
(unlike a partnership, where control and liability for the business
is shared). Sole traders can have employees.
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Resources
- HMRC
leaflet giving an overview of self-employment and answering the
main questions you may have
- HMRC leaflet
to help you figure out if you're employed or self-employed
- HMRC self assessment helpline - 0845 9000 444
- HMRC self-employment helpline - 0845915 46 55
- HMRC VAT helpline - 0845 010 9000
- The new employer's helpline - 0845 607 0143
- PAYE helpline - 0845 607 0140
As soon as you register, HMRC will send you The Guide, a book
designed specifically for the newly self-employed that tackles all
the major issues like tax, National Insurance and record
keeping