Self-employed taxpayers should notify HMRC as soon as practicable when they begin working for themselves. HMRC must be officially notified by 5 October following the end of the tax year so that a self-assessment return can be issued on time and to avoid any unnecessary penalties.
What makes you qualified as self-employed
HMRC’s guidance says that you are probably self-employed if you:
- run your business for yourself and take responsibility for its success or failure;
- have several customers at the same time;
- can decide how, where and when you do your work;
- can hire other people at your own expense to help you or to do the work for you;
- provide the main items of equipment to do your work;
- are responsible for finishing any unsatisfactory work in your own time;
- charge an agreed fixed price for your work; or
- sell goods or services to make a profit (including through websites or apps).
An individual can be both employed and self-employed if they work for someone else as an employee, then run their own business outside of those hours.
How to set up as a sole trader
You will need to set up as a sole trader if:
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If you're earning more than £1,000 from self-employment; or
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you need to prove you are self-employed, for example to claim tax-free child care; or
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you want to make class 2 NIC payments to help qualify for benefits.
Self-employed people classed as sole traders must register for self-assessment tax returns. If you have already registered for a self-assessment tax return for another reason, such as income from a property you must register again as a sole trader, which will then register you for class 2 national insurance contributions.
Self-employment tax exemption
There is an exemption for sole traders from registering for tax where they have trading income of up to £1,000 from:
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self-employment;
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casual services, for example, babysitting or gardening; and
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hiring personal equipment, for example, power tools.
Where this £1,000 allowance covers all the individual’s relevant income (before expenses) the income is tax-free and does not have to be declared to HMRC.
Contact us
If you are unsure if you are self-employed and want advice on how to register correctly, contact our specialist tax team. Our Tax team can help you register and complete your self-assessment tax return.