If you are planning to start out as a self-employed sole trader or freelancer, it can be an exciting and rewarding experience. However, it can also be a lengthy process, particularly when it comes to navigating the legal and financial aspects of running your own business. One of the key steps in getting started is registering as a self-employed sole trader or freelancer. In this article, we will guide you through the essential steps you need to take to register your business, including determining your eligibility, choosing a business name, registering with HMRC, setting up record-keeping, and registering for VAT (if applicable). By following these steps, you can ensure that your business is set up correctly and legally and that you are ready to start trading as a self-employed sole trader or freelancer.
Determine if You Are Eligible
Before you register as self-employed, you need to ensure that you meet the eligibility criteria. Generally, anyone who is earning money outside of regular employment can register as self-employed. However, there are some exceptions – for example, you cannot register as self-employed if you are running a limited company.
To register as self-employed, you must be at least 16 years old and a UK resident. If you are a non-UK resident, you may still be able to register as self-employed, but you will need to check the specific requirements with HM Revenue and Customs (HMRC).
You will also need to consider whether you are doing business on your own or as part of a partnership. If you are in a partnership, you and your partners will need to register as a partnership rather than as self-employed individuals.
Additionally, you will need to register as self-employed if you:
- Earn more than £1,000 in a tax year from self-employment
- Are a sole trader and carry out any work on behalf of a limited company
- Receive income from renting out a property or other assets
- Receive income from investments or dividends
It is important to note that even if you are unsure whether you meet the eligibility criteria, you should still register with HMRC as soon as possible. If you fail to register, you may be subject to penalties and fines.
By ensuring that you meet the eligibility criteria, you can confidently move on to the next steps of registering as a self-employed sole trader or freelancer.
Choose a Business Name
Choosing the right name for your business is an important step in setting up your self-employment. A good business name should reflect your brand and values and be easy for your customers to remember. When selecting a name, you’ll want to consider the following:
Choose a name that reflects the values of your business. This could include your values, the values of your target audience, or the values of your industry.
Choose a name that is easy to remember and stands out from your competitors. It should be easy to pronounce, spell, and type, so it can be easily found online and offline.
Check if the name is already taken and if it’s available to use. You can do this by searching the Companies House register, which is a public database of all UK companies. Make sure your name is not already taken or too similar to another business’s name. You should also check if your chosen name violates any trademarks or copyrights.
Consider if the domain name for your business is available. Having a domain name that matches your business name can help with branding and online visibility.
Consider if the name is versatile enough to accommodate any future expansion or changes in your business.
Once you have chosen a name, you should register it as a trademark to protect your brand. You can register your trademark with the Intellectual Property Office (IPO) or seek legal advice to ensure that your business name is protected.
By carefully choosing your business name, you can create a brand that resonates with your target audience and sets you apart from your competitors.
Register with HMRC
Registering with HM Revenue and Customs (HMRC) is a crucial step in becoming a self-employed sole trader or freelancer. Registering with HMRC allows you to declare your income, pay taxes, and access any relevant benefits or allowances.
To register with HMRC as a self-employed individual, you will need to provide the following information:
- National Insurance Number: You have to take a National Insurance Number to register as self-employed. If you do not have a National Insurance Number, you can apply for one through the UK government website.
- Personal Details: You’ll need to provide your full name, date of birth, and contact details, including your address and phone number.
- Business Details: You’ll need to provide details about your business, including your business name, trading address, and the nature of your business.
- Tax Details: You need to share your details about expected income and the date you started trading. This is a vital information that will be used to calculate your tax liability.
- Register for Self-Assessment: You will require to register for Self-Assessment, that will help you to declare your income and pay taxes. You can register for Self-Assessment online through the HMRC website.
Once you have registered with HMRC, you will receive a Unique Taxpayer Reference (UTR) number. This number is unique to you and should be used to identify you in all your dealings with HMRC.
It is important to note that you must register with HMRC within three months of starting self-employment. Failure to register within this timeframe may result in penalties and fines.
By registering with HMRC as a self-employed sole trader or freelancer, you can ensure that you are meeting your legal obligations and have access to any relevant benefits and allowances.
Set up Record Keeping
Setting up record-keeping is an important step in becoming a self-employed sole trader or freelancer. Good record-keeping practices can help you keep track of your income, expenses, and profits, which is essential for filing your tax returns accurately and on time. Here are some tips for setting up record-keeping for your business:
Choose A System:
There are several systems available for record-keeping, including manual record-keeping, spreadsheets, and cloud-based accounting software. Choose a system that works best for you, and make sure that it’s suitable for your business needs.
Keep Track of Your Expenses:
Keep track of all your business expenses, including receipts, invoices, and bank statements. This will help you claim all the expenses you are entitled to when it comes to filling out your tax return.
Set Up A Separate Bank Account:
It is a good idea to set up a separate bank account for your business. This will make it easier to keep track of your business finances and separate them from your finances.
Record All Income:
Record all income you receive, including cash, cheques, and electronic payments. Keep a record of all your invoices and payments received, and make sure you know the due dates for any outstanding invoices.
Keep Track of Deadlines:
Make sure you know the deadlines for submitting your tax return and paying your tax bill. Late submission or payment may result in penalties or interest charges.
Review Your Records Regularly:
Regularly review your records to make sure they are accurate and up-to-date. This will help you avoid any errors or omissions in your tax returns.
By setting up good record-keeping practices, you can stay on top of your finances and make sure you are meeting your tax obligations. It can also help you make informed decisions about your business and plan.
Register for VAT (if applicable)
VAT (Value Added Tax) is a tax that is added to the cost of goods and services in the UK. If your business has an annual turnover of over £85,000, you are required to register for VAT with HM Revenue and Customs (HMRC). However, even if your business does not meet this threshold, you can still voluntarily register for VAT if you wish to do so. Here is what you need to know about registering for VAT:
Determine If You Need to Register for VAT:
As mentioned, if your business has an annual turnover of over £85,000, you are required to register for VAT. You can also choose to voluntarily register for VAT if your annual turnover is below this threshold.
Choose The Right VAT Scheme:
There are several VAT schemes available, including the standard scheme, the flat rate scheme, and the cash accounting scheme. Choose the scheme that is most suitable for your business needs.
Register for VAT with HMRC:
You can register for VAT online through the HMRC website. You will need to provide details about your business, including your business name, trading address, and the nature of your business.
Keep Track of Your VAT:
Once you are registered for VAT, you will need to keep track of your VAT records, including your VAT invoices, receipts, and payments. You will also need to submit your VAT returns to HMRC regularly.
Charge VAT to Your Customers:
If you are registered for VAT, you will need to charge VAT to your customers on your sales invoices. You will then need to pay this VAT to HMRC.
Claim Back VAT:
If you are registered for VAT, you can claim back any VAT you have paid on business expenses, such as office equipment or travel expenses.
It is important to note that failing to register for VAT when required may result in penalties and fines. By registering for VAT, you can ensure that you are meeting your legal obligations and can also benefit from claiming back VAT on business expenses.
Becoming a self-employed sole trader or freelancer can be a fantastic way to take control of your career and enjoy tax benefits. Registering as self-employed is a straightforward process that involves choosing a business name, registering with HMRC, setting up record-keeping, and potentially registering for VAT. With a little bit of effort, you can successfully register as a self-employed person and start enjoying the benefits of being your boss.