Setting up as a sole trader, or freelancer, is by far the easiest and quickest way to start a business. It’s fairly light on paperwork and doesn’t require paying a registration fee, however it’s paramount that you register as self-employed within three months of working or starting to trade. Failure to do so may result in a penalty of up to £100, plus interest on any taxes due. Read our step-by-step guide on how to register as a self-employed sole trader. (For advice on registering a limited company, click here).
Before you set up as a sole trader
Pretty much anyone can set up as a sole trader, although there are certain types of work that require obtaining a licence or permit from your local authority, such as childminding, taxi driving or street trading.
If you’re planning on running your business from home, you may have to pay business rates for the part of your home that you use for business purposes, depending on whether or not you use that part for domestic purposes as well. For example, if you work from a computer in your bedroom it is unlikely you’ll have to pay business rates, but if you work from a separate office, this may entail paying business rates.
Another thing to bear in mind if you’re working from home is whether or not you need planning permission. If you propose to make any changes to your house for business purposes, such as building an extension, or if you’re likely to cause disturbance to your neighbours, it will probably be necessary to get planning permission. Contact the planning department of your local authority for more details.
How to register as self-employed
Anyone who becomes self-employed must register for income tax and national insurance contributions with HM Revenue & Customs (HMRC). This can be done either online, by phone or by post, however it is far quicker and more convenient to sign-up online. When registering you will need to provide your national insurance number - if you don’t have one, contact Jobcentre Plus.
While it is not possible to register in advance, it is important that you inform HMRC as soon as you start working. Upon registration, you’ll need to provide the following information:
- National insurance number
- Date of birth
- Telephone number
- Email address
- The nature of your business
- Start date of self-employment
- Business address
- Business telephone number
- Your Unique Tax Reference (UTR) - only if you were within self-assessment previously
- The business’ UTR – if you’re joining an existing partnership
- If relevant, the full name and date of birth of any business partners
As a self-employed sole trader, you’ll have to complete a self assessment tax return to HMRC. This involves filling in a tax return form, either online or paper, in which you inform HMRC of your income and capital gains, or in which you may claim tax allowances or reliefs. Usually, HMRC will send you your self assessment tax return in April. However, if yours doesn’t arrive by the end of April, contact your tax office.
If this is the first tax return you’ve completed, you’ll need to fill in a self assessment registration form first. Make sure you have your National Insurance number to hand when doing this. This involves completing a CWF1 form to inform HMRC about your business, and this will also register you for self assessment. If you’re not self-employed, you’ll need to complete an SA1 form.
Once this is done, HMRC will set up tax records for you and will send you a Unique Taxpayer Reference (UTR).
Self assessment payment deadlines
If you owe any money by the end of the tax year (April), you must pay that amount by January 31 the following year. The payment deadline is the same whether you file online or on paper. You will need to pay one or both of the following:
- The balancing payment (the balance of tax you owe for the previous year)
- The first of two ‘payments on account’ (advance payments for the current tax year)
You should receive a self assessment statement that shows the amount due, however if you don’t receive this before payment is due, you’ll need to work out the tax due yourself by registering for self assessment online and using the ‘view account’ option.
If you’re asked to make payments on account, your deadline for making your second payment is July 31.