When starting up your own business, the alternative to setting up a limited company is to register as a sole trader or become a member of a partnership. If you decide to trade as a sole trader then you will be classed as ‘self-employed”. The following guide advises how to register as a sole trader including all the relevant and optional taxes you can register for.
Currently there are almost two million private limited companies in the UK, however there are nearly three times that number of self-employed people.
How to register as self-employed
To get started as a sole trader, or partnership, you need to inform HMRC that you either wish to become self-employed or have recently started working for yourself.
To do this, you must register for self-assessment. You still need to complete the registration process to let HMRC know that you have become self-employed regardless if you have already completed an annual self-assessment form.
If you’re starting your company as a partnership, then a nominated partner will also be tasked with setting up the partnership for self-assessment.
To find out more about the registration process then visit gov.uk If you have any difficulties completing the process then call HMRC’s Self-Employed Helpline on 0300 200 3500.
Register to pay National Insurance Contributions (NICs)
You must register to pay Class 2 NIC’s as soon as you become self-employed. For the 2018/19 tax year, if you are earning more than £6,205 then you will pay £2.95 per week. To pay Class 2 NICs by Direct Debit, complete the application form here.
It’s important to remember you will also be liable to pay Class 4 NICs when you have completed your self-assessment form each year so it’s crucial you set aside sufficient income to cover these liabilities.
Register to pay other types of tax
Via the self-assessment process, you will be taxed on any annual profits however there may be other taxes you are required to pay throughout running your business.
In a 12-month period if your turnover is expected to reach £85,000 or more or if you expect to turnover the entire sum within 30 days then you must register for Value Added Tax.
If employing staff then you will need to set up payroll and therefore deduct NICs and PAYE from employees at source. These taxes will also need to be registered separately with HMRC.