Do you want to be your own boss or start a part-time business? Make sure you're compliant with the law with our guide to the key steps to registering as a freelancer.
It's easy to get caught up in the excitement of starting your own business or making extra money working part-time, but it's important to know.HM Revenue and Customs (HMRC)inform you about your self-employment as soon as possible. By reporting this to HMRC you can be assured that you are paying the right amount of income tax and national security and registering as a self-employed person is quick, easy and free. But don't hesitate: you must report to HMRC within three months of starting business or you could be breaking the law and face a £100 fine.
Why should I register as a freelancer?
If you are employed, income tax and social security deductions are paid by your employer. Your employer automatically deducts them from your PAYE salary and leaves the rest in your weekly or monthly paycheck.
However, once you are self-employed, you are responsible for calculating and paying taxes and social security on the profits generated by your business. This is done through a process called self-assessment. This means that for each new tax year that ends, you must complete and file a tax return detailing your income and any other income so that the correct amount for taxes and National Insurance can be calculated. . You must do this regardless of whether you are employed in another job or not.
Even if you are already filing a self-assessment tax return as an individual, for example to pay rental income tax or claim a tax refund on charitable donations, you will need to register with HMRC as soon as you become self-employed.
What counts as self-employed?
Knowing if you are self-employed may seem obvious, but in some cases your employment status is not always clear.
If you receive payment from someone else for services you provide or goods you sell that are not paid for through a PAYE scheme, HMRC will consider you self-employed and therefore liable to pay tax on the income you earn.
That goes for everything from selling homemade items like cakes or jewelry to building websites and tutoring. However, it doesn't involve the occasional sale of unwanted personal items to make a little extra cash.
You can also be employed and self-employed at the same time: for example, working for a company during the day and running your own business at night and at weekends.
If you're not sure if you're self-employed, use the HMRC Employment Status Indicator online tool to find out your employment status by answering a series of questions. It's completely anonymous, so you don't have to provide any personal information, just information about the hours and nature of your work. Locate the HMRC employment status indicatorHere.
What is the difference between registering as a freelancer and PAYE?
PAYE (Pay As You Earn) means that taxes and social security are automatically deducted from your annual salary. As you already know, this depends on your tax code, which is calculated from your salary and the current exemption limit.
This is not the case when you are self-employed. Instead you must submit a tax return and payment to HMRC before the end of each tax year.
In addition, you may have to pay VAT on all goods and services your business receives and supplies, and you will also have to make your own National Insurance (NI) payments from now on.
Do not worry. HMRC will explain everything to you when you register as a self-employed person and will send you all the necessary forms and documentation to help you sort out your own situation.
When should I register as a freelancer?
HMRC recommends that you register as a freelancer as soon as possible. However, you have until October 5 to apply for your company's second fiscal year.
By registering as self-employed you are telling HMRC that you intend to pay Class 2 Social Security (you currently earn over £5,965 or more per year).
You then have 18 months to pay your Class 4 Social Security, which is your tax calculated after 12 months of negotiation. However, you only have to pay these if you make a profit.
How to register as a freelancer by phone
Wondering who to contact to register as a freelancer?
There are numerous ways to register as a freelancer.
The HMRC Self Employed Helpline offers you the option of registering over the phone. Simply call 0844 453 0165 to be put in touch with a representative.
Before making the call, consider the following:
- social security number
- Trade name of the company
- business direction
- business phone number
- past tax history
How to register online as a freelancer
The quickest way to register as a freelancer is online via the HMRC website.
You will be asked for:
- Your current tax status
- Current employment status
- basic business information
Again, it pays to write down any supporting documents, including your social security number, the size of your business, and your projected earnings.
After registration, you will be sent a confirmation of the change in employment. You will also receive additional forms from HMRC to fill in and return to them.
What happens after registering as a freelancer?
Once registered, HMRC will write to you in April each year asking you to complete an online tax return or file a paper tax return to close the tax year just ended. Completing your tax return online offers many benefits, including increased processing time, automatic calculations of taxes due, and the ability to view and amend payments.
Filing your taxes correctly is a lot easier when you keep good records of cash flows in and out of your business. To fix this, keep paper or electronic documents, including bank statements, sales invoices, purchase receipts, vehicle mileage records, and cash books.
Collect and save them as you work to avoid a stressful search for paperwork as tax return deadlines approach. Documentation must be retained for up to five years after filing your tax return as HMRC may request access to it. You can be fined if you don't keep records.
Do I need an accountant?
“Should I hire an accountant for my new business?” This is a question we get asked regularly at Start Up Loans.
If you're not sure how to prepare your tax return yourself, or you don't have the time, it may be worth hiring a tax professional. In addition to handling your tax affairs, an accountant can also highlight useful information. tax benefits and can advise you on NI, VAT and anything else related to your company's finances.
It is up to you to decide whether or not to hire an accountant after registering as a freelancer. Either way, it's imperative that you write down all receipts, bills, and transactions to keep track of your business finances.
If you decide to forego an accountant and do it yourself there is plenty of help on the HMRC website. Alternatively, you can speak to an HMRC advisor on 0300 200 3310.
When does my income tax return have to be submitted?
If you are self-employed, you have to meet strict tax deadlines. It's worth setting reminders in your phone or computer calendar to avoid missing those deadlines and paying a fine.
Paper self-assessment forms must be received by HMRC by midnight on 31 October following the financial year just ended. The deadline to complete the online form is three months later: midnight on January 31st and any amounts you owe for that tax year must be paid by January 31st. This is automatically calculated for you to see when you complete your return online. If you submit a paper form, HMRC will calculate your tax liability and send you an invoice, so please allow plenty of time before the due date.
How to apply for VAT
It's not just taxes and social security that you need to consider when starting your own business. If you are planning to register as a self-employed person in the UK you will also need to think about registering for VAT.
Depending on how much your company earns each year, you will need to register for VAT and fill out a return each quarter.
You can register for VAT online or by post through HMRC who will explain everything you need to know about your VAT eligibility.
If you're still unsure, we offer all home loan recipients free advice and guidance.
If you are accepted for a loan, you will be assigned a dedicated business expert who can guide you through the process.
What if I want to hire employees?
Being a sole proprietor doesn't mean you have to work alone, you can hire a team to help you. However, once you hire someone you must inform HMRC. Next, you need to collect taxes and Social Security from your employees through a PAYE payroll plan. we have muchArticles on recruitmenton our Business Council if you are considering hiring.
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