The alternative to setting up a limited company is to become a sole trader or a member of a partnership, for example, if you decide to trade a sole trader you will essentially be classed as ‘self-employed’. In this guide on how to register as a sole trader, you will be made aware of all the relevant taxes, optional taxes you can register for and how to actuallly set up as a sole trader/ sel-employed.
Although there are nearly two million private limited companies in the UK, there are nearly three times that number of self-employed people. We address the advantages and disadvantages of each type of business structure in our article, limited company or sole trader?
How to register as self-employed?
All that you need to do to get started as a sole trader (or partnership) is to inform HMRC that you wish to become self-employed (or have recently started working for yourself).
You do this by registering for self-assessment. Even if you have already completed an annual self-assessment form, you will need to complete the registration process to let HMRC that you have become self-employed (more details here).
If you’re setting up in business as a partnership, a nominated partner will also be tasked with setting up the partnership itself for self-assessment.
You can find out more about the online registration process via GOV.UK. If you get stuck with any aspect of the registration process, you can also call up HMRC’s Self-Employed Helpline on 0300 200 3500.
How to register to pay National Insurance Contributions (NICs)?
As soon as you become self-employed, you must register to pay Class 2 NICs. For the 2020/21 tax year, you pay £3.05 per week if you are earning more than £6,475 or more. You will find an application form to pay Class 2 NICs by direct debit here.
You should bear in mind that you will also be liable to pay Class 4 NICs when you have completed your self-assessment form each year, so you should set aside sufficient income to settle these liabilities.
More on the latest tax rates and allowances on tax rates page.
How to register to pay other types of tax?
You will be taxed on any profits you make each year via the self-assessment process, however, there may be other taxes you will have to pay during the course of running your business.
If your turnover is expected to reach £85,000 or more in a 12 month period, or if you expect to turnover the entire sum within 30 days, you must register for Value Added Tax. You can read more in our guide to VAT.
If you are going to employ other people, you will need to set up a payroll and deduct NICs and PAYE from your employees at the source. For all these taxes, you will need to register separately with HMRC (although you will already have registered to pay income tax via the self-assessment process).
Unsurprisingly, the most comprehensive source of information to help you register as self-employed is HMRC. Visit their dedicated self-employment section on GOV.UK.