Getting Set-up as a Self-Employed person in the UK

If you are considering going self-employed in the UK, there are a few things you should know about. In this post, we share these with you and discuss matters such as choosing a business name, registration, taxation, and any obligations and ongoing requirements.

What is classified as self-employment in the UK?

If you want to work for yourself, you will be classed as a sole trader if you:

• Sell goods or provide services.
• Make items to sell at a profit.
• Earn a commission from selling goods or recommending services to others.
• Receive payments for any service you provide.

If any of the above applies to you, it is highly likely you will be classified as self-employed.

Steps to consider when becoming self-employed.

We will now outline the different steps you need to take to become self-employed.

• Choose a business name
• Register with HMRC
• Get a UTR number
• Paying tax and National Insurance
• Ongoing obligations and requirements

1.     How to choose a ‘trading as’ name

When you register for self-employment, you also need to be able to supply your trading name. You can trade under your own name, or you can select another name for your business. You do not have to use your own name as your trading name.

TIP: Once you have chosen a name for your business, do a quick search online to double-check that the domain name is available to purchase as well. This is not essential by any means, but it can help your future customers find you more easily online.

As a final point, if you want to prevent others from trading under the same business name as your own, you will need to register your name as a trademark.

2.     UK Self-Employment – Registration

If you are self-employed and work on your own, you will need to set-up as a sole trader. In the first instance, you should inform HMRC that you are to pay tax through self-assessment. The process will involve:

• Register for an online account with gov.uk.
• The details will be confirmed in the post by HMRC. They will give you your 10-digit Unique Taxpayer Reference (UTR) number.
• You can then complete your Government Gateway registration details using your UTR.
• Once registered you will be required to complete your annual Self-Assessment tax return and have other obligations.

Here is a link for where you can register for self-employment online.

The deadline for registering is the 5^th October after the end of the tax year you started trading (UK Tax year – 6^th April to 5^th April). Example: If you started trading in June 2022 you need to register by 5^th October 2023. You will need to make sure you complete your registration before this date to avoid receiving a penalty, so it is best to register as soon as possible.

3.     Get a UTR Number

A Unique Taxpayer Reference (UTR) is a 10-digit code that uniquely identifies you to HMRC. They are needed to handle taxation matters, including filing your Self-Assessment, claiming a tax refund, and more. Once you sign-up for an HMRC account and Self-Assessment Tax Return system online, you can find your UTR number there when you log in. It will also be included in the SA250 letter, ‘Welcome to Self-Assessment’.

4.     UK Self-Employment – Taxation

You will need to file an annual tax return. The cut-off dates for submitted these returns are usually around October for paper returns and January for online returns. However, on certain occasions, these dates can change, so make sure you are registered with HMRC, and ensure your contact details are up to date.

Here is a link to check the most up to date self-assessment tax return deadlines.

It is vital you know the dates and prepare for them well in advance of the cut-off. If you fail to submit your tax return or are late with any payments, you could face financial penalties. 

National Insurance Contributions (NICs)

National Insurance Contributions (NICs) is another essential consideration. There are two different classes of self-employed National Insurance rates payable.

• Class 2 contributions apply if your profits are above £12,570 per year. You pay a flat rate of £3.45 per week for the 2023-24 tax year.
• Class 4 contributions apply when your profits are £12,570 or more per year. You pay 9% on profits between £12,570 -£50,270, and 2% on profits above £50,270 for the 2023-24 tax year.

If your profits are below £12,570 per year there is no requirement to pay NIC’s, however if you choose to pay Class 2 NIC’s this will build up your contributions levels and give you entitlement to certain state benefits and a state pension. You currently need 35 years of NIC’s to receive a full state pension.

HMRC has an online calculation tool that you can use to help you budget your NICs.  

Your Ongoing Taxation Responsibilities

• Maintain accurate records of all business expenses and sales
• Send your tax return to HMRC annually; every year, you are trading
• Pay income tax on any net profits you make
• Pay national insurance contributions (NICs) on your net profits
• If your annual turnover exceeds £85,000, you will need to register for VAT in addition.

Taxation on Net Profits

Self-employed people pay the same tax rates as employed people. For the 2023-24 tax year, the rules in England and Northern Ireland allow individuals to earn £12,570 of their income without paying tax. This is called a personal allowance.

The personal allowance is reduced to zero for any person earning over £100,000 per annum (this is reduced by £1 for every £2 over £100,000).

After the personal allowance, earned income is taxed as follows. The next:

• £0 to £37,700 is taxed at 20% (Basic rate tax payer: BRT)
• £37,701 to £125,140 (the next £87,440) is taxed at 40% (Higher rate taxpayer: HRT)
• £125,140 or over is taxed at 45% (Additional rate taxpayer: ART)

As a self-employed person, it is important you know how tax is due on your profits. Essentially, you pay tax on your Net Profits, this is calculated as your Gross Turnover (revenue from business activity) less raw materials and goods purchased to sell (stock) = Gross Profit. Gross profit less operating expenses = Net profit. These are sometimes known as adjusted profits.

Your Turnover is the total gross value of sales that you have generated. So, this is the total amount of revenue your business has generated, without any deductions.

Gross Profit is the gross revenue you have generated during a specific tax year, minus the cost of any goods you have sold. It is the total amount of money you make, less the cost of buying any products.

Net Profit is the gross profit figure less your operating expenses during the specific tax year. It is the total amount of money you make, less the cost of buying any products and operating expenses. In order to calculate your taxable net profits, you should deduct your allowable business expenses from your gross profits. The Net Profit figure is used to calculate your income tax and NIC figures.

HMRC will also allow you to deduct business expenses; these are known as allowable expenses. This can further reduce the amount of profit you need to pay tax on. A few examples of allowable business expenses include: Office costs such as rent, travel expenses, clothing costs (for uniforms), financial costs related to the business, marketing costs, utility bills costs and training courses.

If you receive income from other sources you may also have to pay tax on employed and investment income. This may include:

• Your salary, including benefits in kind such as a company car
• Any taxable state benefits
• Rental property income
• Interest on investments or savings
• Dividends from any shares that you may own.

Paying your tax and NIC’s

If you have a tax liability you will be required to pay your income tax and both classes of NIC’s by the 31^st January following the previous tax year. This means any tax due from the 2023-24 tax year is due by the 31^st January 2025. If you complete a Self-Assessment tax return, then you may be required to make ‘payments on account’ by the 31^st July. These are essentially payments towards your tax liability for the current tax year which are paid in advance.

5.     UK Self-Employment – Ongoing Requirements and Expectations

Aside from taxation and NIC requirements, there may be other responsibilities to consider.

• Keeping records: It is important that you keep all your statements, receipts and invoices to compile your accounts. Records must be kept for a minimum of 5 years from when you submit your accounts. There are many accounting software packages that can make life simpler.
• Qualifications: To advise on mortgages you need a Regulated Qualifications Framework Level 3 qualification such as CeMAP and to become a financial adviser you need a Regulated Qualifications Framework (RQF) Level 4 qualification such as The Diploma for Financial Advisers (DiPFA).
• Insurance: The type of insurance you need for your work. Business insurance such as buildings and contents insurance. Professional indemnity insurance to cover the costs of being sued if you are negligent and Employer liability insurance if you go on to employ people.
• If you require any permits or licenses for the work you do. If you gather information on clients you will need to be GDPR compliant and have a data protection policy. You must also register with the Information Commissioner (ICO) before you can do so.
• Regulatory requirements (for Financial Services organisations): You will need to be authorised and regulated by the Financial Conduct Authority (FCA) if you want to provide regulated financial services in the UK.
• If you run a business from home, check you have permission to do so.

This list is not exhaustive, but it is designed to give you a comprehensive outline of the most important things you should know. In the section below, you will find links to some of the most important resources and forms that you will need as a self-employed person.

UK Self-Employment – Useful Links and Resources

• Sign-up to receive business support emails from HMRC – Link to source
• Apply to protect your trading name and register it as a trademark – Link to source
• UK Self-assessment tax return deadlines – Link to source
• File your self-assessment tax return online – Link to source
• Get help with filing your tax return – Link to source
• Self-employment national insurance rates – Link to source
• Get help if you have lost your Unique Taxpayer Reference (UTR) number – Link to source
• For free local business support or guidance via government growth hubs – Link to source