If you want to register as a self-employed salesperson, but don’t know how, there’s a good chance you might feel quite daunted at the prospect – after all, there won’t be an employer to guide you through it as there may have been in the past on issues like workplace pension schemes and so on.
Luckily, registering as self-employed is actually very easy, and apart from requiring a sensible approach to saving for your tax bill and National Insurance contributions, the ongoing admin work involved is usually quite minimal too.
It’s best to register as soon as possible after going self-employed, but it’s not technically mandatory to do this – in fact, you can register anytime up to October 5th in your second taxable year.
However, leaving it this late could create problems with your tax liabilities, so it’s always better to be prompt about it, so that you know exactly where you stand.
If you’ve never sent in a self-assessment tax return, you register as a new business with HMRC, which lets them know you will be paying income tax via self-assessment, along with Class 2 National Insurance contributions.
Fill out a CWF1
If you’ve self-assessed before, but not as a sole trader, for example because you rented out property, you can use the same account and 10-digit Unique Taxpayer Reference, and simply fill in a CWF1 form to register as self-employed.
And if you have been self-employed in the past and want to re-register, again the CWF1 form is the way to do so, and again you’ll need your UTR, which can be found on old communications from HMRC or on your online account.
It typically takes up to ten working days for your registration to be processed and a Government Gateway activation code to be sent out – so don’t leave it too close to a tax deadline to register, or your code might not arrive in time.
Not everyone feels comfortable managing the financial side of being self-employed, but you can appoint an accountant to act as your ‘agent’ with HMRC in this regard, so that you don’t have to worry so much about the paperwork.
Your accountant can prepare and file your tax return, and let you know how much you owe at the end of your first and subsequent financial years – your first tax return will be due in the first April after you go self-employed, but the deadline to actually file it and pay the tax is not until the following January.
Know when you need to be ready
As such, if you trade as self-employed for a full 12 months, then take the almost nine months that are allowed to file and pay your taxes for the first time, you could be working for 21 months before you pay your first tax bill.
Don’t get caught out – it is crucial to keep the right amount of income set aside to cover your tax bill when it arrives.
In subsequent years, HMRC may ask you to pay ‘on account’, with two six-monthly instalments towards your total tax bill paid in advance in January and July, so it’s sensible to be aware of this and to save the extra you might need to cover this cost when it arrives too. Here’s a great article by Which?, that goes in to an in-depth analysis of how to pay your tax bill.