When you are self-employed, you are responsible
for paying your own Income Tax, National Insurance Contributions and
VAT (if applicable). If you are unsure if you are employed or self-employed
here for a clear definition. Please be aware that if you are employed
but are earning outside of this employment, i.e. earning extra cash
elsewhere, such as freelancing, unless you are taxed at source you will
still need to register your freelance work and fill in a tax return
How to register as Self-Employed
Once you have established that you are self-employed,
the next step is to register as such with the Inland Revenue. To avoid
any penalty charges make sure that you register within three months
of starting. You can find more details on how to register by using
this link. The article will give you step
by step instructions on what you need to do to register and what to
expect thereafter. Although this may sound
like a daunting process, it really is very simple. All you will have
to do is register your details in a few easy steps either online or
by telephone. Once you have registered, the Inland Revenue will notify
you once a year to inform you that you need to complete your Self Assessment
tax return (if you file on paper), or a Notice to File (if you file
online) soon after the end of the tax year - 5 April.
Keep your records in check
Do keep your records up-to-date. If you have
Microsoft Excel, you can keep all your income details and expenses on
file. Otherwise, buy an A4 hardback note pad and keep all your details
neatly stored in hard copy. Make sure you keep your files up-to-date
and do keep all receipts and payment invoices. You are required by law
to keep certain business records. These include bank statements, receipts
and cash transactions. Make sure that you keep all these, and other
relevant records, for a minimum of 5 years. You will need these records
to fill in your tax return. The Inland Revenue will use them to work
out your tax and national insurance contributions.
Will I have to pay Tax and how much?
When you have completed your tax return the
Inland Revenue will calculate your tax for you and let you know the
amount, if any, you will need to pay. You will be required to pay tax
if your income exceeds the National threshold (you can find out how
much your Personal Allowance is by using
As you can see from the graph below, if you
earnings at the end of tax year *2010-2011 is £6,475 or below
(after expenses) you won't have to pay tax. If your earnings exceed
this amount then you will have to pay some income tax for your earnings
for that tax period.
But whether you earn enough to pay tax or not
you still MUST register and you MUST fill in your tax return every year.
You may even be entitled to a tax refund if you
have paid too much tax in any given year. If you don't fill in and return
your tax form on time you may find that you are faced with a hefty fine
or/and interest charges, so do make sure that you complete the form
and return it within the stipulated time frame, which is 31st October
if you are filling in a paper form and January 31st if you are completing
A good tip is to put some money aside each month to enable you to comfortably
meet this payment.
There are two types of National Insurance for
self employed people - Class 2 and Class 4. Class 2 National Insurance
Contribution payments will be calculated, depending on your status and
circumstances, and billed to you every quarter, which you will have
to settle within 28 days. Class 4, which is a percentage of your taxable
profits that you include on your tax return. You can find out more about
here... or contact the Self Employment Contact Centre on: 0845915
Will I have to pay VAT?
For VAT you will only have to register once your taxable
turnover reaches £73,000.*
This changes often, usually at the time of the Budget so do visit HMRC
to make sure of the current threshold if you think that you might need
to register. You can find out more details on VAT with up-to-date information
or by calling the National Advice Service on:
0845 010 9000.
For more up-to-date details on becoming self
employed or to register visit Inland
Revenue or contact the Self Assessment Helpline
on: 0845 9000 444
For further information and for help on tax
and VAT visit Tax
for the Self-employed free information offered
You may also find the HMRC's Self-Employment
Leaflet useful. Find
out more here....
Please note that this article is just a guide. For
more accurate and up-to-date information visit your tax office or contact
the Inland Revenue.
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at time of pulication 23/02/2011