Your guide into the first steps of self employment
How and when to register
When you become self-employed you must register for Income Tax and National Insurance purposes with HM Revenue & Customs (HMRC). There are three ways that you can register:
online using the email links below (recommended for most)
phone - by calling the Newly Self-employed Helpline (details below)
post - by downloading and completing form CWF1 (link below)
If you are self-employed in a partnership, each of the partners must register separately.
Your National Insurance number
In order to register you will need your National Insurance number. If you don’t have one please call Jobcentre Plus on 0845 6000 643. You will need to attend an Evidence of Identity interview at a Jobcentre Plus or Social Security office.
When to register
You should tell HMRC as soon as you start working for yourself (you can’t register in advance). If you delay registering, you may have to pay an initial penalty. You’ll also have to pay further penalties if payments become due and have not been met.
Information you will need to provide
You will need to provide the information listed below.
Make sure you have all of this to hand if registering online as you cannot save the details and return at a later date once you start to complete the online form:
National Insurance number
date of birth
contact telephone number
contact email address
the date your self-employment commenced
the nature of your business
your business address
your business telephone number
Unique Taxpayer Reference (UTR) if you were previously within Self Assessment
the business's UTR if you are joining an existing partnership
where relevant, the full name(s) and date(s) of birth of your business partner(s)
Where to find your National Insurance number and UTR
Your National Insurance number is made up of nine letters and numbers in the following format: DQ123456A. You can find it on your National Insurance card, letters from Social Security, documents sent to you from HMRC, on your pay slips, P45s or P60s.
If you’ve completed a tax return previously, you will find your UTR quoted on previously issued Self Assessment correspondence, for example your Self Assessment tax return. It’s made up of ten digits, for example 12345 67890. Please use the business UTR if joining an existing partnership.
Registering online This is the quickest and most convenient way to register (although this can’t be used if you’re a partner in a limited liability partnership). Note that when you submit your online application to HMRC it is secure, but the reply to you is not. As a result the email reply will not contain confidential information. If HMRC needs to send you any such information they will contact you by letter or telephone.
Please also note that for security reasons, you will be timed out after 15 minutes. Therefore please have all information to hand before you start. Use this link to register with HMRC;
Call this number to register over the telephone 0845 915 4515
In most cases you can also register as self-employed by calling the Newly Self-employed Helpline on 0845 915 4515. Lines are open from 8.00 am to 8.00 pm Monday to Friday and 8.00 am to 4.00 pm Saturday and Sunday (closed Bank Holidays). You’ll still need all of the information mentioned above to hand.
Basic records to keep
You must keep records in support of your entries so that you can prove to HMRC that the entries which will then be reflected on your Self Assessment return are accurate.
Your basic business records must include:
· a record of all your sales and takings
· a record of all your purchases and expenses
Taximanager will use these recorded entries to create a profit and loss account - which shows the sales income you've received and the expenses you've paid, and what profit/ loss you've actually made. The more detailed records you keep, the easier it will be to answer any questions that HMRC have about your tax return
Records related to both business and personal use
It's important that you keep your business and personal records separate, so that you can work out exactly what relates to your business. This is another reason why Taximanager suggests completion of the mileage register which will enable the personal element of the vehicles use to be calculated as accurately as possible.
The other main item of expenditure claimed is that of telephone costs and mobile telephones. You must estimate what percentage of these costs are private which will be added to your assessable profit at the year end.
As you will be using your personal computer or Smartphone to enable you to record your entries then the claim for the cost of a pc or telephone can be claimed in entirety if they total under £1000. Again you will need to estimate what percentage you think was used for personal use and provide an estimate at the year end.
How long must you keep your records?
You must normally keep your business records for five more years after the normal filing deadline of 31 January. This date applies even if you've sent in a paper tax return.
For example, for a 2010-11 tax return filed on or before 31 January 2012, you must keep your records until 31 January 2017.
But if HMRC sent you - or you sent back - your tax return very late, you may need to keep your records for longer. You need to keep them until the later of:
· five years after the normal filing deadline
· fifteen months after the date you sent your tax return
If a check has been started
You may also need to keep your records for longer if a check into your tax return has been started - in this case you'll need to keep your records until HMRC writes and tells you they've finished the check.
If your records are lost or destroyed
If your business records become lost or destroyed and you can't replace them we will show on the Self Assessment return this has happened and advise HMRC that the figures are estimated.
Paying your tax
Once you have registered with HMRC notifying that you are self employed, you will then be invited to pay class 1 national insurance contributions by direct debit. This is the basic national insurance contribution you will have to pay each month, however there are certain circumstances where if you are not going to earn above what is the lower earnings limit then HMRC will consider waiving the charge to class 1 contributions, an example is if you have other employment where class 2 national insurance is deducted from your pay. You will need to contact HMRC to obtain this dispensation.
Self Assessment liability
At the end of the year a self assessment return wil be submitted for you by PBT Tax Solutions once it has been approved by you. If there is any tax liability you will be advised of the amount to pay. You may already be paying tax/nic through what is known as payments on account, one on 31 January the other on the 31 July. These payments on account are calculated based on your previous years tax liability if this exceeds £1000 in total. These payments on account are taken into consideration when calculating your final liability for the year and the balalnce becomes payable by 31 January following the tax return end.
E.g. Return for year ending 5 april 2010 - balancing payment due 31 January 2011
Taximanager advises on a weekly basis (as long as you record your entries) what amount you need to set aside to cover your tax bill. Because of the complexities of self employment this is only an estimate and should be used as a guide but generally this should be enough to cover your tax and class 4 national insurance.
Class 4 national insurance
This is an additional amount worked out on your self assessment which is based on profits of your trade so will be incorporated in the amount that PBT Tax Solutions will advise you to pay once your tax calculation has been provided by HMRC.