Self Employed

A Guide To Working For Yourself

If you make the decision that you want to work for yourself, there are certain things you need to do.

If you begin to work for yourself, you will be classed as a sole-trader, even if you haven’t informed the HMRC yet. You will still have to register and follow the rules of self-employment tax and National Insurance.

Are There Other Ways You Can Work For Yourself (Other Than Being A Sole Trader?)

Yes, there are other ways sorts of business structures other than being a sole trader. These include:

  • You can become a partner of a business partnership
  • You can set up your own limited company

If you decide to set up a limited company,you are not classed as self employed, you are an owner and employee of your company. This will mean you will have to follow different rules for tax and National Insurance.

What Is Classed As Self Employed?

The HMRC classes sole traders and partners as being self employed. This can be for selling goods or services (sometimes called “trading”). The exception is if you are just selling a few unwanted items every now and again; an example of this would be using your local corner shop or the internet to advertise something you want to sell, such as pram.

Am I Self Employed If I Run A Business?

You would be considered to be self employed if you:

  • Run the business for yourself and have the responsibility of its success or failure
  • Have to deal with several customers at the same time
  • Are able to decide how, where and when you complete your work
  • Are responsible for hiring other people at your own expense to help you or complete the work for you
  • Are the person who provides the main items of equipment for the work to be completed
  • Take the responsibility of finishing any work that is unsatisfactory in your own time
  • Charge an agreed fixed price for any work you do
  • Sell any sort of goods or services to make a profit. This can also be done through websites or apps

It is worth bearing in mind that most of these will apply if you own a limited company as well, but the HMRC would not class you as self-employed. You are an owner and employee of your company instead.

It is possible for you to be both employed and self employed at the same time, such as working for a employer during the day and running your own business in the evenings or weekends.

If you are still unsure what your employment status is, you can use the HMRC Employment Status Indicator or speak to the HMRC.

Am I Self Employed If I Sell Goods Or Services?

You would be classed as a trader if you are selling goods or services. If you are considered to be a trader, you are self employed.

What Counts As Trading?

You would be considered to be trading if you:

  • Regularly sell to make a profit
  • Make items that are then sold for a profit
  • Regularly sell online, at car boots sales or via classified adverts
  • Earn commission from selling goods to other people
  • Get payments for a service you provide

What Isn’t Considered Trading?

You wouldn’t be classed as trading if you occasionally sell unwanted items or you don’t plan to make a profit. You are not able to use any losses you make as part of a hobby in order to reduce your tax bill.

If you are still not sure, you should contact the HMRC.

What Do I Need To Do To Be Considered A Sole Trader?

You will need make sure you follow these steps to become a sole trader:

  • You will need to register as self employed with HM Revenue and Customs (HMRC). This will make sure you pay the correct amount of Income Tax and National Insurance
  • You should keep records of any business incomes and outgoings you have
  • You have to make sure you pay your tax each year. This will normally be in 2 payments on 31st January and 31st July. You can use the HMRC’s calculator if you need help budgeting this.

It is different if you want to become a business partner or set up a limited company.

Do I Need to Register For VAT?

You have to register for VAT if your business turns over more than £82,000. You have the option to register voluntarily if that is more suitable for your business, for example, you sell to another VAT registered business or businesses and you want to reclaim the VAT.

Is It Different If You Are Working In The construction Industry?

If you are working within the construction industry as either a sub-contractor or a contractor, you should register with the HMRC for the Construction Industry Scheme (this is also sometimes called the CIS).