Registering as Self-Employed

Contrary to popular belief, registering as ‘self-employed‘ is not something you only have to do if you are a sole trader.

If you are trading as either a sole trader OR partnership then you will need to register. This applies even if you are trading alongside being employed by another company.

If you are trading as a limited company then  you should register for PAYE and treat yourself as an employee of the company. This means you will not need to register as self-employed as taxes will be deducted at source.

Luckily, if you do need to register then registering as self-employed is a very simple process, in effect all you are doing is letting HMRC know that you will have, or potentially have, an income that is not taxed at source.

This allows them to collect what is due from you in terms of tax and national insurance via the self-assessment system.

There is a good level of information on registering as self-employed as well as links to the registration forms on the HMRC website.

Arrange to Pay Class 2 National Insurance

registering as self-employed and paying class 2 national insuranceIn addition to registering as self-employed, you will also need to pay class 2 National Insurance.

These contributions are taken automatically when you are employed by someone else and paid via PAYE. However, when you are self-employed you will need to take care of it yourself.

For self-employed people, National Insurance is split in to both Class 2 and Class 4. Class 2 National Insurance is a flat-rate weekly fee (the current rate can be checked here) that you will have to pay unless you apply for an exemption if your expected income is very low.

Class 2 National Insurance contributions can be paid either via a monthly or six monthly direct debit or in response to a bill issued by HMRC which can be paid just like any other bill.

Unfortunately many people do not realise they need to register separately for class 2 National Insurance and end up paying a large bill a few years later so we advise getting registered ASAP – it’s much easier to pay the £10 or so a month now than have to find several hundred pounds to catch up later down the line.

Paying Class 4 National Insurance

paying class 4 national insuranceClass 4 National Insurance is much more difficult to forget about since the amount owed is calculated as part of your annual self-assessment.

This means when you are registering as self-employed, you are in fact registering for class 4 National Insurance too.

Class 4 National Insurance is calculated as a percentage of the profits you make in any given tax year. To check the current rates and thresholds click here.

When you are completing your self-assessment tax return and working out what you owe, the amount you need to pay in class 4 National Insurance will also be calculated and paid on account the same as your income tax payment.

Once you have finished registering as self-employed and have also set up to pay your regular Class 2 National Insurance contributions then you have done all you need to do at this stage to start trading. Of course you will still need to take care of your self-assessment each year and file any accounts for a limited company but in terms of registering as self-employed this is as far as you need to go.

That means you can now move on to the exciting part – making your business a success. If you haven’t already I would suggest checking out our article on creating a company website. Alternatively, while you are still in ‘finance’ mode you may want to read our guide to business bank accounts.