Starting a new business is an exciting moment – and the Busines4Beginners team are here to help you for every step along this journey. We’ve already covered important information like:
- The ultimate checklist for starting a business in the UK
- How to overcome the fear of failure when starting a business
- 15 startup business costs to consider
However, there’s one question we get asked a lot. “When do I need to register my business with HMRC?”
So, in this guide, we’ll cover when exactly you need to register your business, how to register and what your registration options are. Ready to make things official?
Sole Traders must register when income exceeds £1000
If you’re starting your business as a sole trader, you can keep it unregistered with the HMRC until income is expected to exceed £1000 per year.
To avoid any fines or penalties, we’d recommend getting your business registered with HMRC as soon as you can. But if you’d rather take it slow and softly launch your business (either as a hobby or while you’re employed full-time), you will need to register as soon as you are about to exceed £1000 in income.
The important word to remember here is income. Not profits. It doesn’t matter what your profits look like, but if you bring more than £1000 into your business in a single tax year, you must be registered with HMRC.
However, unlike limited companies, you don’t have to register with Companies House, so that’s less paperwork on your end. All that’s needed for a sole trader is to register with HMRC and ensure that you return (and pay!) your self-assessment tax each year. Easy peasy.
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Limited Companies must register to form your business
If you want to run your business as a limited company instead of being a sole trader, then you must register your company to form the business.
There are several reasons why you might want to be a limited company over being a sole trader, including better protection and tax benefits – which you can discover more in this breakdown of being a sole trader vs a limited company.
To set up a limited company, you first need to register with Companies House.
To complete this process yourself, you will need to:
- Have a name ready that follows Company House guidelines and isn’t already in use.
- Have a registered office address, which can be your personal address. If you want to protect your privacy, you might want to consider using a registered office address service through a company formation agent.
- Appoint directors and shareholders. If you’re manning the ship alone, you can act as sole director with 100% of the shares.
- Create your official documents, including a memorandum of association.
Once you’re registered with Companies House, you must then register with HMRC for Corporation Tax.
You can find out more about forming a limited company in our complete guide here.
Or, if you’d rather save time, stress and energy – why not try one of our top-rated company formation agents to handle all the paperwork on your behalf?
Remember: Many businesses start out as sole traders, using the increased freedom to get the ball running – and then change from a sole trader to a limited company as profits start to grow.
If you want to start as a sole trader, remember that you must register with HMRC as soon as your income is due to exceed £1000.
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You need to register as an employer to hire others
If you’re planning on hiring staff, then you will also need to register as an employer with HMRC. You’ll also need to make sure that you take out the employer’s public liability insurance and set up payroll to pay your employees a fair wage.
Don’t worry, though. Payroll isn’t as hard as it sounds. We’ve got a complete guide to everything you need to know about payroll – and we’ve tested the best accounting solutions that can take care of it for you.
The consequences of not registering with HMRC
All businesses need to be registered with the HM Revenue & Customs (HMRC) for two reasons.
- T prove that your company exists and, in some cases, can legally operate. For example, selling alcohol or working as a street vendor requires a special licence to do so, which you will need to register and apply for.
- To ensure you’re paying the right tax. The HMRC doesn’t take too kindly to those who evade tax. If you want to avoid hefty fines and penalties, it’s best to make sure that you’re registered.
For some people, registering your business with the HMCR can be a monumental occasion.
It may seem insignificant to some of life’s other events (like the birth of your first child), but it does make the official start of your business. And if you’re registered as a Limited Company, registering will also protect your name and brand.
If you don’t register your business, you will face hefty fines and punishment from the HMRC.
At the bare minimum, you will be held liable to pay for any taxes that you have missed. In addition, you can be issued hefty fines and a failure to notify penalty, which can cost up to 100% of the tax owed – on top of paying back your taxes.
Depending on the severity of the issue (i.e. how long you’ve been unregistered and how much income you have not declared), you could also be subject to a prison sentence of two years for “failure to register”.
Long story short: not registering will cost you and your business.
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When do I need to register my business with HMRC: a summary
Sole traders need to register with HMRC if they are about to exceed £1,000 in income. This is a simple process that will register for self-assessment tax and take minutes to complete from the HMRC website.
Limited Companies need to register with both Companies House and HMRC from the very start. Registering with Companies House requires additional materials such as a (allowed) company name, registered office address and official documentation.
However, you don’t have to register a limited company by yourself. Company formation agents can fill out all the paperwork for you.
They can even provide monitored address services on your behalf. Ready to register your business? Get started with our top-reviewed company formation agents here.
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For all other advice, news and tips, make sure you check back in with Business4Beginners.
