Are you striking out on your own and forging new ground in your career as a sole trader or as part of a new business? Do you have additional incomes, other than being an employee, and want to know what your tax requirements are? It has never been easier to set up as a new business or sole trader, and more and more people are making the decision to do so. Not everyone has thought through all the tax implications though – at least not in the first instance. So, now that you have made the decision, and perhaps even started trading, what do you have to do about tax? We dive into this issue this month to give you plenty of time to get organised before the next round of self-assessment tax returns need to be submitted.
What is self-assessment?
When you work for yourself as a sole trader or join a new business as a partner, you will probably have to register with the HMRC in order to pay the right amount of tax. The exception to this is if you are earning less than £1,000 a year.
There are different requirements and forms to comply with and complete if you are registering as a sole trader or as self-employed and registering as a partner in a business.
The reason for this registration is so that HMRC can calculate how much tax and National Insurance contributions (if applicable) you will need to pay.
When to register
You should register as soon as you begin working as a sole trader, and definitely before the end of the tax year. Tax years run from April 6th to April 5th each year. Self-assessment tax returns must be completed and submitted to HRMC by January 31st of each year.
Once you register you will receive a unique tax reference (UTR) number and an activation code in the post to enable you to set up your account with HMRC. You will only need to do this once, after which time you can log in whenever you want and look at or update your records. You will also need these codes to submit your tax return when the time comes.
De-registering as a sole trader
If you cease to work as a sole trader, you will again need to let HMRC know so that they don’t expect a tax return from you or issue a penalty when they don’t receive one. It’s a simple process of completing an online form, but keep in mind that you will also need to submit a final tax return. This also applies if you are leaving a registered business or partnership.
If you are earning less than £1,000 in a particular tax year you will not need to submit a tax return or remain registered as a sole trader. However, you can remain registered if you want to claim tax-free childcare while being self-employed or to make voluntary National Insurance (Class 2) contributions.
Still unsure of what to do? Don’t worry, let us help. Give our accounting team at Hammonds Accountants a call on 0203 007 4990 or drop us a line at and we’d be happy to advise and assist you in your new venture.