5 min read

How to register as self-employed

If you start working for yourself, you may need to register as self-employed with HM Revenue & Customs (HMRC). Before you do, it’s important to understand whether HMRC considers you to be self-employed, as this affects how you pay tax and National Insurance.

This guide explains how HMRC determines whether you’re self-employed and the steps you’ll need to take to register if you are.

How do I know if I’m self-employed?

HMRC looks at the overall nature of your working relationship to decide whether you’re self-employed. There isn’t a single test that determines your employment status, so all the circumstances are considered.

You’re more likely to be self-employed if you:

  • run your own business and are responsible for making a profit or loss;
  • decide how, when and where you carry out your work;
  • work for more than one client or have the freedom to do so;
  • provide your own tools, equipment or materials where appropriate;
  • can hire someone else to help you or complete the work at your own expense;
  • are responsible for correcting unsatisfactory work in your own time and at your own cost; and
  • invoice your customers for the goods or services you provide.

If you’re unsure whether you’re self-employed or an employee, you should check HMRC’s guidance, as getting your employment status wrong can affect how you pay tax and National Insurance.

How do I know if I’m not self-employed?

You may not be considered self-employed if, looking at the overall working relationship, HMRC concludes that you’re working as an employee.

You’re more likely to be an employee if:

  • you’re required to carry out the work personally and cannot send someone else in your place;
  • your employer tells you how, when and where to do your work;
  • you’re expected to accept the work that’s offered to you, and your employer is expected to provide it; and
  • you receive employment benefits such as paid holiday or statutory sick pay.

Your employment status affects how you pay tax and National Insurance, as well as your employment rights. If you’re unsure about your status, you can use HMRC’s online employment status tool or seek professional advice.

What are the different business structures?

One of the first decisions you’ll make when starting a business is choosing a legal structure. The structure you choose will affect:

  • how you pay tax;
  • your legal responsibilities;
  • the amount of administration you’ll need to complete; and
  • your personal financial liability if the business has debts.

The most common business structures are:

Sole trader

A sole trader business is owned and run by one person. It’s generally the simplest and quickest business structure to set up, with fewer reporting requirements than a limited company. However, you’re personally responsible for the business’s debts.

Partnership

A partnership allows two or more people to own and run a business together. The partners share responsibility for managing the business and normally pay tax on their share of the partnership’s profits. In an ordinary partnership, each partner is personally liable for the partnership’s debts.

Limited company

A limited company is a separate legal entity from its owners. The company pays Corporation Tax on its profits, while directors and shareholders pay tax on any salary or dividends they receive. A limited company generally offers greater protection from personal liability but has more legal and reporting requirements than sole trader or ordinary partnership businesses.

 

If you’re looking for the protection of limited liability while running a business with other people, you may also want to consider a limited liability partnership (LLP).
Sole trader

A sole trader business is owned and run by one person. It’s generally the simplest and quickest business structure to set up, with fewer reporting requirements than a limited company. However, you’re personally responsible for the business’s debts.

Partnership

A partnership allows two or more people to own and run a business together. The partners share responsibility for managing the business and normally pay tax on their share of the partnership’s profits. In an ordinary partnership, each partner is personally liable for the partnership’s debts.

Limited company

A limited company is a separate legal entity from its owners. The company pays Corporation Tax on its profits, while directors and shareholders pay tax on any salary or dividends they receive. A limited company generally offers greater protection from personal liability but has more legal and reporting requirements than sole trader or ordinary partnership businesses.

 

If you’re looking for the protection of limited liability while running a business with other people, you may also want to consider a limited liability partnership (LLP).

Which business structure should I choose?

There isn’t a single business structure that’s right for everyone. The best option depends on your circumstances, including the level of financial risk you’re prepared to take, how much administration you’re willing to manage and your plans for growing your business.

The table below highlights some of the main differences:

Sole trader or ordinary partnershipLimited company
You and the business are legally the same.The company is a separate legal entity to its owner(s).
You’re personally responsible for the business’s debts.Your personal liability is usually limited, unless you’ve given personal guarantees or breached your legal duties as a director.
You pay Income Tax and, where applicable, National Insurance on your business profits.The company pays Corporation Tax on its profits. Directors and shareholders pay tax on any salary or dividends they receive.
Generally simple and relatively cheap to administer.More legal and reporting requirements, including filing annual accounts and a confirmation statement with Companies House.
Business information is generally private.Certain company information is publicly available through Companies House.
Suitable for many small businesses and people starting out.May be more appropriate if you want limited liability, expect significant business growth or plan to bring in investors.

Before deciding, consider:

  • how much personal financial risk you’re prepared to accept;
  • how much administration you’re willing to take on;
  • how you expect the business to grow; and
  • whether you intend to work alone or with other owners.

If you’re unsure which structure is right for you, consider seeking professional advice before registering your business.

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Video: Should I set my business up as a limited company or on a sole trader basis?

by Informi

This video explains the differences between trading on a sole trader basis or as a limited companies and the various ways that a limited company can protect small business owners and inspire confidence in their businesses.

How do I register as self-employed?

The steps you need to take depend on the business structure you choose.

If you decide to operate as a sole trader or become a partner in an ordinary partnership, you’ll usually need to:

  • register for Self Assessment with HMRC if you’re required to do so;
  • keep accurate business records;
  • register for VAT if your taxable turnover exceeds the VAT registration threshold or you choose to register voluntarily; and
  • check when Making Tax Digital (MTD) for Income Tax will apply to your business.

If you set up a limited company, you’ll also need to:

  • register the company with Companies House;
  • register the company for Corporation Tax with HMRC; and
  • meet the company’s ongoing filing and reporting obligations.

Whichever business structure you choose, you may also have additional responsibilities. For example, if you employ staff you’ll normally need to operate a PAYE payroll and meet your workplace pension duties. If you occupy business premises, you may also need to pay business rates.

For more information about registering your business, check HMRC’s guidance:

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