Self-employed individuals must register for income tax and national insurance before or at least as soon as they commence trading.
A sole trader must register as self-employed and this has traditionally been done through Her Majesty’s Revenue & Customs (HMRC) either on or offline; the former is now becoming the norm. The form CWF1 can be downloaded from the HMRC website. It is advisable to register straight away to avoid any subsequent penalties.
Being classified as self-employed, a sole trader must register to pay Class 2 National Insurance Contributions (NICs) and will also be required to complete self-assessment tax returns (having previously registered with HMRC). The NICs may be deferred if the sole trader is also paying NICs in other employment. In addition to Class 2 NICs, a sole trader will also have to pay Class 4 NICs, based on a percentage of profits up to threshold limits.
Businesses with employees may also need to register to make PAYE and National Insurance contributions on behalf of said employees, if the employee in question is: already employed elsewhere, is receiving employee benefits, is being paid over the PAYE threshold (GBP125.00 weekly or GBP540.00 monthly, in 2010/11) and/or National Insurance Lower Earnings Limit, or is in receipt of an occupational or state pension.
Requirements
There is normally no requirement to register for VAT until the annual turnover of a business exceeds the threshold ( GBP70,000, as of April 2010, increased from GBP68,000 previously) at which point it becomes compulsory. Some supplies or services are exempt from VAT, including certain welfare and health-related services, financial and insurance-related services, some types of services relating to educational and cultural matters, and certain gambling-related services.
Other than the formalities of registering a new company or an individual setting up as a self-employed person, there are certain sectors of business where there are further procedures to follow before a business may commence trading; in some cases, the law requires that a person or company cannot start trading until a personal or business licence has been granted (for example publicans, restaurant owners, and child minders).
This article is an extract from Personal Business Tax Guide , dated 4th January 2011, for the latest version please click here .