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If You Start Working for Yourself

Starting a small business means you will be working for yourself and classed as a sole trader by HM Revenue and Customs (e.g. for tax purposes).

As a result, you will need to inform HMRC that you are self-employed and follow the rules for running a business in the United Kingdom.

What Makes You a Self-Employed Worker?

The primary factor that makes you self-employed when you start to work for yourself is the structure of the business.

Thus, it is important to understand what counts as trading, and what you must do as a sole trader or partner in a company.

One of the first things you will need to do, and without any unnecessary delay, is register with HMRC for Self Assessment.

At this point you might be asking yourself ‘why should I go self-employed‘? People have different reasons to start working for themselves for the first time.

For some, the best part is you get to ‘be your own boss’. In most cases, that means you can be more flexible as to when and how you conduct your work.

Whereas, others will see setting up a business as an opportunity to command a higher salary. Of course, it will also depend on what type of industry you start working in.

But here’s the kicker:

There are downsides to working for yourself too. This guide will help anyone who is planning on ‘going it alone‘ follow the rules of self-employment.

If you are going to start trading, you will have several important things to do. The first step is informing HMRC that you are self-employed (e.g. to fulfill your tax obligations).

The next step is choosing a business structure. This will have an impact on your responsibilities for bookkeeping as well as the need for business insurance.

Are You Classed as Running a Business?

As a rule, HM Revenue and Customs (HMRC) will classify you as a self-employed worker, and therefore working for yourself, if you:

  • Take responsibility for the success or failure of a business that you run yourself.
  • Deal with several customers at the same time.
  • Can choose where, how, and when you do your day-to-day work.
  • Can hire other people and pay for their services to help you or to do the work for you.
  • Provide the main equipment items to conduct your work.
  • Have responsibilities for finishing any unsatisfactory work carried out in your own time.
  • Charge customers an agreed fixed price for your work.
  • Sell goods or services to realise a profit (this may include income from websites or apps).

Note: Most of these situations also apply to anyone who is the owner of a limited company. This also includes situations where HMRC do not class you as self-employed. In this case, you would be an owner and an employee of your company.

For example:

You can be both self-employed and employed at the same time. Hence, working for an employer in the day time, and running your own business afterwards, would meet this criteria.

Do You Sell Goods or Services?

If you are selling goods or services, you could also be classed as a trader. As such, trading in this way means you are self-employed.

As a rule, you are trading (with any related tax implications) if you are selling items on a regular basis to make a profit, or (any):

  • Make objects to sell for profit.
  • Sell items on a regular basis (e.g. via classified adverts, at car boot sales, or online).
  • Receive commission for selling goods for other people.
  • Get paid for a service that you are providing (e.g. gig workers).

As a rule, selling a few unwanted items on an occasional basis, and not planning to make a profit, means you are not trading, per se. Even so, you cannot use any losses from a hobby or pastime to reduce your tax bill.

Another section explains how to check if you need to tell HMRC about additional income, such as extra money that is not (either)

  • From your employer.
  • Already included in your Self Assessment.

Note: HM Revenue and Customs have a facility that allows you to check employment status for tax (including workers on specific engagements).

HMRC Checklist for Going Self-Employed

You may need to register for, and file, your Self Assessment tax return when you start working for yourself as a self-employed person. Doing so ensures you pay the correct amount of National Insurance and Income Tax.

Furthermore, you would need to register for Self Assessment if you (any):

  • Earned more than £1,000 from self-employment in the current financial tax year.
  • Want to pay voluntary Class 2 National Insurance payments to help you qualify for welfare benefits.
  • Need to prove that you are in self-employment (e.g. to claim Tax-Free Childcare).

You would still be able to make voluntary Class 2 National Insurance payments even if you do not register. Doing so would help to make sure you get the full State Pension.

Note: As a sole trader, you would also need to follow all the rules for running and naming a business venture or enterprise.

Other Ways of Working for Yourself

Several other business structures differ to those for becoming an individual sole trader. For example, you might choose to:

Related Help Guides

Note: The short video by HMRC is a useful introduction to the initial tax implications when becoming self-employed and starting a small business.

UK Rules When Working for Yourself and Trading