Thinking of working

for yourself?
There is a range of products and services including online
presentations (webinars) and E-learning to help you
understand the different aspects of starting a business.
Visit www.hmrc.gov.uk/startingup/help-support.htm
to see the range of help and support available.

You will also find lots of ‘bite-sized’ tax information videos

on HMRC’s YouTube pages. Visit www.youtube.com/user/
HMRCgovuk
Introduction

So you’ve got an idea and want to start out

on your own. Here is some information you
may find useful.

Thinking of working for yourself? 1

Important next steps

When you start working for yourself, If you have any problems or aren’t sure
you need to tell HM Revenue & Customs if you qualify as self-employed visit
(HMRC). HMRC can help you understand www.gov.uk/business-legal-structures/
what you need to do about tax to get overview for more information or call the
it right. Newly Self-Employed Helpline. If you’re
unemployed at the moment, don’t forget
To register with HMRC all you have to to tell the jobcentre that you’ve started
do is visit www.gov.uk/new-business- working for yourself.
register-for-tax. If you’re starting a limited
company, you need to register with There’s also a helpful guide ‘Giving your
Companies House first. Companies House business the best start with tax’ available
will inform HMRC who will then send at www.hmrc.gov.uk/startingup/
you an introductory pack that includes working-yourself.pdf It covers important
form CT41G (new company details). Please issues such as Income Tax, National
complete this form to let HMRC know you Insurance and record keeping.
have started in business.

2 Thinking of working for yourself?

Self-employed, partnership, limited company or franchise

Self-employed – individual You can use cash basis if you:

This means that you’re working for
• are a small self-employed business
yourself, although you may also have
(sole traders and partnerships)
people working for you. You’ll pay
Income Tax on your taxable profits, • have an income less than the threshold
through Self Assessment. You may also when you have to register for VAT.
need to pay National Insurance. You can start using cash basis from the
2013 to 2014 tax year.
If you employ someone – even if it’s
only yourself, as a director – you’ll have Limited companies and limited liability
to operate PAYE (Pay As You earn) on partnerships can’t use cash basis. Visit
their earnings. You’ll need to register www.gov.uk/simpler-income-tax-cash-
as an employer with HM Revenue & basis – simplified expenses
Customs (HMRC).
Simplified expenses allows you to use flat
Partnership rates instead of working out your actual
A partnership is where two or more business expenses which can require more
people set up a business together. Each complex calculations.
partner is personally responsible for all
Only sole traders or business partnerships
the business debts, even if the debt was
can use simplified expenses.
caused by another partner. For more
information on how to do your Self
You can start using simplified expenses
Assessment go to the GOV.UK website at
from the 2013 to 2014 tax year.
www.gov.uk/self-assessment-tax-returns
Visit www.gov.uk/simpler-income-tax-
simplified-expenses
New for 2013 Simpler Income Tax
Cash basis is a way of working out your
Watch ‘Simpler income tax – cash basis
income and expenses for your Self
and simplified expenses’ on
Assessment tax return.
www.youtube.com/user/HMRCgovuk

Thinking of working for yourself? 3

Limited company Franchise
A limited company is legally separate from Running a franchise means you are
its shareholders or directors. This means making a contract with the franchiser.
the company is liable for any debts. It can be complicated, so you should
always get legal advice. However, for
Managing tax and accounts for limited general guidance you can visit
companies can be complicated. A www.thebfa.org or call the
solicitor or accountant will be able to British Franchise Association
offer advice on setting up a limited on 0123 582 0470
company. Visit www.gov.uk/running-a-
limited-company

Keeping records

It’s vital to keep full and accurate • Penalties www.gov.uk/self-assessment-

records of your income and expenses tax-returns/penalties
from the start. Keeping records makes
• for businesses on the go HMRC has
sound business sense and is a legal
worked with developers to produce
requirement. So it’s important to get a
‘apps’ for mobile devices. Find out more
proper system in place from the outset,
at www.gov.uk/government/news/
and update the information regularly.
mobile-apps

Also, keeping records is important

as a penalty may be due for not taking
Please remember, it’s your
reasonable care with records and
responsibility (even if you employ an
tax returns.
accountant or tax adviser to do all this
for you) to make sure all tax returns are
For more information about taking
completed accurately and received by
reasonable care, you may find the
HMRC in time. Also, remember to pay
following resources useful:
your Income Tax and National Insurance
• www.gov.uk/self-employed-records contributions and – if you have any
• A short online presentation on keeping employees – to set up a PAYE scheme
records www.hmrc.gov.uk/startingup/ and operate PAYE correctly.
help-support.htm

4 Thinking of working for yourself?

Self Assessment

If you are self-employed, you pay Income For direct access to HMRC’s ready reckoner
Tax through Self Assessment. After the tax tool for the self-employed click here
year ends on the 5 April, you will need HM Revenue & Customs: Self-employed
to complete a Self Assessment tax return, ready reckoner
which you can either do online or by
filling in a paper form. For more help visit www.gov.uk/self-
assessment-tax-returns
If you complete a paper tax return you
need to make sure we have received it To watch an online presentation on
by 31 October. You may be charged a ‘Self-employment and HMRC – what you
penalty if your paper return is received need to know’ visit www.hmrc.gov.uk/
after this date. webinars/self-employed.htm

If you choose to do your tax return HMRC have designed an e-learning session
online, you need to make sure we have called ‘Starting your own business’.
received it by 31 January the following You can work through at your own pace.
year, giving you an extra three months. It includes sections about telling HMRC
If it is late, you may be charged a penalty. you’ve started, keeping records and
paying your tax and National Insurance.
Whether you complete a paper tax return Visit www.hmrc.gov.uk/startingup/help-
or choose to do it online, you also need support.htm
to pay any tax you owe by 31 January.
If you pay your tax late, you will be
charged interest from the date your tax
was due and may be charged penalties.

Thinking of working for yourself? 5

National Insurance contributions

National Insurance contributions are paid For more information on setting up your
by almost everyone who works for a Direct Debit or paying by another method,
living and go towards paying for pensions, visit www.gov.uk/national-insurance/
benefits and healthcare. If you are self- how-much-national-insurance-you-pay
employed, there are two main types of
National Insurance contributions you Class 4 National Insurance
need to know about. contributions
You pay Class 4 National Insurance
Class 2 National Insurance contributions if your annual taxable profits
contributions are over a certain amount. In certain
Most self-employed people have to pay circumstances you may be exempt from
Class 2 National Insurance contributions paying. You pay Class 4 National Insurance
but in certain circumstances you may contributions at the same time as your
be exempt from paying. You pay Class 2 Income Tax if you’re self-employed
National Insurance contributions at a or in a partnership. If your spouse is
fixed amount, by monthly Direct Debit. self-employed too, then each person pays
their own Class 4 contributions.
For more information on paying National
Insurance contributions, including For more information on paying
exceptions, visit www.gov.uk/national- Class 4 National Insurance contributions
insurance/overview – including exceptions – visit www.gov.uk/
national-insurance/overview
To apply for an exemption from paying
Class 2 National Insurance contributions To watch HMRC’s free online seminars
(if your earnings will be low), download (webinars) for the self-employed visit
form CF10 ‘Self-employed people with www.hmrc.gov.uk/webinars/
small earnings’ at www.gov.uk/self- self-employed.htm#6
employed-national-insurance-rates

6 Thinking of working for yourself?

Corporation Tax

If you are running a limited company then All Company Tax Returns must
you may need to pay Corporation Tax. be filed online and you must pay
Corporation Tax is a tax on your company’s your Corporation Tax and related
overall taxable profits. payments such as interest or penalties
electronically. If you file your return late,
There is a lot to know about Corporation
you may have to pay a penalty. If you
Tax and many people choose to use an
pay your Corporation Tax late or don’t
accountant to help them manage this.
pay enough, you’ll be charged interest.
You can also get help with the basics
at www.gov.uk/running-a-limited- To watch an online presentation on
company ‘Company Directors – understanding your
responsibilities to HMRC’, which includes an
It’s your responsibility – even if you
overview of responsibilities to Companies
employ an accountant – to make sure
House and HMRC go to www.hmrc.gov.uk/
all necessary tax returns are completed
startingup/help-support.htm
on time.

Self-employed and the Construction Industry Scheme

The Construction Industry Scheme (CIS) is a For more information visit

set of special rules for handling payments www.gov.uk/what-is-the-construction-
made by contractors to subcontractors industry-scheme
for construction work. If you are working
in the construction industry or doing To watch an online presentation about the
other construction related work you may Construction Industry Scheme visit
need to register with HMRC as either a www.hmrc.gov.uk/webinars/index.htm
contractor or subcontractor under CIS.

If you have any doubt whether CIS applies

to the work you are doing, it’s a good idea
to check.

Thinking of working for yourself? 7

Value Added Tax (VAT)

VAT is a tax charged on most business- Once registered for VAT, you need to fill in
to-business and business-to-consumer and submit regular VAT returns online, and
transactions in the UK. pay any VAT due electronically.

You must register for VAT if your turnover All VAT registered businesses must
in any 12 month period is over a specific submit their returns online and pay
limit – this limit is normally increased electronically any VAT that is due. HMRC
annually in the Chancellor’s Budget – or if provide full details on how to do this in the
you think your turnover may soon go over VAT registration pack which is sent out to all
this limit. You may register voluntarily at newly registering VAT customers.
any time.
For more information visit www.gov.uk/
Most VAT registration applications can pay-vat or to watch an online presentation
be done online. For more information on ‘VAT’ and ‘Importing and exporting’ go to
visit www.gov.uk/vat-registration www.hmrc.gov.uk/webinars/vat.htm

8 Thinking of working for yourself?

Employing other people

If you plan to employ other people, There are other things you need to know,
you will – amongst other things – be such as whether your workers are entitled
responsible for calculating and paying to work in the UK, your obligations to
to HMRC your employees’ PAYE (Pay As the National Minimum Wage and making
You Earn) tax and National Insurance sure you use the correct tax code for
contributions. You’ll also need to pay your employees.
Employer’s Class 1A National Insurance
contributions. New for April 2013
All employers now report information
Before you can do any of that you’ll need to HMRC PAYE in real time. This means
to register with HMRC as an employer. Most they send HMRC PAYE information every
employers use the online registration form time employees are paid, at the time they
on the website. Then you need to choose are paid. The information must be sent
and set up a payroll system. The website electronically using payroll software as
has advice about deciding which payroll part of the routine payroll process. HMRC’s
system might be best for your business. Basic PAYE Tools has been updated so you
can use it to work out payroll deductions
As an alternative to commercial software and report information online in real time.
(some of which is free) you can manage
your payroll using HMRC’s Basic PAYE Find out more about being an employer
Tools. Basic PAYE Tools is software that at www.gov.uk/paye-for-employers
you download onto your computer. It will
help you run your payroll throughout the To watch online presentations designed
year. It is designed for employers with nine especially for new and existing employers
or fewer employees visit www.hmrc.gov.uk/webinars/
employers.htm

Thinking of working for yourself? 9

Allowances, reliefs and incentives

There are allowances, reliefs and For more information on visit

incentives that may be useful to your www.hmrc.gov.uk/incometax/
business. relief-self-emp.htm

Tax credits

Both self-employed and employed If you are already getting tax credits
people can get tax credits. Tax credits please call the Tax Credit Helpline to tell
are payments from the government. them that you’re starting self-employment
There are two types of tax credit – and that your income is going to change.
Working Tax Credit and Child Tax Credit. It will help if you can give them an
estimate of what you think your income
If you want to check if you qualify for is going to be.
tax credits, visit www.gov.uk/browse/
benefits/tax-credits or call the Tax Remember that if you’re going from
Credits Helpline on 0345 300 3900. You being employed to self-employed and are
can also use an online questionnaire at already claiming tax credits, this is classed
www.gov.uk/qualify-tax-credits-quick- as a change of circumstances and you’ll
questionnaire to check that you qualify need to inform the Tax Credit Office or
for tax credits before making a claim. call the Tax Credit Helpline.

10 Thinking of working for yourself?

Do it online

Online services You are required to file your Employer

Throughout this leaflet you will have Annual Return and starter and leaver
noticed many references to websites and forms (P45, P46 etc,) and your VAT
online facilities. Managing your business returns online.
online has never been easier, and there’s
a range of different services on offer HMRC also recommends completing
from HMRC to help you get started. your Self Assessment tax returns online
Please visit www.gov.uk and search for because it’s secure and you can do it at
‘online services’ for more information. a time that is convenient for you. You
can also stop, save and come back to it
To tell HMRC you have started in business, at any point.
taken on an employee for the first time
or if you need to register for VAT, you can To find out more about filing your
use HMRC’s online service, which you will Self Assessment tax return online
find on the HMRC website. The service visit www.gov.uk/how-to-send-self-
allows you to register for the following assessment-online
business taxes:

Self Assessment

PAYE

Corporation Tax

VAT

Once you have enrolled to use either

HMRC’s Corporation Tax or Self
Assessment online service you can set up
a Business Tax Dashboard. You can use
your dashboard to see the tax position
for your business across different business
taxes as it brings together information
from your HMRC online services.

Thinking of working for yourself? 11

Getting more help

Available help Tax Help factsheets

There are many sources of information, A series of easy to understand,
advice and support available to people downloadable factsheets produced by
starting a new business. No one expects HMRC covering the issues that small and
you to know how to do everything. medium size businesses need know about.

Online seminars for businesses and Find out more at: www.hmrc.gov.uk/
the self-employed. thelibrary/tax-help.htm
HMRC offer a series of free online
presentations or ‘webinars’ to give tax Enterprise agencies and chambers
help to businesses and the self-employed. of commerce
The webinars cover many different topics Enterprise agencies and chambers of
including: commerce also offer support. If you are
aged 18-30, you might be able to get
• business expenses
help from the Prince’s Trust. In addition,
• capital allowances a charity called PRIME offers help to the
over-50s.
• first steps as an employer

• the Construction Industry Scheme Jobcentre Plus

If you’re unemployed, tell your Jobcentre
• Limited Companies and company
Plus that you’re thinking about working
directors
for yourself. They may be able to provide
• VAT. assistance.
E-Learning for self-employed visit
Getting someone else to do
www.hmrc.gov.uk/startingup/help-
it for you
support.htm
An accountant can help you organise
To view a webinar visit your business to make it as financially
www.hmrc.gov.uk/webinars/index.htm rewarding for you as possible. Please
remember, if you do use an accountant,
it is your responsibility to make sure any
tax returns are completed accurately
and received by HMRC on time and any
payments are made by the due date.

12 Thinking of working for yourself?

For more information

For help with Self Assessment visit For help with VAT visit
www.gov.uk/self-assessment-tax-returns www.gov.uk/browse/tax/vat

For help with National Insurance For help with Customs or Excise duties
contributions visit www.gov.uk/national- visit www.gov.uk/browse/business/
insurance/overview imports-exports

To apply to pay voluntary National Newly self-employed visit

Insurance contributions, www.gov.uk/pay- www.gov.uk/set-up-sole-trader
voluntary-class-3-national-insurance
Employers visit
For information about paying National www.gov.uk/paye-for-employers
Insurance for company directors
www.gov.uk/running-a-limited-company/ For help with tax credits visit www.gov.
taking-money-out-of-a-limited-company uk/browse/benefits/tax-credits

For help with Corporation Tax, visit For more information on starting
www.gov.uk/running-a-limited-company a new business visit www.gov.uk/
or if you need to contact your HMRC starting-up-a-business
office visit www.gov.uk and search for
‘Contact HMRC’ for more information. For a range of online seminars for
businesses and the self-employed visit
For help with the Construction Industry www.hmrc.gov.uk/webinars/index.htm
Scheme visit www.gov.uk/what-is-the-
construction-industry-scheme

Thinking of working for yourself? 13

General help available

There’s also general information

available through:

UK visit: www.gov.uk

Wales: Flexible Support for Business

visit www.business.wales.gov.uk/ or call
0300 060 3000

Scotland (Lowlands): Small Business

Gateway visit www.bgateway.com
or call 0845 609 6611

Scotland (Highlands): Highlands and

Islands Enterprise Information Source
visit www.hie.co.uk
or call 01463 234 171

Northern Ireland: Invest NI

visit www.investni.com
or call 0800 181 4422

14 Thinking of working for yourself?

These notes are for guidance only
and reflect the position at the time
of writing. They do not affect any
right of appeal.

Issued by HM Revenue & Customs

Corporate Communications
May 2013
© Crown copyright 2013

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