Most people register for tax and declare how much tax they need to pay at the right time. But there are others that have not done so for various reasons which could include a worry that they have left it too late to register, uncertainty about how to register with HM Revenue & Customs (HMRC) or concerns about how they will pay what they owe.
If this sounds like you, this guide should help you get on track.
Examples of some problems you may have include:
The information in this guide will help you understand how much you can earn before paying tax, work out if you’re self-employed, what’s classed as taxable income and gains, whether you need to register for tax and how to do so.
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People who work for themselves are seen as as self-employed. This means that they have to register with HMRC and pay their own tax and National Insurance contributions. To help you work out whether you are self-employed, here’s some pointers to help you.
You are likely to be regarded as self-employed if you answer yes to one or more of these questions:
This is not a complete list and if you’re still unsure whether you need to pay tax or not you can contact HMRC to find out.
Example 1: Joe is a plumber. He advertises his services in the local paper. He decides when to work, who to work for, how to do the work and how to price up jobs. He has his own tools.
Example 2: Ivy makes her own range of jewellery and sells her items on the internet and auction sites. She also sells her jewellery at car boot sales as well as through placing advertisements in a trade magazine.
Example 3: Bob is a session musician. He decides which jobs to accept, he provides his own instruments. He plays at various different venues. He also has a house that he lets to tenants.
Example 4: Andrew is a gardener/handyman. He doesn’t advertise his services but gets work through word of mouth. He can take on a helper to assist him with the heavy work. He decides when and where to do his work. He provides his own equipment to do his work.
Most people are entitled to earn a certain level of total income each year without having to pay tax. To find out more about the tax free allowances you may be entitled to go to the link below ‘Income Tax - the basics’.
You pay Income Tax (or Corporation Tax, if appropriate) on your profit, not your sales.
To work out your profit you take away your business expenses and purchase costs from your total sales. The amount left is your profit. Don’t forget to include any sales to friends and family and cash sales.
You pay Capital Gains Tax on the gain or profit you make when you sell, give away or otherwise dispose of something you own, such as shares or property. There's a tax-free allowance and some additional reliefs that may reduce your tax bill
If you are VAT registered, you charge VAT on sales to your customers, and can normally reclaim any VAT charged to your business.
For more information see the section below on ‘Taxes you might need to register for and how to do it’.
It is important to keep full and accurate records from the start. If you haven't done so far, start today.
You can find out what records you need to keep by following the link below.
The taxes you might need to register for will depend on your own circumstances. You can register each business tax online with HMRC, and sign up for the related online service, in one visit to the website. More information about how to register for each tax, and the information you will need, can be found using the links in the sections below.
If you have undeclared income or gains and now need to fill in a tax return, you'll need to register for Self Assessment first.
HMRC will set up tax records for you - and National Insurance records if appropriate. You'll receive a reference number called a Unique Taxpayer Reference number (UTR).
You will need to send in a Self Assessment tax return each year to tell HMRC about your income and gains. You'll also have to pay tax and Class 2 National Insurance contributions. If your income goes above a certain limit you’ll also need to pay Class 4 National Insurance contributions.
Find out about using the three line account for Self Assessment and how it can make it easier for you if you are self-employed or have income from property.
You must register for VAT if your taxable annual turnover is more than the current threshold. It may also be appropriate for you to register for VAT, even if your turnover is below the VAT threshold.
You must register for Corporation Tax if you have formed a limited company.
If you are trading as a limited company or employing people, you need to register as an employer.
If you owe back taxes you will also have to pay interest and possibly a penalty. But the sooner you get registered with HMRC the quicker they can work out what is owed. HMRC also can help if you have find that you can’t pay your tax bill in one go.
There are various external organisations that can help you get started.