How to register for self assessment as a sole trader dns accountants

If you are considering self-employment or starting a business, then being a sole trader is often the simplest and cheapest way of setting up and running a business. It will give you flexibility and control over how you run the business, but its worth noting that you will be personally responsible for its success or failure, and you will also be responsible for any business debts.

Sole traders must contact HMRC for self assessment registration and maintain accurate accounting / bookkeeping records, but they don’t have to register the company with Companies House.

As a sole trader you will have to pay income tax and file a self-assessment tax return with HMRC every tax year. This blog gives you more information about registering as a sole trader and being self employed, filing tax returns and the tax you will have to pay.

What’s the difference between a sole trader and self-employed?

Not all self-employed people are sole traders. But if you operate your business as a sole trader you are classed as a self-employed person and will need to submit a HMRC self assessment return each year.

If you’re self-employed but own a business as a business partnership or a limited company, you’re not classed as a sole trader.

How do you register for self assessment?

There are different ways to register for HMRC self assessment depending on if you are self-employed, not self-employed or registering a partner or partnership.

How you register as self-employed will depend on if you have sent tax returns previously to HMRC.

If you have not filed a tax return before

1. Register for Self Assessment and Class 2 National Insurance through your business tax account. You’ll need a Government Gateway user ID and password to sign in. If you do not have a user ID for a business tax account, you’ll be able to create one.
2. You’ll receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days (21 if you’re abroad). You’ll need your UTR to file a return.
3. You’ll receive a reminder letter or email telling you to complete a Self Assessment tax return before it’s due.

You can file your tax return any time before the deadline.

If you’ve filed a tax return online before

1. Re-register online (form CWF1) for Self Assessment and Class 2 National Insurance if you’ve filed a return before but did not file one last year.
2. You’ll need your 10-digit Unique Taxpayer Reference (UTR) from when you registered before. You can find your UTR if you do not know it.
3. You’ll receive a reminder letter or email telling you to complete a Self Assessment tax return before it’s due.

You can file your tax return any time before the deadline.

Register with HMRC online or by post

Most people these days will register for self assessment tax returns online, but you can still register by post by filling out the form on screen and printing it out, but we wouldnt advise this method.

Do I need to register with Companies House as well as HMRC?

There’s no need to register with Companies House as a sole trader, but if you are self-employed and running a limited company, you will need to register your limited company with Companies House.

How much tax does a sole trader pay?

Sole traders need to pay income tax, as well as Class 2 and 4 National Insurance (NI) contributions, on all taxable business profits.

Income tax

The amount of income tax you pay depends on your income after your personal allowance. The standard personal allowance is £12,570, which is the amount of income you dont have to pay any tax on.

Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. It’s smaller if your income is over £100,000.

Income tax bands are below (they are different if you live in Scotland)

Class 2 and 4 NICs

If your business profit is over £6,725, you’ll need to pay Class 2 NI contributions. If your profit is over £11,909, you’ll also need to pay Class 4 NI contributions, which is calculated as a percentage of your total profits during your Self Assessment.

How do sole traders pay tax?

After completing your self assessment tax return each year and calculating the tax you owe, you can pay HMRC in a variety of ways including by debit card, credit card, online banking, CHAPS or by visiting your bank.

What accounts do sole traders need to keep?

Even though you dont have to submit formal accounts to Companies House as a sole trader, you do need to keep detailed records of all your business income and expenses, as your accountant will need these to complete your self assessment tax return and work out tax calculations and your tax liability. You will need all your original invoices and receipts, so keep these safe.

Do sole traders need an accountant?

Although you dont have to have an accountant as a sole trader, accountants can add value to you as they can complete your self assessment tax return and give you valuable advice on expenses you can claim for and how to be more tax efficient. They can also offer bookkeeping services to ensure your records are correct and up to date when you come to file your tax return.

They will help you to understand and utilise your personal allowances and advise on things that are tax deductible, as sometimes these can be complicated depending on the type of work you do or sole trader business you run.

Accountants can help you save money by making sure your business is as tax efficient as possible and they will ensure you stay compliant with HMRC, file your tax return on time and avoid HMRC penalties.

What are the Self Assessment deadlines?

You submit tax returns for tax years, not calendar years. And you do this in arrears.

For example, for the 2022/23 tax year – running 6 April 2022 to 5 April 2023 – you would:

• need to register for Self Assessment by 5 October 2023 if you’ve never submitted a return before.
• submit your return by midnight 31 October 2023 if filing a paper tax return.
• submit your return by midnight 31 January 2024 if filing online.
• pay the tax you owe by midnight 31 January 2024.

If you fail to meet one or more of these deadlines, you might incur penalties and interest on late payments.

How to file your self assessment online

You can file your Self Assessment tax return online if you:

• are self-employed.
• are not self-employed but you still send a tax return, for example because you receive income from renting out a property.

You can also use the online service to:

• view returns you’ve made before.
• check your details.
• print your tax calculation.

Summary

As a sole trader and a self-employed person, you will need to file a self assessment tax return to HMRC. This can be a complicated process and understanding expenses that may be tax deductible and could save you money is not always easy. You could well miss out on tax savings trying to do this yourself.

We recommend you employ dns accountants to advise you and complete you tax return as we can advise you on the expenses you can claim for, how to register as self-employed and ensure you are compliant with HMRC and avoid unnecessary penalties.

call us today on 03300 886 686, or e-mail us at enquiry@dnsaccountants.co.uk for more information on self assessment and for a quote.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.