There has never been a better time to be self-employed in the UK. With the number of business owners at its highest in four decades, sole trader processing at the HM Revenue & Customs (HMRC) has been equally busy. This makes early registration all the more essential.
According to professionals from Accountancy & Tax Advisers Ltd, your registration as a sole trader depends on your tax return history, determining whether you should register for new a 10-digit Unique Taxpayer Reference (UTR) number.
- For sole traders who have not sent tax returns before, HMRC requires them to register for both Self-Assessment tax returns and Class 2 National Insurance (form CWF1).
- Sole traders who have sent tax returns before only need to register for Class 2 National Insurance. Their 10-digit Unique Taxpayer Reference (UTR) number allows HMRC to link their new and old accounts. If you are having difficulty identifying your UTR, you may ask HMRC for it online, by phone, or at their office.
- If you are a former sole trader who wants to start up again, you may do so using the same CWF1 form.
The registration process completes within 10 working days (21 for overseas registrants), before which the HMRC posts the sole trader an activation code. Upon accessing their online Government Gateway account for the first time, registered sole traders will need this activation code to enter.
As a registered sole trader, you will have a number of tax responsibilities to fulfil, aside from the task of running your new business itself. In order to comply with government policies, you need to:
- Keep records of your business’s sales and expenses.
- Send a Self-Assessment tax return every year.
- Pay Income Tax on your profits and Class 2 and Class 4 National Insurance, your business debts and bills for anything you buy for your business.
- Register for VAT if your turnover reaches the VAT threshold.
- Register with the Construction Industry Scheme (CIS) if you’re a contractor or sub-contractor in the construction industry.
Owners must register their new business no later than 5 October in their business’s second tax year. Of course, immediate registration is still the optimal course of action — driven by convenience, if not the efficiency of a business owner determined to succeed.
If you wish to learn more about the process of sole trading, and the various finance challenges new business owners encounter, there are many ways to get yourself up to speed; anything from researching online, speaking with fellow business owners and attending business seminars can help you bypass a significant amount of trial-and-error.