Do you have a side-hustle? Are you registered as self-employed, or considering entering the world of self-employment?
In today’s ever-evolving job market, the employment landscape is rapidly shifting. Traditional 9-to-5 jobs are no longer the sole means of making a living. The rise of side hustles, freelance gigs, and self-employment ventures has allowed individuals to explore new income streams and financial independence.
However, with this newfound freedom of self-employment comes a responsibility — ensuring compliance with HMRC regulations.
Whether you’re a budding entrepreneur looking to turn your passion into a profit or an established business owner considering branching out, we can help you navigate the UK tax landscape.
The rise of the side hustle and self-employment
A side hustle is essentially a secondary income stream that individuals pursue in addition to their primary source of income, also known as a form of self-employment.
It allows people to explore their interests, passions and talents while generating extra cash. Side hustles come in various forms, from freelance work and consulting to selling handmade crafts or offering online courses.
One of the primary benefits of having a side hustle is the flexibility it provides. You can work on your side gig in your spare time, adjusting your schedule to fit your life’s demands. It can be a financial safety net in case your primary income source faces challenges.
The modern business owner often find themselves turning a side hustle into a full-time job. Whether that’s through success, a focus on what they’re passionate about, or just wanting to do something for themselves, side hustles are on the rise.
The path to self-employment
Many individuals who start side hustles will eventually take the leap into full-time self-employment.
Being self-employed brings a sense of autonomy and control over your career that can be immensely rewarding. However, it also entails a set of responsibilities and considerations that are crucial to understand.
Before making the transition to self-employment, it’s essential to ask yourself:
• Are you ready? Evaluate your financial stability, skills, and business plan. Are you prepared for the uncertainties that come with being your own boss?
• How do you want to operate? Decide on the legal structure of your business. Options include setting up as a sole trader, partnership, limited company, and more. Each has its implications for taxes and liability.
• Are your finances sorted? Set up a separate business bank account to manage your finances, including income, expenses, and taxes more efficiently.
• Do you know how much tax to pay? Understand your tax responsibilities, including income tax, National Insurance contributions, and potentially VAT. This is where HMRC comes into play.
The HMRC registration process
Registering with HMRC is a crucial step when you start a business or become self-employed in the UK.
HMRC is the government department responsible for collecting taxes and ensuring compliance with tax regulations. Here’s a step-by-step guide to the registration process:
1. Choose your legal structure: As mentioned earlier, your legal structure determines the registration process. Sole traders and people in business partnerships must register for self-assessment, while you’ll need to follow a different procedure when setting up a limited company.
2. Collect required information: You’ll need to gather essential information, including your National Insurance number, personal details, business name and address, and information about your business activities.
3. Register for self-assessment: For most self-employed individuals and sole traders, registering for self-assessment is the initial step. You can do this online via the HMRC website or by contacting the self-assessment helpline.
4. Set up a Government Gateway Account: You’ll need to create a Government Gateway account to file your taxes online. This account provides secure access to HMRC’s online services.
5. Complete the self-assessment tax return: Once registered, you must file an annual self-assessment tax return detailing your income, expenses and tax liability by the 31 January deadline.
6. Pay your taxes: Pay any taxes owed by the due date. HMRC offers various payment methods, including direct debit and online payments.
7. VAT registration: If your business’s turnover exceeds the VAT threshold (currently £85,000 per year), you must register for VAT and submit quarterly VAT returns.
8. Keep accurate records: Maintain meticulous records of your income, expenses, and all financial transactions related to your business. This will help you file accurate tax returns and ensure compliance. We’d advise using cloud accounting software like Xero or Quickbooks.
The benefits of compliance
While the process of HMRC registration may seem daunting, it is essential for various reasons.
If you make over £1,000 from your side hustle or other self-employment, registering for self-assessment is a legal requirement and vital for compliance. Failure to do so can result in penalties and legal consequences.
Make sure you’re reporting your taxes. Proper registration ensures that you report your income and expenses accurately, preventing tax evasion issues. More than just staying in HMRC’s good books, compliance with tax regulations can enhance your business’s credibility and reputation, which is crucial for attracting clients and funding.
And you might be able to access certain benefits, such as a State Pension or tax credits.
Making the right choice
Going it by yourself offers exciting opportunities for personal and financial growth. However, it’s vital to understand the tax implications and HMRC requirements associated with these ventures.
By following the registration process and maintaining accurate records, you can enjoy the benefits of entrepreneurship while ensuring compliance with UK tax laws.
Remember, knowledge and preparation are key to success in the world of business, and compliance with HMRC is a fundamental part of that journey.
If you would like to speak to a member of our tax team about self-employment or your side-hustle, contact us or telephone us on 020 3697 7147. Or you can visit our web chat in the bottom right corner which is manned during office ours and you can leave a message out of hours.
The RPGCC team are always just a click or call away.