Registering with HMRC – a freelancer's overview

A significant task for the new freelancer is ensuring that their business is properly complying with the extensive tax and information-filing requirements imposed by the various authorities. Problems and penalties could arise if the new freelancer is not registered with the appropriate tax authorities in a timely fashion. While this guide is not intended to be an all-inclusive list of filing requirements, it summarises some of the more prominent requirements common to most businesses.

HM Revenue & Customs is moving towards electronic forms and notifications via the internet. Paper forms are still required in some instances. So provided below are the links to both downloadable versions of forms and the web links to apply online for various services.

Notify HMRC

It is necessary to notify HMRC of your existence by completing forms CT41G (for companies) or CWFI (for sole traders/partnerships). You can also telephone HMRC to notify self-employment on 0845 915 4515.

The company form CT41G is sent to all new companies after they are incorporated. The form notifies HMRC of your accounting date, your accountant, and also enables PAYE (Pay As You Earn Scheme) to be set up, which is a requirement if you are to be an employer.

If you fail to register within the first three months of commencing business, you may face a penalty of up to £300 plus a continuing penalty of £60 per day, or £3,000 if information is given negligently or fraudulently by a company. (Editor's Note: The three-month notification penalty is no longer issued by HMRC)

Self-employed with small earnings?

Depending on the level of profit, sole traders and partners have a liability to Class II NIC, and these are payable either quarterly or monthly by direct debit. Class 2 contributions are at a weekly level of £2.50 (where annual earnings are £5,315 or more for 2011/12) and the necessary form to collect Class 2 contributions should be completed at the same time as the form CWFI. Leaflet CF10 ‘Self-employed with small earnings’ gives full details and an application form for exemption from liability.

VAT – to register, or not to register?

You need to consider if it is beneficial to be VAT-registered from the outset. The pros and cons will be discussed in a future article on Freelance UK. If you are registering for VAT, form VAT 1 needs completing, and if you are a partnership, form VAT 2 needs to be completed, thereby giving details of all the partners.

All businesses with turnover in excess of £100,000 now to have file VAT returns online via the internet, and all new VAT registrants irrespective of turnover (from April 2011) need to file electronically.

An extract from The New Business Kit, a guide to financial, tax and accounting considerations for starting a successful business, by The Low Tax Group , a chartered services provider and advisor to the self-employed.

Editor's Note: Further Reading -

Registering as self-employed: the basics

Freelancers' Questions: Should I register as self-employed?