This is what you need to do to take care of your tax obligations when you first become self-employed or start receiving untaxed income:
1. Register with HMRC.
2. After the end of the tax year, submit a tax return.
There’s no need to do anything else, as long as your turnover is less than £85,000 a year.
You can register with HMRC online using this form, it takes less than 5 minutes. Once you’ve submitted the form, HMRC will send you your Unique Tax Reference (UTR) in the post if you don’t already have one. Without a UTR you won’t be able to submit your tax return.
The tax year runs from 6 April to the following 5 April each year. Your tax return is due by 31 January following the end of the tax year. If, for example, you start self-employment on 1 August 2019, your first tax return won’t need to be submitted until 31 January 2021, which is the January after the 2019/20 tax year ends. You’ll pay tax and National Insurance on profit made between the date your business started and 5 April.
Individuals don’t need to submit accounts, but you do need to keep records of income and expenses in order to work out your tax. Expenses should be backed up by receipts, but these can be kept electronically, there’s no need for piles of paper.
If your turnover (takings, not profit) in a 12 month period goes over the VAT threshold, which at the time of writing (in October 2019) is £85,000, things get slightly more complicated as it’s likely that you will have to register for VAT.
Once you’re VAT registered you will have to charge 20% VAT on your sales, submit quarterly VAT returns, and pay over the VAT to HMRC😢. But take comfort in the fact that a turnover of £85,000 or over puts you in the top 20% of UK businesses.