If you are earning income from a business activity you must register with HMRC as self-employed (also known as being a sole trader) and submit a self-assessment tax return annually by 31st January each year.
A business activity includes:
- Regularly selling goods to make a profit
- Making items to sell for a profit
- Regularly selling online, at car boot sales or through advertisements
- Earning commission for selling other people’s goods or services
- Being paid for a service you provide
- Receiving rental income
It may not be classed as trading if you occasionally sell some unwanted items.
Many people set up a business alongside their main job – you can be both employed and self-employed. You must still register with HMRC as self-employed and complete a self-assessment tax return. The tax return will take into account your employed earnings and any tax you have paid on them when calculating the tax due on your self-employed profit (your business income less your allowable business expenses).
Some businesses will be set up as a partnership. In this case each partner must register individually with HMRC and complete a self-assessment tax return. The partnership must also be registered with HMRC and the total partnership income and expenses reported on an annual partnership tax return. Each personal tax return will declare the share of the income for each member of the partnership.
If you have received business income within the tax year to 5th April you must register as self-employed before 5th October the same year if you have not previously registered. Your tax return must be submitted online by 31st January the following year and any tax and NIC due paid by the same date.
Once registered it is important not to ignore a notification from HMRC to file a self-assessment tax return. Even if you have no income to declare you must advise HMRC that you are no longer self-employed. If you do not advise them and fail to submit a return then you will receive a a penalty. They are unlikely to retract that penalty if you have not advised them before 31st January. If you miss the submission or payment deadline the penalty is £100. If you are more than 3 months late the penalty increases. All partners in a partnership will receive a penalty if the partnership tax return is late.