Guide to Registration and Self-Employment
Your legal responsibilities
When you become self-employed, you are legally required to register with HMRC. You can do this here: https://www.gov.uk/set-up-sole-trader
You are then required to:
Complete a tax return every year.
Keep receipts of all your business expenses.
Pay income tax and class 2 & class 4 national insurance contributions.
To file your self-assessment tax return, you can go here:
What to do once you've registered as self-employed
You should as soon as possible after registering, get a Government Gateway account, and get the necessary logins etc… to be able to file your tax return online. It is good practice to file your tax return as soon as possible after the 5th of April. You have until the 31st of January to pay your taxes, and allowing some lead time is a good way of helping you plan that financially.
The link above also contains information about creating a government gateway account.
Don't forget that any legitimate business expense can be offset against your tax as a cost. This includes your public liability insurance, purchases of cleaning products, and especially fuel costs.
To claim fuel, you need to keep a log of miles driven while working, and apply the rates from HMRC:
Basically, for cars, as of 2016, this is 45p per mile for the first 10,000 miles, 25p per mile thereafter.
Depending on your work area, this may save you hundreds of pounds in tax.
Driving a car for business
Most insurance policies don't allow you to drive for work. You legally need to have a policy that allows this, if you are driving or using a motorbike. You can contact your insurer to add this, or use a price comparison site to find and compare quotes.
How much tax will I end up having to pay?
This is just a sample for illustrative purposes, using the numbers for the 2016-17 tax year. You don't have to do any of this calculation when you file your tax return, instead, it is done for you.
Let's say you make £28,000 in a year from the site, and you don't get income from anywhere else. This is an example showing what you would have to pay.
Total earned: £28,000
Total in payment charges and commission: £2,500
Total costs of equipment, products etc: £1000
Total miles driven (for work only): 15,000
Effective mileage cost at HMRC rates: £5750 (in practice, driving 15,000 miles will probably cost you less than this, but it doesn't matter).
Total Taxable Income: £18,750
Income Tax Rates:
First £11,000: Tax free
Next £32,000: 20%
National Insurance Rates
Class 2: £2.80 / week = £145.60 per year
Class 4: First £8060 free, next £34,940 at 9%
Total to Pay:
Total income tax: £1,470
Total NI: £1,071.70
Total Tax + NI: £2541.70