If you start working for yourself, you’re classed as a sole trader. This means you’re self-employed – even if you haven’t yet told HM Revenue and Customs (HMRC).
Running a business
You’re probably self-employed if you:
- run your business for yourself and take responsibility for its success or failure
- have several customers at the same time
- can decide how, where and when you do your work
- can hire other people at your own expense to help you or to do the work for you
- provide the main items of equipment to do your work
- are responsible for finishing any unsatisfactory work in your own time
- charge an agreed fixed price for your work
- sell goods or services to make a profit (including through websites or apps)
Many of these also apply if you own a limited company but you’re not classed as self-employed by HMRC. Instead you’re both an owner and employee of your company.
You can be both employed and self-employed at the same time, for example if you work for an employer during the day and run your own business in the evenings.
You can check whether you’re self-employed:
Selling goods or services
You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.
You’re likely to be trading if you:
- sell regularly to make a profit
- make items to sell for profit
- sell online, at car boot sales or through classified adverts on a regular basis
- earn commission from selling goods for other people
- are paid for a service you provide
You’re probably not trading if you sell some unwanted items occasionally or you don’t plan to make a profit. You can’t use any losses you make as part of a hobby to reduce your tax bill.
Contact HMRC for advice if you’re not sure whether you’re trading.
Registering as self-employed
If you’re self-employed, you may need to set up as a sole trader.
Other ways to work for yourself
There are other business structures apart from being a sole trader. For example, you can:
- become a partner in a business partnership
- set up your own limited company
Get help with your business
You can get help with setting up or growing your business, for example with funding your idea.
Business records if you’re self-employed
Contents
Overview
You must keep records of your business income and expenses for your tax return if you’re self-employed as a:
- sole trader
- partner in a business partnership
You’ll also need to keep records of your personal income.
If you’re the nominated partner in a partnership, you must also keep records for the partnership.
There are different rules on keeping records for limited companies.
Accounting methods
You’ll need to choose an accounting method.
Traditional accounting
Many businesses use traditional accounting where you record income and expenses by the date you invoiced or were billed.
ExampleYou invoiced a customer on 28 March 2019. You record that invoice for the 2018 to 2019 tax year – even if you did not receive the money until the next tax year.
Cash basis accounting
Most small businesses with an income of £150,000 or less can use cash basisreporting.
With this method, you only record income or expenses when you receive money or pay a bill. This means you will not need to pay Income Tax on money you have not yet received in your accounting period.
ExampleYou invoiced someone on 15 March 2019 but did not receive the money until 30 April 2019. Record this income for the 2019 to 2020 tax year.