Eight in ten accountants fluff when to register with HMRC for self-employment

Registering for self-employment with HMRC has too many “variables” -- that not even accountants know when the taxman should or shouldn’t be notified.

A LinkedIn poll of more than 100 people – mostly accountants – shows that only 19% selected the technically correct answer to the question:

“How much self-employed income do you have to make to register for self-assessment? £1,000, £10,000 or ‘other’? “

'If there's a liability...'

Tax dispute expert Jesminara Rahman, who posted the poll, says ‘other’ is the correct answer, as the law says any ‘income’ technically chargeable to tax necessitates self-assessment.

“According to tax legislation, an individual is required to register for self-employment if there is a tax liability, not when there is an income of over £1,000,” she says.

But a former tax official herself, Rahman is sympathetic to the vast majority of respondents who chose ‘£1,000 of self-employed income’ in answer to when to HMRC-register.

'What HMRC is saying in its guidance'

“I can understand why 79% answered ‘£1,000’ because that is what HMRC are saying in their guidance,” the expert said, citing ‘Tax-free allowances on property and trading income.’

A taxpayer got in touch with Rahman’s Tax Resolute UK, because the taxpayer also read HMRC’s guidance and feared they ought to register due to having income of over £1,000.

The taxpayer was understandably in a state of panic because what she read from the Revenue differed to what her accountant told her – that she need not register.


Speaking to FreelanceUK, Integro Accounting says that despite some “variables” to consider for readers of HMRC’s guidance, the £1,000 threshold has found its way into many people’s consciousness.

Not that it’s a very realistic threshold, partly given that the cost of living continues to soar.

“I cannot imagine that there are many people out there today whose only income is less than £1,000 a year and receive nothing else,” says the accounting firm’s Christian Hickmott.

“But advising that you only need to register to file a personal tax return if you have tax to pay [risks] over simplifying things so; generally, the advice freelancers often get is that if your gross income is above £1,000 per tax year, you need to register.”

'Competent people simply aren't clear'

Integro’s managing director, Mr Hickmott also said he believes there is one certainty however-- that it’s not just advisers unsure about when to register with HMRC.

“What we do see is a number of perfectly competent people turn to us for assurance that they have navigated the various [HMRC] registrations correctly for themselves and their business,” he said.

Jenner & Co is another tax advisory seeing the self-employed straight, because newcomers to sole trading don’t perceive the Revenue’s rules about when to register as clear enough.

'The established self-employed approach us for help on registering with HMRC'

“We normally do the HMRC registration for [clients], but we still have people coming to us for help, even when they’ve been self-employed for some while but not registered.”

The advisory’s boss Graham Jenner continued in a statement to FreelanceUK: “It is usually because they aren’t sure what they had to do, and then just forgot to do anything about it.”

The taxman no longer issues a penalty if a new sole trader fails to register within their first three months of trading.

'Chargeable to tax is the key'

Instead, individuals new to freelancing have until October 5th in the following tax year to notify HMRC, that they have started self-employment.

“Many people starting self-employment will already have employment income for part of the year, before they start self-employment,” reflected Mr Jenner, referring to permanent employment.

“But for tax purposes, the requirement to notify HMRC is as regards being chargeable to tax, so option three in the LinkedIn poll is correct. If the person’s total income – including from employment, rental or investment income -- of the year is below the personal allowance [£12,500], then there is no charge and so no need to notify.”

'Wouldn't know off the top of my head'

An obviously very honest accountant, Mr Jenner admitted yesterday that “off the top of his head,” he would not have chosen option three – the technically correct answer.

But that’s no bad thing, he maintains, explaining yesterday: “No, I would have taken the view that someone who starts as self-employed should register as self-employed for both tax and national insurance, irrespective of their earnings from that source.

“The reasoning here is sound though --  it avoids running the risk that the person has miscalculated their total income. It also avoids having to remember to register once they do become chargeable to tax and National Insurance.”


24th May 2022

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