Do I need to register as self-employed when I start a side hustle?

The fear of a complicated tax process is something that holds a lot of people back from starting a side hustle, but it’s easier than you think.

You only need to register as self-employed when you’re making more than £1,000 a year from your side hustle.

It means that when you first start your side hustle, you don’t need to update HMRC. You can focus on setting up and testing your ideas without worrying about the admin side of things.

Most side hustles start small and grow naturally into something bigger. However, if you’re going into a side hustle with a big investment or charging a significant amount for your product or service, you’ll need to think about your registration options earlier.

Being employed and self-employed

Once you are making more than £1,000 a year from your side hustle, you will need to register as self-employed. 

You can be both employed and self-employed at the same time. If you run a side hustle, you will usually work full-time for an employer in the day and run your business in the evenings and on weekends. 

When you are self-employed, you are responsible for letting the government know how much money you are making from your side hustle. You will need to fill out a Self Assessment tax return each year where you declare your side hustle earnings and pay any tax or National Insurance that is due. 

Sole trader vs limited company

To tell the government that you are self-employed, you will either need to register as a sole trader or set up as a limited company.

If you’ve just started up and you run your side hustle by yourself, then registering as a sole trader is probably the simplest option. 

Registering as a sole trader is free and only takes a couple of minutes to do online. Once you’ve registered, the government will set up an account so you can fill in your Self Assessment at the end of the tax year. 

The other option is registering as a limited company. While becoming a sole trader is the most common choice for anyone running a side hustle, it’s likely you will want to set up a limited company if your business starts to grow. 

The main advantage of a limited company is that it creates a legal distinction between your personal assets and your company’s assets. It means that your personal finances and assets aren’t exposed should there be a problem with the business. 

A limited company also tends to have more credibility, so you may find that bigger clients prefer to (or only) work with limited companies. 

However, limited companies come with more paperwork and added responsibilities. As a director, you’re legally responsible for keeping Companies House updated on the company’s records, accounts and performance. This can be time-consuming and expensive, since you’ll either need to do the work yourself or hire an accountant. 

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