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When are you self-employed?

A guide to determine at what point your small business venture becomes taxable

If you make all or part of your living by working for yourself – not through a salary or commission from an employer – then you’re considered self-employed.

If you are self-employed your tax and national insurance contributions are not paid at the time you receive payment, and you are therefore bound by law to declare your earnings to HMRC.

If you receive any payment for a service you have provided or a business you operate, this requires you to register with HMRC, but does not necessarily mean you earn enough to require you to pay tax.

You must register as self-employed within three months of starting trading otherwise you will be liable to pay a £100 fine. Click here to fill out the online form to register as self-employed.

You can also check the employment status of any individual or group using the HMRC Employment Status Indicator (ESI) tool.

The increase in popularity of online businesses has led to an increasing number of people setting up part-time businesses for additional income to their main job. As a result, many people are unsure what they have to declare for tax purposes and at what point they should register as self-employed.

When does selling a few items on eBay turn into a business, and therefore a taxable activity? HMRC rules stipulate that all e-traders must be registered with them so that their income can be taxed.

You are an e-trader if you:     

  • Sell goods that were bought with the intention of re-selling them
  • Sell items you made yourself for a profit
  • Sell or buy on behalf of others for financial gain
  • Receive payment for a service

If you can answer yes to any of these questions then you must register as self-employed with HMRC within the three-month deadline. With regards to eBay, it is extremely unwise to delay registering, as HMRC carries out checks on online auction sites to root out members who process a high number of transactions.

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