Should I register with HMRC if my income is under the personal allowance?

Freelancer’s Question: I have only recently started taking on some freelance work. I was first paid in November 2018 and subsequently this year -- both in February and in March. I have expenses from these periods as well, which when totted up almost negate the income. Please note, the income total is under the personal tax-free allowance of £12,500.

So I think I don’t have to pay tax on my freelance earnings -- is that correct? But do I still need to register with HMRC? If yes, why -- and when? And when do I need to register at the latest? Also, when do I need to self-assess -- is it April 5th or October 5th? I’m very confused and would love some help from an expert on freelancer taxation.

Expert’s Answer: Firstly, I am going to assume that you are not operating through a limited company because if you were, you would have already registered the company with HMRC at the point at which you set the company up with Companies House.

So on this basis – i.e. that you haven’t set up a limited company, you have to register with HMRC if you have freelance income within a tax year of over £1,000. So ignoring your expenses, if you have earned more than £1,000 you would have to register with HMRC as a sole trader, through this HMRC page. As to why you have to, I'm afraid I can only say, ‘that's just the rules’!

Next, if your ‘profit’ (that's your income minus your expenses) is under the personal allowance for the tax year, then you won't have any tax to pay. But even if this is the case, you would still need to register as self-employed with HMRC if your income from your freelance work is over £1,000.

You also ask about dates. Well, because you started freelancing in November 2018, your first self-assessment will be for the tax year to April 5th 2019, and you'd need to register with HMRC as a sole trader by October 5th 2019 and file your tax return by January 31st 2020.

There’s another point to be aware of in relation to your November start date. You may have heard rumours of having to register your business with HMRC within three months of starting (which would put you overdue to register), otherwise, you would be charged a penalty by HMRC. Well, you'll be relieved to hear that this penalty is no longer in operation by HMRC. You now have until October 5th after the end of the tax year in which you started your business, to register it.

Lastly, you don’t mention VAT in your question but it’s good to be aware of it. It seems you’re not looking to register with HMRC for VAT at this stage, and you wouldn’t have to until your freelance operation’s VAT-able sales reach the registration threshold, which is current £85,000 a year – vastly higher than the personal allowance! Registering for VAT can have benefits but for you, at this stage, it would mean a lot of extra admin which I sense you want to avoid! Best of luck with your freelance business.

The expert was Emily Coltman, chief accountant at online accounting platform FreeAgent.