Once you have completed the company formation process, it is important to ensure you register as self-employed. The definition of self employed is; a person who’s income is made by working for themselves – not by receiving a salary from an employer.
If you are employed by someone, your national insurance and tax is deducted automatically from your salary when you get paid. However, if you are self employed this does not automatically occur. Therefore, once you have formed your company and intend to work for yourself, to comply with legal regulations you must declare your earnings to HMRC. Failure to do this within three months of your company formation could result in a substantial fine.
The current economic context has encouraged many people to form their own company. However, people in full time employment, hesitant to give up the stability of monthly salary, still want to have a contingency plan. As a result, many people are choosing to form an online business, to gain an incremental income and added security. However, once they have completed the company formation process, many people are unsure of what taxable activity actually is. Indeed, when does a prolific ebayer operating out of their spare bedroom become obliged to define their activity to HMRC?
According to HMRC, online fun turns into an online business when you can be defined as an e-trader
Are you an e-trader?
-Do you sell goods that were bought with the sole intention of re-selling them make
a profit?
-Do you make items or give a service with the intention of individual financial gain?
HMRC rules dictate that if you answer yes to these questions then you are a engaging in taxable activity and therefore must register as self-employed. HMRC have watched the increasing popularity of auction sites such as eBay with interest and regularly review prolific ebayer’s to ensure all taxable activity is accounted for.