When becoming self employed as a sole trader, you must declare your situation to HM Revenue and Customs (HMRC) at the earliest possible time. The reason for informing HMRC as soon as possible is so the correct amount of national insurance and income tax can be paid on your business’s income. Furthermore, filing to notify HMRC of your change in situation within a set time frame may result in you being handed a penalty. This penalty is known as a “failure to notify” penalty and has financial consequences. In some circumstances, supported by the correct evidence, late notifications may be exempt from failure to notice penalties.
How Do New Sole Traders Notify HMRC of Their Business?
To inform HMRC that you have begun trading as a sole trader then you must do so by completing a CWF1 form. When you complete this form and send it to HMRC, they will give you a Unique Taxpayer Reference Number. This number is essential for all your future correspondence with HMRC concerning your self-employment (as a sole trader). This must be completed by October 5th in the tax year after your first year of trading. For example, if you started your business on 20th April 2017, you will have to notify HMRC by 5th October 2018. If you do not do so you will not be registered for self-assessment for taxation purposes and will not be contributing the correct tax and National Insurance (NI). This is imperative administration for sole traders who do not wish to be hit with financial penalties. You could even be penalized in other areas if you do not get these in order; your state pension and other state benefits may be reduced.
The CWF1 Form In a Nutshell
- Must be completed by new sole traders
- Is used to notify HMRC of your employment (i.e. self-employment) so you are registered for taxation self-assessment.
- Not completing this form within a set deadline may have financial consequences
If you need help with self assessment registration or self employment please contact The Accountancy Solutions on 01216297768 or 02070784001 for further advice.