Income tax bands apply to the taxable incomes of salaried individuals and self-employed entrepreneurs. Through this article, we will discuss whether you can be registered as self-employed and still have no income. We will also explore the impact of such a situation on your income tax deduction and national insurance contribution. Additionally, we will review the self-assessment process for self-employed individuals once they start making a profit.

Can You Be Registered As Self-Employed But Have No Income?

Yes, you can be registered as self-employed but have no income. This usually happens when the earnings from the business are being spent to pay for its expenses which does not leave any income or profit for the owner. In this case, you, as the owner, will also not be liable to pay income tax or contribute towards national insurance.

If the nature of your work falls into any of the below criteria, you will be considered as self-employed:

  • Manage a business and its decisions on your own
  • Take risks and responsibility for the success or failure of the business
  • Have various customers at the same time
  • Have the authority to decide how, where and when you do your work
  • Hire other people to work for your
  • Organise equipment to manage work relade tasks
  • Take responsibility for completing unfinished or unsatisfactory work in your own time
  • Charge a certain price from customers for the work you do
  • Trade goods or provide series to make a profit

If your earnings are below £1,000 in a tax year, you do not need to be registered as self-employed. In such a case, you will also not be required to declare your income to the HMRC as no income tax or national insurance contributions will be deducted from your earnings.

Once you do start making a profit as a self-employed individual, you will have to file a self-assessment based tax return and contribute towards national insurance. Your trading profits will be taxed on the same basis as salaried employees. This means that you will not be taxed for the initial £12,750 of your profits as it will count towards your Personal Allowance and the rate of tax deduction will increase as your profits do.

Below are details of tax rates based on income brackets: 

  • If your income is between £0 and £12,570, you will pay zero income tax
  • If your income is between £12,571 and £50,270, you will pay a 20% tax
  • If your income is between £50,271 and £150,000, you will pay a 40% tax
  • If your income is over £150,000, you will pay a 45% tax

However, in the case of trading profits, your income tax rate will apply as follows:

Trading ProfitIncome Tax BandTax To Be Paid
Up to £12,5000%No Income Tax on first £12,500
Between £12,501 and £50,00020%20% Income Tax on your next £37,500 
Between £50,001 and £150,00040%40% on the final £2,000
Over £150,00045%No Income Tax paid at this rate

Before you start with your self-assessment tax returns, you must make sure that you have the following documents available:

  • your National Insurance number
  • your ten-digit Unique Taxpayer Reference (UTR)
  • your Government Gateway ID
  • details of your untaxed income from the previous tax year (this includes income from rental income, dividends from shares, interest on savings, capital gains)
  • expense details related to self-employment or partnership status (receipts/invoices/bank statements)
  • tax-free/relieved charity contributions
  • P60 or other records with details of your income and paid taxes (if any)
  • pension income and pension contributions
  • redundancy payments or employee benefits

Do I Have To File A Tax Return?

You don’t have to file a tax return if you are a salaried employee as your tax is deducted by your employer before your salary is paid; using the tax code assigned by HMRC. However, you must file a tax return if you fall into any of the below categories:

  • You are self-employed and your income was more than £1,000 
  • You earn through renting out property and your income was more than £2,500 
  • You earned through commission or tips in excess of £2,500 
  • You earn through savings or investments and your income was £10,000 or more 
  • You have sold a property or shares and have earned profits on them (Capital Gains Tax will apply in this case)
  • You are registered as a director of a profit-making organisation 
  • The joint income that you or your partner have earned was in excess of £50,000 and you claim Child Benefit
  • You have earnings from outside the UK 
  • You live abroad but you have earnings in the UK
  • The total amount of your taxable income was over £100,000
  • You are a trustee of a trust or a registered pension scheme
  • The State Pension you received during the tax term was your only source of income and was in excess of your personal allowance
  • HMRC issued you a P800 stating that you didn’t pay enough tax in the previous tax term

How Can I File A Tax Return?

If you are filing a tax return for the first time, you need to register with the HMRC Government Gateway user ID. You will register differently depending on which of the following classifications:

  • you are a self-employed or a sole trader
  • you are not self-employed
  • you are registering a partner or partnership

Once you have registered, you can choose to file your tax returns by making an online payment or using a printed form SA100. This is your main form. Depending on the classification of your source of income you will also need to fill out either of the following supplementary forms:

  • SA102 for employees or company directors 
  • SA103S or SA103F for self-employed 
  • SA104S or SA104F for business partnerships 
  • SA105 for UK property income 
  • SA106 for foreign income or gains
  • SA108 for capital gains 
  • SA109 for non-UK residents or dual residents

How Much Tax Do I Have To Pay?

According to a general estimate, an individual pays one-third of their income in the form of taxes in the UK. While the amount of tax one pays depends on the scale of their income, some people will pay a higher tax perhaps due to the property that they own or inheritance that they may receive.

There are different types of taxes under the UK taxation system. Direct taxes include PAYE (Pay As You Earn) and National Insurance. These account for 20 per cent of an individual’s income. On the other hand, indirect taxes include VAT, council tax as well as duties on alcohol and petrol. 

Direct taxes are automatically deducted from your wages, income or pension before you receive them. This is termed Pay As You Earn. Anyone earning equal to or less than £12,750 is not eligible for PAYE as the amount is considered under the law as an individual’s personal allowance. 

If you are self-employed, you are required to file a self-employed tax return in order to pay your taxes through a self-assessment. 

Therefore, basic taxes in the UK include the following:

  • Income Taxes 
  • Property Taxes 
  • Capital Gains 
  • UK Inheritance Taxes 
  • Value Added Tax 

What Is Capital Gains Tax?

Whenever someone sells an asset, there is a difference between the purchase price and the selling price. If you receive a gain while selling, this is a capital gain and the incremental amount will be taxed. These may include the following:

  • Personal possessions that are valued at or above £6,150 (does not include vehicles)
  • Real estate property that cannot be claimed as your main home
  • Your main home if it is being rented or used for business
  • Shares (those which are not in an ISA or PEP)
  • Business assets
  • Cryptoassets (only in certain cases)

Which Incomes Are Tax-Free In The UK?

Incomes derived from any of the following sources are considered to be tax-free in the UK:

  • Transport costs of an employee’s (and their immediate family) relocation for work in the UK
  • Winnings from games, pool betting, lotteries or competitions with prizes
  • Long service employee awards (certain limitations apply)
  • Individual savings account amounting to £20,000
  • Incomes such as interest or dividends arising from savings accounts 
  • Pensions paid to war widows and dependents
  • Social security and state benefits include maternity allowance, employment and support allowance, and attendance allowance, child tax credit and housing benefit. 

Conclusion:

The discussion in this blog post has made it clear that an individual can be registered as self-employed and still not have any income. In such a case, they will not be liable to pay income tax or national insurance until such time that their income exceeds the personal allowance threshold. Unlike most salaried individuals who pay taxes through the PAYE system, when you are self-employed and are liable to pay tax, you will have to file a tax return through self-assessment. 

FAQs: Can You Be Registered As Self-Employed But Have No Income?

Do you have to file a tax return if you have no income?

If you have no income, you are not required to file a tax return. However, if you receive money through renting out a property, grants or support, you may need to file a tax return through self-assessment.

How do you prove your income when you are self-employed?

To prove your income while being self-employed, you can use your personal tax calculation or computation statement from HMRC, self-assessment tax return, statement of accounts, accountant’s letter or your annual tax summary.

Do I have to declare self-employed income?

If you are self-employed income is less than £1,000, you are not required to declare it to HMRC. However, when your income exceeds this amount, you will need to get yourself registered to file tax returns on a self-assessment basis.

Do I need to do a self-assessment if I am employed?

Most of the time, you do not need to do a self-assessment if you are employed as your tax is deducted by your employer when you receive your wages. This is termed Pay As You Earn.

Can I be self-employed and employed?

Yes, you can be self-employed and work at a job at the same time. This usually happens when someone is either working part-time at a job or running their own business simultaneously. It may also occur when you have a day job and you manage your business after hours.

References:

Working for yourself – GOV.UK

Stop being self-employed – GOV.UK

Stop being self-employed – GOV.UK

Income tax calculator 2022-23, 2021-22 and 2020-21

UK Tax Calculators

HM Revenue & Customs – GOV.UK

Income Tax – GOV.UK

Income Tax rates and Personal Allowances – GOV.UK

Getting tax advice

Do I have to complete a tax return?.

I don’t know if I need to complete a Tax Return.

Self Assessment tax returns: Who must send a tax return – GOV.UK

How to fill in a Self Assessment tax return

What was missing from this post which could have made it better?

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.