Telling HMRC you are liable for tax

If you are trading and are liable to pay Income Tax, NICs or VAT, or are liable to CGT, then you must notify HMRC within certain time limits.

Time limit for notification of National Insurance liability

Self-employed people pay Class 2 National Insurance. The current rate for 2006-07 is £2.10 a week.

From your trading start date you have three months to notify HMRC that you are trading, otherwise you could face a £100 penalty.

Time limit for notification of Income Tax and Capital Gains Tax liability

A tax year starts on 6 April and ends on 5 April the following year. Once you start trading and are liable to Income Tax or CGT, then unless you receive a tax return you have until 5 October following the end of the tax year to tell HMRC that you are liable to tax.

For example, if you started trading on 25 March 2006 and were liable to income tax or CGT in 2005-06, then you have until 5 October 2006 to let us know.

If you do not let us know in time you may have to pay a penalty. The penalty is based on the amount of tax chargeable but unpaid by the 31 January the following year (in the example above, the date will be 31 January 2007).

Remember that if you are trading then the three-month time limit for Class 2 National Insurance will have effect first. In the example above this would be on 24 June 2006.

If you receive a Self Assessment tax return you need to ensure that you have all the supplementary pages (self-employment, Capital Gains) required to complete the tax return fully.

You can obtain a Self-Assessment tax return or supplementary pages from the Self-Assessment Orderline.