Having made the big decision to start a self-employment business, there will be countless decisions and administrative tasks to attend to. Informing HMRC of the new venture may not be high priority, particularly where income is uncertain. However, failure to do so and in time can lead to penalties, including possible backdated obligations.
When is registration required?
The key threshold is the ‘trading allowance’, currently £1,000 of gross trading income per tax year. There is usually no requirement to register immediately when trading starts. If by the end of the tax year it is found that registration is required, notifying HMRC by 5 October the following year avoids any issues. Missing the deadline puts you in late registration territory.
The government has announced that, from a future date (expected to be by 2029), individuals with trading income between £1,000 and £3,000 will generally no longer need to complete a full self-assessment tax return solely because of that trading income. Instead, they will be expected to report any tax due through a new simplified online reporting service.
Missing the deadline
Registering late for self-employment
Missing the 5 October deadline may not necessarily result in a penalty as HMRC will first consider whether any tax has been lost due to ‘failure to notify’.
If HMRC believes registration should have taken place, it may start a compliance process, request outstanding tax returns and potentially charge late filing penalties and interest on unpaid tax, or opening compliance checks and enquiries.
Late registration penalty
The tax implications of registering late for self-employment
HMRC can charge a penalty, based on the tax that remained unpaid when the taxpayer finally comes forward (known as ‘potential lost revenue’).
Penalties can be:
- up to 30% for a non-deliberate failure;
- up to 70% for a deliberate failure; and
- up to 100% for a deliberate and concealed failure.
No penalty will normally apply where there is a genuine reasonable excuse (e.g. illness or bereavement), the failure was not deliberate and HMRC was advised without unreasonable delay once the excuse has ended. Not knowing about the registration requirement does not qualify.
Voluntary disclosure
Voluntary disclosure is made via HMRC’s online digital disclosure service. After notification, HMRC will issue a unique disclosure reference number and a payment reference number. Disclosure must be within 90 days of HMRC acknowledging the notification and, importantly, payment of the tax must be made at the same time.
Backdating self-assessment
HMRC may require self-assessment returns for every year that should have been filed. Each late return carries automatic penalties – a £100 fine from day one, daily £10 charges from three months (up to £900), and further surcharges at six and 12 months plus separate penalties and interest on unpaid tax. Where several years of returns are required, these charges can accumulate quickly.
Making Tax Digital
The arrival of Making Tax Digital (MTD) for Income Tax Self-Assessment has significantly changed late registration in practice. Self-employed individuals with gross income above £50,000 must keep digital records and submit quarterly updates to HMRC using approved software. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028.
For a late registrant, the issue is no longer limited to missed annual returns. If turnover exceeded the relevant MTD threshold, HMRC may expect compliance with the digital regime from the date the obligation first arose.
Penalties for missing the quarterly update deadlines operate on a points-based system with one point per missed deadline, a £200 fine on reaching four points and a further £200 penalty for every subsequent missed submission. For 2026/27 only, HMRC will not issue penalty points for late quarterly updates.
Late VAT registration
Late registration issues are not limited to income tax. Where turnover has exceeded the VAT registration threshold (£90,000 in any rolling 12-month period or within the next 30 days), late VAT registration may add further penalties and interest, calculated at the Bank of England base rate plus 4%. HMRC can also require VAT to be accounted for on past sales, even where it was never charged to customers.
Practical point
The combination of late registration penalties, backdated self-assessment returns, MTD obligations and potential VAT exposure shows that inaction can be costly.
Partner note:
Schedule 41 Finance Act 2008 & HMRC Compliance Handbook CH70000 (Penalties for failure to notify)
