Tax Returns as a Freelancer (UK Self-Assessment)

Paying UK tax is a new experience for those who have no freelance experience. So here is all the information needed about Tax Returns as a Freelancer (UK Self-Assessment)

Pay As You Earn (PAYE)

Within the UK, if your income isn’t taxed at source by your employer, then it must be declared via completing a tax return.

Being employed by a company in the UK generally equates to being paid through the pay as you earn (PAYE) scheme. This means that your employer is responsible for handling your tax and declaration of earnings.

How To Declare Your Earnings For Tax

You must register with HMRC as self-employed and complete a self-assessment tax return.

The UK Tax Year

This runs from 6th April – 5th April of the following year.

So for example – 6th April 2019 to 5th April 2020 is the current tax year at the time of writing this article.

So, when should I register?

It is requested that you register before the October after the end of the tax year. So to make it simple:

You start freelancing online in April 2019, then you should register with HMRC by October 2020.

When should I submit the tax form after registering?

Your self-assessment form deadline is the following January. So…

…start freelancing in April 2019, then you get your form submitted by January 2020.

Registering with HMRC

After registering, HMRC will give you all the information you need to log-in to your account. You will also receive a Unique Taxpayer Reference (UTR).

You could then decide to contact and register an accountant to complete your return for you…but to be honest, it’s pretty straightforward…as long as you keep good records and all your receipts!

Quickbooks is a great business accounting software for small to mid-size business owners.

An accountant is useful for ascertaining what to claim as tax deductible expenses and if your situation is more complicated.

Keeping Records and Tax Deductible Expenses

Spending a few hours once a month to log all income is well worth the time and energy.

Working remotely; you may get paid in different currencies. Don’t record it in Chinese Yuan or US Dollars, regardless of how you have gotten paid. Convert it to pounds.

What Counts as Tax Deductible Expenses?

As a general rule, you’re only allowed to claim 100% of the cost for items or services you’ve bought ‘wholly and exclusively’ in relation to your job.

HMRC will allow you to claim a range of expenses pertaining to office supplies, including:

  • Your desk phone
  • Your mobile phone
  • A fax machine
  • Postage costs
  • Business stationery
  • Printing costs
  • Printer ink and cartridges
  • Any computer software that your business uses for less than two years
  • Any computer software your business uses and makes regular payments to renew the licence

You can even claim for your laptop, tablet, or internet – but only if  it’s used for business. That means if you have purchased a family computer that you’re only using for business 50% of the time, you can only claim the cost of that computer as a business expense on a pro-rata basis.

This is where an accountant comes in handy as they can tell you from your records, logs and sheets what you can claim for.

How Much Tax Will I Have To Pay?

To work out how much you’ll owe, follow this formula:

Total income – deductible expense = Profit

Now if your profit is below the personal allowance of £12,500 then you won’t have to pay a penny. If the profit is above this then you will pay a basic rate of 20%.

Personal Allowance Up to £12,500 0%
Basic rate £12,501 to £50,000 20%
Higher rate £50,001 to £150,000 40%
Additional rate over £150,000 45%

National Insurance Contributions

These contributions are due when your income exceeds £6,205 within the year. These are voluntary payments but your contribution amounts dictate whether you eventually receive your pension.

For more information on filing Tax Returns as a Freelancer visit the HMRC website

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