How to set yourself up for tax as a freelancer



You need to register with HMRC for tax once you go freelance or make any money blogging

So you want to (or have already) go freelance. You’ve ditched the 9-5 and are set to work your hours, for your clients, your way. So what do you need to do tax wise? And how do you offset all those business costs? As one set to do just this here’s what you need to know:

What you need to do

There are two main ways of setting yourself up once you go freelance. You can set yourself up as a sole trader or as a limited company. If you are running a specialist business such as offering childcare you will need certification from the government and those people earning more than around £80K are subject to different rules (eg you have to register for VAT if turnover is more than £83K a year) but for those of us starting out or working flexibly this is what you need to know:

Sole trader

If you work for yourself HMRC classes you as self-employed or a sole trader. The government classes you as a sole trader if you run your business for yourself and take responsibility for its success or failure. You are probably self employed if you:

  • can decide how, where and when you do your work
  • can hire other people at your own expense to help you or to do the work for you
  • provide the main items of equipment to do your work
  • are responsible for finishing any unsatisfactory work in your own time
  • charge an agreed fixed price for your work
  • sell goods or services to make a profit (including through websites or apps)

Anyone who becomes self-employed must register for tax and NI contributions with HMRC as soon as possible. At the latest, you should register by 5 October in your business’s second tax year. The quickest and easiest way to do this is online.

You’ll also need to keep records of your earnings and outgoings – most small businesses  use cash basis accounting – recording income when payment is received rather than when invoiced.

Obviously you’ll need to pay tax. This is usually taken in two instalments on 31 January and 31 July. The HMRC has a calculator to help you work out costs.

You can deduct some of the costs of running your business to work out your taxable profit as long as they’re allowable expenses – for example stationary, travel expenses and phone bills. The HMRC has a self-assessment helpline if you are unsure. But keep a note of everything you spend on your business and receipts.

Limited company

If you are going to be running a larger venture you can also set up a limited company to run your business. This organisation means your finances are kept separate to your personal finances. However, this is a bigger undertaking. You have to register your company with Companies House and you’ll have to pay corporation tax. The limited company is limited by shares, and to take money out you’ll have to pay salaries or dividends. So this is really only an option for larger businesses rather than individual freelancers.

How do you work out your tax? Do you claim expenses? Do you find it easy to keep on track of your accounts or do you hire an accountant? Do let us know!



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