Tax on Freelance Work?

shane8961

Hi all,

I am currently working full time, however I am going to try and push my freelance work (web design) this year. However I need to know what I will be paying in tax/ni so I can put a portion of the money aside for when it needs paying.

I currently earn £21k and I'm hoping the freelance will add £5k. Any ideas roughly what percentage I will pay in tax/ni?

Thanks, Shane

fengirl_2

You know what tax and NIC you are currently paying on £21k - if you are going to earn £5k more, then you would pay 20% more in tax and 8% more in NIC (but you need to take your expenditure into account).

shane8961

So on the first £5k I pay the same tax rate I do on my standard pay (which I think is 20%), but if I got over £5k it goes up to 40%?

Thanks, Shane

fengirl_2

No, the 40% rate kicks in at £37,400 taxable income.
You said that you currently earn £21k. My answer was trying to get you to look at the tax you are currently paying on £21k and then to imagine you are earning £5k more as self employed (which was what you said you would earn). The tax on the extra £5k would be at 20% of £5k, ie £1000.
You would only pay tax at 40% if your profit was over about £43k.

shane8961

fengirl wrote: »

No, the 40% rate kicks in at £37,400 taxable income.
You said that you currently earn £21k. My answer was trying to get you to look at the tax you are currently paying on £21k and then to imagine you are earning £5k more as self employed (which was what you said you would earn). The tax on the extra £5k would be at 20% of £5k, ie £1000.
You would only pay tax at 40% if your profit was over about £43k.

Ah right, thats what I was hoping for. Thanks for your help.

Cheers, Shane

tyllwyd

If you have a look at the listentotaxman calculator, try putting in your current salary - it will show the tax & NI you currently pay. Then put in an estimate of your total income for next year, and that should give you a rough idea of how much extra you will need to pay.

Remember to register with HMRC as self-employed for your new business within 3 months of starting.

shane8961

tyllwyd wrote: »

If you have a look at the listentotaxman calculator, try putting in your current salary - it will show the tax & NI you currently pay. Then put in an estimate of your total income for next year, and that should give you a rough idea of how much extra you will need to pay.

Remember to register with HMRC as self-employed for your new business within 3 months of starting.

Thanks for the advice, didnt realise I had to do that. How do I do that? Does it cost?

You say within 3 months, how long does it take? Would I be ok working 10 weeks and then doing it (would 2 weeks be enough for it all to be sorted out?).

Thanks, Shane

tyllwyd

It doesn't cost anything, but from that point you will need to pay your Class 2 NI at £2 per week. (Well, I think you can claim exemption if you are earning under a certain amount ... but I always get very confused over NI so don't take my word for it).

Have a look here
http://www.hmrc.gov.uk/selfemployed/iwtregister-as-self-employed.htm

I think there is a penalty of £100 if you don't register quickly enough - so nothing drastic, but a waste of money if you do get charged! But it probably isn't worth doing until you get an actual client lined up.

Remember to keep good records of the money that comes in and your expenses, so that you have everything to hand when you come to fill in your tax return.

shane8961

Thanks for that. Looking at this page http://www.hmrc.gov.uk/rates/nic.htm it appears I would have to pay £2.40 per month, however if my earnings are below £5075 for the year I will not have to pay the class 2 NI. Also, it looks like I only have to pay 8% on earnings between £5715 and £43875.

So does this mean that as long I earn no more than £5000 in the year, I will not have to pay any NI contribution, just the tax at 20%?

As for keeping a record, I already have a few spreadsheets set up ready, filing cabinet for any paperwork/receipts and going to open a separate bank account at the weekend so hopefully I shouldnt find it too difficult.

Thanks for all your help, it really is appreciated.

Shane

fengirl_2

Yes, at £5k profit, you wont pay NIC.

shane8961

fengirl wrote: »

Yes, at £5k profit, you wont pay NIC.

Thats great thanks. I'll just have to try and keep it below that. At least I know to put 20% aside for tax (will probably do 25% just to cover if I do go over the £5k and need to pay any NIC).

Thanks for all your help.