Tax on Freelance Work?

sarah_elton

shane8961 wrote: »

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.

I did the same when I freelanced in my spare time. Your tax free allowance for the year is used up by your PAYE job, so you pay the 20% on the whole amount.

There's no reason to put off telling HMRC you're self-employed. They have phonelines for self employment and honestly, I always found them really helpful as I didn't have a clue what to do. It just takes a phone call, they take your details, and it means they'll send you a tax return in April each year, relating to the prior tax year.

One thing they'll ask is the date your business commenced. Write down what you tell them somewhere and don't lose it. You have to write your business start date on the tax return for the first couple of years and it's good if you keep the info consistent.

I was lazy about the whole thing and put in my takings, and then costs £0, so profit = takings. If you're working at home you can deduct costs such as electricity, but there's accounting rules on what percentage of your electricity bill is attributable to the business. I was too lazy to look into all that properly but it'll save you some money as they tax the profit not the takings. You simply fill in takings, costs, profits on your tax return and don't send off any receipts etc. But of course they can insist on seeing your accounts so do keep all the paperwork (IIRC it has to be kept for 7 years).

I put about 20% of what I took straight into a savings account, with a different bank to my usual, so I wouldn't be tempted to spend it.

If you earn enough from it to hit the 40% threshold, bear in mind that it's only the amount over the threshold that will be at 40%. I.e. you pay 20% on everything below it, and if you earn £100 over the threshold the tax on that part is £40. It doesn't mean you suddenly start paying 40% on all your income.

shane8961

Thanks for your help. What sort of stuff can I "right off". I have bought a PC (usually use laptop) already, can I put down my internet access/phone line? Also, If I use my car to go to visit clients can I put a portion of that against it? Is there anywhere I can find out what portion of the electric etc I can use against it?

Thanks, Shane

Rubytuesday_2

Hi Shane
i also recently set up myself doing freelance work. I will earn just under the threshold so won't be paying National insurance.
I would like to echo how helpful i found the self employment helpline - they run a 2-3 hr education session on being self employed which they can book you onto for free in your local area and it covers all the things you are asking and you can ask the facilitator any questions at the end. Its free and I found it really useful as I have never done anything like this before.
RT

sarah_elton

shane8961 wrote: »

Thanks for your help. What sort of stuff can I "right off". I have bought a PC (usually use laptop) already, can I put down my internet access/phone line? Also, If I use my car to go to visit clients can I put a portion of that against it? Is there anywhere I can find out what portion of the electric etc I can use against it?

Thanks, Shane

One thing worth considering - I went on a self-employment course a couple of years ago, and IIRC they said that an accountant to do the books of a self-employed person with decent records (paperwork kept tidy) and a straightforward business should only cost about £200 a year. You might want to consider it if you're going to be making a reasonable amount as they'll certainly maximise your costs if you give them all the receipts and paperwork for things. Plus I'm pretty sure the cost of your accountant goes down as a cost as well so is effectively only costing you 80% of the actual fee.

Just worth bearing in mind if you find it difficult getting specific advice on the accounting rules for allowable expenses.

tyllwyd

I'm not qualified to give any advice about tax matters - but my understanding is that you can claim your expenses that relate to your business, which might be a proportion of some bills.

This link is quite useful for giving an idea of the way to think about it:

http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm

If you are doing web design work, I guess you will need paper and toner for a printer? Possibly postage to send hard copies to clients? The cost of phone calls (but not the standing charge, just the calls). If you buy new equipment, you can put it down as capital expenditure, but the rules are a bit more complicated for that. Mileage costs should be allowable, but again, you will need to make sure you understand the rules. As other people have said, if you want to make sure you are claiming absolutely everything you can, you probably need to get an accountant involved.