Freelance Work: Tax Help Please

pappuyogs

Hi All,

I am contemplating taking up freelance work and was wondering if anyone could help me with the tax situation.

I am currently in employment now with a salary of £25,000 PA, but if I take up this freelance role, I will be getting £2500 per month (@ £30,000 PA). Just wondering how much taxes & NI I have to pay per month for my Freelance role and how do I do it? DO I have to go through an accountant?

Also, one of my friend's suggested that registering a company and I will be able to save a bit on tax and NI. Is this a feasible solution? What costs am I looking at?

The role is only for three months and since I am only looking to plug this temporarily, it sounds very good to me and will give me some breathing space for my next career move. Just wondering if it's a wise decision financially?

Any advise will be greatly appreciated.

Many thanks in advance!

fengirl_2

You would pay tax on your profit, not your income from this source. The amoount depends on how much you have earned in your other job. You need to keep records of the income and expenditure and be ready to produce accounts at the end of the year to complete your Self Assessment. You should register with HMRC as soon as you start the freelance job - they will set up a DD for you to pay class 2 NIC's and arrange for a self assessment next April. The tax will be payable on 1 Jan 2011. Make sure you advise HMRC should this income cease.
Not really worth setting up a company for 3 mths work - especially if you are not employing anyone or taking on liabilities. You dont need an accountant if you are OK with figures and forms, although orgs like BUsness Link will help you.

Rolo_Tomasi

It certainly make sense financially - you will get paid more and may have less tax to pay - just make sure you save towards the tax bill.

You need to weigh up these benefits against what you are giving up by not being an employee ie there will be no sick pay or holiday pay, no guarentee of work, no redundancy pay if you get laid off and you may have to wait for your money.

Whilst you can complete your own Tax Return I believe that a good accountant will ensure that you are claiming tax relief on everything you are entitled to and would probably save you more in tax than their fees.

pappuyogs

Many thanks for the advice people.

fengirl, I assume that if I start my freelance jobs from the 15th November, my earnings from my previous job will be from the current financial year (From April 2009). Also, not sure what the profit component is. Will it be my net salary from the previous job for this financial year plus £2500 for the freelance job?

fengirl wrote: »

The amoount depends on how much you have earned in your other job. You need to keep records of the income and expenditure and be ready to produce accounts at the end of the year to complete your Self Assessment. You should register with HMRC as soon as you start the freelance job - they will set up a DD for you to pay class 2 NIC's and arrange for a self assessment next April. The tax will be payable on 1 Jan 2011. Make sure you advise HMRC should this income cease.
Not really worth setting up a company for 3 mths work - especially if you are not employing anyone or taking on liabilities. You dont need an accountant if you are OK with figures and forms, although orgs like BUsness Link will help you.

tyllwyd

Your salary from your previous employment and your profit from your self-employment are two separate things. If you register for self-assessment in November 09, you will be sent a self-assessment tax form for 2009/10 in April 2010 (or of course you might do it online). In the self-assessment form there are separate sections for your income from employment, your profit from self-employment, and other income (eg bank interest). When you've completed the form, your final tax bill for 2009/10 will be calculated taking into account any tax you've already paid by PAYE etc.

It is probably a good idea to get your form submitted earlier rather than later, because I guess you will have paid a bit too much PAYE on your current job if you don't work the full year, but the tax on your freelance work won't be due to be paid until January 2011, so if you get it done early you can get your rebate a bit sooner or give yourself good warning of how much you owe in January, whichever way it goes.

Oh, and your profit from self-employment is whatever money they pay you (£2500 x three months?) minus your expenses. Are you saying that you don't expect to have any expenses for your self-employment? If so, are you sure it is genuine self-employment?

fengirl_2

I am struggling to thiink of any circumstances where a genuine business does not incur expenses.The lack of any expense deduction on a Self Assessment would be a risk factor for HMRC, especially coupled with a round sum (£7500) for turnover. As tyllwyd says, are you sure this is genuine self employment?

pappuyogs

Thanks again.
I was told that I will be a regular employee for three months, only difference being I have to pay my own taxes.

I wasn't aware that it's a bit dodgy doing this. I am confused. Best to stick to my current job I suppose.

fengirl_2

It does sound like an employer trying to dodge his responsibilities - although if HMRC found out they were employing you not under PAYE, the employer would have to pay the tax and NIC.

Timmne

It's not you or your employer who decides what you are classed as; there are a number of rules - search for ESI tool on the HMRC.gov.uk website.

pappuyogs

Cheers people! Thanks a lot for clarifying!

James_Trimby

HI if just a three month contract I would not worry too much about the employee/self employed position. As long as you do not have a company in place to work through it is your "employer" who has the problem, and the tax risk. Just make sure that, if you have to sign some paperwork, there is no clause in there entitling them to come after you for any taxes that might have to be paid by them.
I am sure you will come up with some expenses, even if it is just a pen and a stamp to send off your registration with the Revenue and some fuel to go into town to bank your three cheques!