Income tax for freelance work

langersp

Hi,

I work ful time and pay tax etc as normal.
I also want to do freelance work and estimate i could earn aroun 4-6k per annum doing this.

Will i need to pay income tax on this extra income and if so what rate am i looking at?

Thanks

DS4215

I believe its basic rate unless you go into the higher tax rate with your total earnings.

Under 5K and a bit and you do not have to pay NI on the second income.

InsideInsurance

Assuming your doing your freelancing as a sole trader then you add up all your incomes and you get a single tax free allowance for all of your income.

Depending on your income from your employee life you will pay the same rate as the upper end of that (ie 20% if a basic rate) unless of cause this tips you over into a higher rate in which case you pay the 20% on that which takes you to the limit and 40% on that which takes you over (or 50% if you are earning over £150k)

You will do an annual tax return which you enter your employee and self employed incomes, what tax you have paid via your employed life and it will tell you what tax, if any, you need to pay or are due as a refund if you've overpaid as an employee

mrsyardbroom

You need to register with HMRC as self employed within three months of starting your freelance work.

imaginarynumber

DS4215 wrote: »

I believe its basic rate unless you go into the higher tax rate with your total earnings.

Under 5K and a bit and you do not have to pay NI on the second income.

BUT if you are both PAYE and self employed you have to pay class 2 NI irrespective of any income.

Class 2 is a fixed £2.50pm and must be paid even if you don't make any money when trading as self employed

Class 1 is what you are paying via PAYE

Class 4 is related to your extra income.

http://www.hmrc.gov.uk/working/intro/employed-selfemployed.htm

Becles

That's incorrect. If your earnings are less than £5315 from self employed work only, you can claim exemption.

http://www.hmrc.gov.uk/working/intro/class2.htm

It's prudent to pay them if you are not paying Class 1 through a job though, as it entitles you to benefits such as maternity allowance and ESA should you need to claim in the future.

imaginarynumber

Becles wrote: »

That's incorrect. If your earnings are less than £5315 from self employed work only, you can claim exemption.

http://www.hmrc.gov.uk/working/intro/class2.htm

It's prudent to pay them if you are not paying Class 1 through a job though, as it entitles you to benefits such as maternity allowance and ESA should you need to claim in the future.

Thanks for clarifying that. I didn't know there was a lower limit.

the £5315- is that total income or just the self employed part?

So is the exemption based upon the assumption of future self employment income? ie if you apply for the excemption and go over the limited are you liable to retrospectively pay it?

Becles

The £5315 is income just from self employed work.

I'm not sure what happens if you go over the limit during a tax year.

phil_solo

Becles wrote: »

The £5315 is income just from self employed work.

I'm not sure what happens if you go over the limit during a tax year.

http://www.hmrc.gov.uk/payinghmrc/class2nics.htm

From my recollection, and please do not take this as gospel without checking first, if your expected income for the tax year is going to be less than £5,315 you can apply for the Small Earnings exemption using form CF10.

The 'billing periods' for NIC Class 2 are April-Oct and Oct-April with collection dates due at 31st Jan and 31st July respectively, i.e. 3 months after the period. f you pay by monthly DD they're collected 4 months in arrears, so the April-October block is collected from August-January, and so on.

So if you applied for exemption but at the end of the Tax Year you had net profits of more than the £5,315 threshold, it seems to me you'd have to then pay those backdated NIC2 contributions immediately, and by 31st July at the latest.

If, by October of the Tax Year you've accrued in profit proportionately more than half the threshold amount (and could thus reasonably expect to breach the threshold by the end of the tax year), then class 2 NICs for the first half of the year possibly need to be paid by the end of January tax deadline.

Per the caveat above, this is just my interpretation of the HMRC notes, and you should check directly with their hotline for information pertinent to your own circumstances.