1st Time Freelancer

drummingbob

Hi All,

I've just got a 3-day a week job which pays me enough to just about scrape by. I'm a video production graduate with corporate video experience so I'm planning to freelance for the other 2 days. The hope is to one day do the video stuff full time.

I'm thinking that sole trader would be my best option.

When I have freelance work lined up I was planning on saving 30% of it for the taxman (since I already use up my tax-free allowance with my part-time job I'm assuming that 100% of it will be taxable) and after April 5th completing the self assessment tax return, where I'll show what I earned and pay the 30% tax.

I'm also planing to salvage some of that tax back for my car loan repayments and petrol (traveling to freelance work; I'm estimating about 30% of my total traveled miles will be related to freelance work) and also claiming money back for video/ computer equipment and software that I've bought to do my freelance work.)

Does anyone have an idea how much of my car loan repayments I will be able to claim back? Another example; I've bought a graphics card as part of an upgrade to my computer. Could I claim all or a percentage of that back.

I'm assuming that anything I claim back would be knocked off the 30% that I will have saved, hopefully leaving me some left in the bank.

Sorry for the vague question, but do you think I have grasped the situation well enough? Is there anything I've not thought of or any advice anyone can offer.

Thanks.

Pennywise

drummingbob wrote: »

I'm assuming that anything I claim back would be knocked off the 30% that I will have saved, hopefully leaving me some left in the bank.

Your expenses don't get knocked off your tax bill. They reduce your profit. So you should work your 30% on your profit (i.e. income less expenses).

The general rule is that you claim the business proportion. So if you use your car for 50% business and 50% personal, then you can claim 50% of its running costs. You can also claim capital allowances on its value when first used for business and claim the interest proportion of your loan repayments - all the same % of business opposed to business + private mileage. The same applies for equipment etc - if you use it half the time for business, then you claim half the costs.

Prothet_of_Doom

You overcomplicate it:

What you can claim :
45p a mile for use of private car, (reducing to 25p a mile after 10K in a single financial year)
You should pay business use insurance yourself as the 45p a mile is deemed to cover it.

All equipment and software relating to freelance work.

All phone costs and internet costs relating to freelance. (You might have to estimate the percentage, but hey)


HMRC has some good information on all this stuff, plus search IR35 whilst you are at it.

colino

Only use the 45ppm if you are going to use the car on business for a few miles a week. Anything else and you are throwing your profits away.

InsideInsurance

colino wrote: »

Only use the 45ppm if you are going to use the car on business for a few miles a week. Anything else and you are throwing your profits away.

Given you are only taxed on your profits, why wouldnt you want to throw them away (assuming you arent intending to sell the business in the near future)

Mistral001

InsideInsurance wrote: »

Given you are only taxed on your profits, why wouldnt you want to throw them away (assuming you arent intending to sell the business in the near future)

Agree 45p mile is quite "tax efficient" and also very simple for a few 1000 miles a year business use. That is unless you have something like a Rolls Royce or Ferrari which costs a fortune to run per mile!

drummingbob

Thanks for all your answers!

Prothet_of_Doom wrote: »

What you can claim :

All equipment and software relating to freelance work.

Equipment and software relating to my freelance work are basically toys to me. That's quite exciting.

Prothet_of_Doom

drummingbob wrote: »

Thanks for all your answers!



Equipment and software relating to my freelance work are basically toys to me. That's quite exciting.

My dad did 4 weekends a year freelance for a mate, in IT (whilst employed full time) and it paid for all his computing equipment as he never made a profit.

tiger_eyes

Pennywise wrote: »

Your expenses don't get knocked off your tax bill. They reduce your profit. So you should work your 30% on your profit (i.e. income less expenses).

An important point that took me a while to grasp. I was under the happy impression at first that if I had a £1000 tax bill, I could just buy a £1000 laptop for the business and knock it off the tax bill, making the laptop effectively free. Alas, that is not the case.

drummingbob

tiger_eyes wrote: »

An important point that took me a while to grasp. I was under the happy impression at first that if I had a £1000 tax bill, I could just buy a £1000 laptop for the business and knock it off the tax bill, making the laptop effectively free. Alas, that is not the case.

Thanks. Can you explain why that's not the case? It does seem too good to be true, but It also seems to be what people are saying.

If I bought a piece of equipment for freelance work, could I list it as an expense and effectively knock it off my tax bill?

Thinking about it, it could be considered to be the accumulation of an asset, rather than an outgoing expense. I'm not sure if that makes a difference.

Prothet_of_Doom

tiger_eyes wrote: »

An important point that took me a while to grasp. I was under the happy impression at first that if I had a £1000 tax bill, I could just buy a £1000 laptop for the business and knock it off the tax bill, making the laptop effectively free. Alas, that is not the case.

If your business makes £5K profit, and you are therefore due to pay £1000 Tax (20%?) , and you expence the Laptop you'll only make £4K profit and tax due will be 20% of that (is that £800?)

If your business made £1K profit (200 quid tax) and you expenced £1K thus making profit £ZERO, the tax would be zero.

However If the business made £5K profit, minus the £1K laptop, minus £4K into pension, and made £zero profit, all would be cool. :rotfl:Then at age 55 take 25% of pension pot as a tax free lump sum :T (I think that's how it works:cool:)