How to pay tax for a freelancer? – TaxTotal

Are you a freelancer confused about getting your tax done? We help to pay tax for all the freelancers out there. According to a government poll, 4.1 million individuals in the UK are freelancers. If you fall into this category, you must pay freelance tax in the UK and register for self-assessment. However, this independence comes with a lot of duties. You must not only watch your own expenditures and manage without perks such as vacation and sick leave. But you must also pay your own taxes and, most importantly choose what type of freelancer you plan to become.

What is the tax system in the UK for a Freelancer?

Basically, you will pay tax based on the structure of your firm. Here’s a quick rundown of each scenario:

  • Becoming a sole trader/self-employed: This is the most basic type of business – it’s just you. Customers pay you directly when they pay your bills. Thus you must record any payments as untaxed income to HMRC each year through the self-assessment system. Depending on your profits, you will have to pay both income tax and national insurance (NI).
  • Commence a partnership: A partnership is basically two or more individuals operating as sole proprietors together. Each partner must self-assess their untaxed income (their share of the revenue), and one of you must also be ‘selected’ to submit a separate tax return for the partnership and keep records (though there is no separate tax charge for this).
  • Form a limited company: Things become a bit more difficult here. Because a limited (LTD) company is a separate legal entity, when a client pays an invoice, they are paying the firm, not you, the director operating it. But as a director, you must still submit the firm’s turnover to HMRC and pay any corporation tax payable using the company bank account. Each director may also be required to pay tax on money taken out of the firm as salary and profits, either through payroll PAYE (Pay As You Earn) or through self-assessment.

How much National Insurance should you pay as a freelancer for tax?

If you are already an employee you pay Class 1 National Insurance payments. Which is deducted through your employer’s PAYE/payroll system. However, second-job freelancers must pay additional NICs. Which go towards state benefits such as State Pension, mandatory sick pay, maternity leave, and so on.

If your freelance/self-employed profits exceed £6,725 (2022/23 tax year amount), you must pay £3.15 per week in Class 2 NICs. To make things easier, set up a direct debit.

If you earn between £9,880 and £50,270 as a freelancer or self-employed person, you must pay Class 4 NICs at 10.25 per cent and 3.25 per cent on earnings over £50,270. Your Class 4 NIC liability will be calculated using the information you provide in your Self Assessment tax return.

What expense can I deduct for tax for a freelancer?

Expenses are the HMRC’s way of recognising that running a business costs money; the guidelines on what you may deduct are stringent. A cost must be deemed “wholly and exclusively” for commercial purposes and these are deductible for freelancer tax. Some expenses include:

  • Fuel and tickets for travel
  • Bills and office supplies
  • Employee pay
  • Websites and marketing
  • Training Courses
  • Insurance
  • Vehicles such as cars or vans
  • Equipment which includes a computer.

Visit for a complete list of self-employment expenditures.

Do I need to complete a Tax Return if I freelance as a second job?

Unless your overall profits are quite low you can’t avoid tax as a freelancer. You must complete and file a Self Assessment tax return (SA100) each year. Describing your earnings and expenditures for the preceding tax year. Which allows calculating your Income tax and National Insurance payments (NICs) on all taxable earnings. HMRC will then compute your increased Income Tax amount and give you a bill, which you must pay.

When Should I inform the HMRC?

Even though your employer doesn’t need to know, the HMRC is aware. HMRC recommends that you notify them as soon as you begin dealing with your new company.

If your earnings as a self-employed sole trader exceed £1,000 in a tax year, you must register with HMRC as a new business.

If you’re currently working full-time, this might happen as soon as you get your first self-employed paycheck.

In case you make more than £1,000, you have until the 5th of October after the end of the tax year to register as self-employed and file your annual Self Assessment or face a fine.

However, if you are unlikely to earn more than £1,000, you do not need to file a Self Assessment since HMRC has implemented the £1,000 trading allowance to eliminate the requirement to file a return in such situations.

Will your employer know?

Although it is unlikely to be an issue, it is acceptable if you do not want your employer to know that you are working on other projects. However, be cautious since your employment contract may restrict you from taking on outside work, particularly if there is a possibility of conflict with your existing company.

Your tax dealings are completely private, and HMRC will not notify your employer if you register as self-employed. However, if you start a limited company, your information is publicly available at Companies House, and your employer may learn about your business that way.

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