Freelance and Self-Employed Taxes in the UK (A to Z Guide)

 Self-employment is something we often think of when that alarm rings every morning, reminding us to get ready for work! I am sure you have thought of becoming a freelancer. Well, we can't blame you as it comes with a lot of freedom. You get to pick your projects and become your boss. How cool is that? 

However, with freedom comes a lot of duties as well. For one, you need to understand freelancing and taxes for freelancers before you begin your career. So, where do you start?

This A-Z guide will give you all the information you need to understand and take care of your freelance tax UK responsibilities, making the process easy and stress-free.

The Taxation System for Freelancers in the UK

For workers in the UK, the freelance tax system is pretty easy to understand. Salaried workers have their taxes taken out immediately, but you must figure out, report, and pay your self-employment tax with your VAT exemptions and deductions. 

In your case, tax assistance is then the most viable option to make your work easier. This may seem complex, but it's straightforward to handle with some planning and order. You'll need to think about two central taxes:

1. Income Tax: As a freelancer, you'll have to pay income tax on your earnings after taking out any tax-deductible business costs. Taking your business costs away from your total income to get your taxed income is what this means.

2. National Insurance (NI): If you need to pay National Insurance (NI), you can do so in two ways: Class 2 and Class 4. 

Here's a breakdown of these two classes;

• Class 2 NI: This is a one-time payment that you make if your gains go over a certain amount. At the moment, it costs £3.00 a week.

• Class 4 NI: This is a tax you must pay if your wages exceed £9,880 per year. Earnings between this amount and £50,270 are taxed at 9%, while earnings beyond this level are taxed at 2%.

Understanding the difference: Employees usually have their income tax and National Insurance taken out at source by their employers. This is the main difference between self-employed and hired people regarding taxes as a freelancer. Since you're a worker, you have to figure out, report, and pay these taxes on your own.

UK Taxation of Self-Employed Individuals

For tax purposes, being a freelancer is the same as being "self-employed." What does this imply? It means you are treated like a sole proprietor (you run your business alone). Individuals who work for themselves need to consider some extra tax issues, including;

• Self Assessment Tax Return: This is the tax form you must send to Her Majesty's Revenue and Customs (HMRC), the UK tax office, every year by October 31. It lists your income and spending so that HMRC can figure out how much tax you owe.

• Tax Deadlines: There are a few critical tax deadlines to keep in mind – June 30 for paying your Class 2 NI, July 31 for paying your first payment of income tax for the current tax year, January 31, pay your second installment and settling any fines that are still due.

Remember: There are fines for missing these dates, so it's essential to keep records in order and set reminders.

Tax Deductions for Freelancers

Good news: you can subtract some business costs from your income before figuring out how much income tax you owe. In the end, this drops your taxable earnings and your tax bill. Here are some usual costs that workers can deduct:

• Office supplies: This is everything you need to use at an office, such as paper and ink for your printer.

• Software subscriptions: There are some software products you need to carry out your job efficiently. This includes design tools, accounting software, or project management applications.

• Training and development: This category includes courses, workshops, or conferences that help you enhance your abilities as a freelancer.

• Travel expenses: These are travel expenses incurred during a business trip.

• Rent and utilities: If you have a dedicated office at home, you may be able to deduct a portion of your rent and utilities expenditures.

• Phone and internet bills: The portion you use for business purposes can be deducted.

• Marketing and advertising costs: Money spent on promoting your freelancing services, such as website design, business cards, and online advertising.

• Professional fees: Costs of hiring accountants, attorneys, or other business experts.

Keeping receipts is vital: Never throw away receipts for business costs. HMRC could ask to see them to ensure you're telling the truth about your deductions.

Understanding the Process of Paying Taxes as a Freelancer in the UK

In simpler terms, here's how the process works:

• Keep Detailed Records: Keep meticulous records of your annual income and spending. Keep everything in order with spreadsheets, accounting tools (like the ones given by Ruul!), or even plain old notebooks.

• Register with HMRC: Let HMRC know that you work for yourself. This is quick and easy to do online.

• Calculate Your Tax Bill: Once the tax year is over (April 6th to April 5th), use your records to figure out how much money you made, how much you can claim for costs, and how much of your profit is taxed. This will help you figure out how much Class 4 NI and income tax you need to pay.

• File Your Self-Assessment Tax Return: By October 31st, you must send or email HMRC your finished Self-Assessment Tax Return.

• Pay Your Taxes: To avoid fines, pay your tax bill by the due dates listed above (June 30, July 31, and January 31).

Seeking Help: When you start working, taxes can be hard to understand. You might want to talk to a trained lawyer who can give you specific advice based on your unique situation.

Ruul: Your Freelance Tax Companion

Being a freelancer can make it hard to keep track of your money. Our platform makes it easy to keep track of expenses, create invoices, and even figure out your taxes. Do what you do best and freelance your way to success!