Once you are registered as a sole trader in the UK you will need to submit your self-assessment tax return each year so you can pay the tax owed and contribute to National Insurance.
Undoubtedly this is one of the most daunting times of the year for freelancers living in The UK so hopefully, the guide and helpful links below will take the stress out of your experience.
Below I will be sharing my experience as a registered self-employed person in The UK and the knowledge I have gained from speaking to professionals over the years. Bear in mind that I am not an accountant.
If you have any problems or concerns then the best person to speak to is a registered accountant or call HMRC who are generally very helpful.
What is HMRC Self Assessment?
Self-assessment is HMRC’s system to collect income tax from people who aren’t on the typical PAYE system. The tax years falls from the 6th of April to the 5th of April each year and tax must be paid by 31st January.
The earlier you do it the more time you will have to pay your tax. You can file your taxes for the previous year as soon as the tax year starts which will give you nine months to plan for that bill.
Note: You can be fined if you submit your self-assessment freelance tax return late or don’t submit a tax return when you should have. If you do get fined, you can negotiate or put forward one of the allowable excuses accepted by HMRC (though forgetting to do isn’t an excuse, unfortunately).
You can speak to an accountant if you need help negotiating regarding a fine.
There are plenty of ways to pay your taxes but paying online using the online portal is the best way as you have a receipt and it’s smoother overall with fewer chances for misallocation.
Who needs to submit a Self-Assessment Freelance Tax Return?
There are a number of reasons why you may end up needing to submit a tax return (even if you’re not traditionally self-employed). For example:
- People who are self-employed as a sole trader
- People who are a partner in a business
- Anyone receiving money from renting out a property
- Anyone receiving foreign income (check if the country you’re receiving money from has a tax treaty with the UK)
- If you’re receiving money from renting out a property (i.e Airbnb)
- Income from savings, investments, and dividends
If you register as a freelancer partway through the year, then you won’t need to file that until the new tax year starts as you will be filing for the previous year. Again, the sooner you do everything, the more time you will have to pay.
What information and documents do you need for filing UK taxes?
Getting organized is key, try to keep your receipts and income organized throughout the year to make things easier on yourself.
For example, keep electronic receipts in a dropbox or Goole Drive or utilize tax software that can help keep things organized for you.
- Your National Insurance number
- Your Unique Tax Reference (UTR) number
- Your Government Gateway user id (to access your account online)
- Your income and expenses
- P60 and P45 if you need them
- Bank interest summaries
- Pension or rental income
- Any benefits or support you’ve claimed
Tip: Many bank accounts that are geared towards freelancers and digital nomads or banking and budgeting apps also allow you to tag your income and expenses within the app. It’s easier than it’s ever been to keep on top of your monthly budget and expenses.
Best Tax Software and Accounting Services for UK Freelancers
- Sage: The only software that is HMRC-approved. You can send and track invoices, capture receipts on the go using your camera, and process your payslips with ease. They have 24/7 live support if you need to ask questions and you can also easily share your Sage dashboard with an accountant. They also offer a three-month free trial meaning you can try out if accounting software is right for you and their plans start from £12 a month.
- Finmo: Finmo tax software helps freelance writers handle their tax returns and seamlessly track income and expenses by tagging transactions in real-time. You will always know what you owe with a personalised, live tax estimate. You also get ongoing support from their accredited accountants.
- Mazuma: The UK’s leading online accountants for small and micro-businesses, and freelancers. They offer flexible plans that do everything for you from £28 + VAT per month and will do your tax return for you for £100. You can easily them your receipts by post or using pictures via their online portal.
- Square: My favourite UK invoicing software, their free plan is more than enough for most freelancers and will keep things in order for you.
What are typical tax-deductible expenses for freelancers and self-employed individuals?
The topic that everyone is eager to know: what is regarded as a tax-deductible expense for freelancers and self-employed individuals?
Simply put, if you have bought something and it’s solely used for your business then that is likely to be something you can add to your tax-deductible expenses. If it is something you use outside of work then it’s unlikely to be a business expense.
You should always keep receipts for expenses when possible but if you have lost one then proof of expenditure on your bank statement can be used.
Note: Receipts from 2024 will need to be digital (photos are accepted).
You should keep these for six years minimum.
Here are some typical expenses that you will be able to list:
- Office costs and stationery — use of home as an office can also be deducted
- Travel expenses and mileage if it was used solely for a business-related trip
- Any clothing (or safety wear) that has a logo and is used for business. A suit that you bought for a work-related event does not count as it can be worn elsewhere.
- Staff costs and sub-contracts
- Training courses, paid industry newsletters, books, newspapers, and magazines used for business
- Advertising and marketing costs, e.g. website costs
- Capital allowances
- Business phone bill
HMRC outlines expenses in their guide which can be subject to change so make sure to check every year.
Tip: Budgeting through the year, and setting aside money for your tax bill, is key otherwise you can be caught in a tight spot. Here are some of our favourite budgeting tips.
Working out your tax bill
You do have a tax-free personal allowance which is around £12,570 and national insurance is around 8-9% of your profits. You will be taxed at the national rate on the money you earn after your personal allowance.
For example, if you earn £15,000 during the year then you will be taxed on £2430.
However, even if you are below the tax threshold, you will very likely be paying National Insurance. This falls into categories:
Class 2 National Insurance (2021/2022): If your profits are over £6515. This is charged at a weekly flat rate (£3.05) which is the same for everyone.
Class 4 National Insurance (2021/2022): If your profits are over £9569 then you will be charged a percentage of your profits depending on the amount. Typically 9%.
Tip: If you earn something then put away 30% of your earnings which should cover your tax and national insurance. If you have some money left over then it’s a great bonus for you!
You can use the HMRC ready reckoner so you know roughly what you will be paying which gives you a chance to budget accordingly.
If you are an artist receiving a large amount of money in one go (for example a book advance or sales piece of art) then you can apply for tax relief that will spread that money over two years of tax accounting. This is because you will likely be using that income to live off for a while.
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Be Prepared for ‘Payments on Account’
This is something that sends most freelancers reeling the first time they come across it. If the amount you are going to be taxed on (not your total income) is more than £1000 then you will not only be charged for the tax you owe for that year but also 50% of that on top.
Which is a huge shock if you haven’t budgeted for that extra amount.
Your tax payment will be split into two amounts and that 50% will go towards your next tax payment. On the second payment, you will then do the same again meaning that you will be continuously in this cycle.
A benefit to filing your taxes early and paying before the July deadline means if any adjustments need to be made then there’s time to do that rather than claiming back any money you are owed back later. Use the ‘reduce payments on account‘ on the online portal if you think you have overpaid or know you will be wearing less this year. You can also apply to increase them if you will be earning more.
Note: If you are caught by surprise and don’t have the money to pay this extra money then contact HMRC and they can set up a monthly payment plan for you.
Helpful Resources for Paying Tax in The UK
Aside from the HMRC website itself, here are some handy resources that I have used. Accountants and tax software sites (such as the ones mentioned above) tend to have very informative blogs too.
The Illustrated Freelancer Guide – A bible for UK freelancers, they also have a section on paying taxes.
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