Finance

Freelance Taxes in the UK - A to Z Guide

freelance-taxes-in-the-uk-a-to-z-guide

How to File Taxes as a Freelancer?

It is excellent that you have now decided to be your boss! Choosing to be a freelancer can sound risky to some people, but we are sure it is 'freedom' to your ears. 

Although freedom sounds good, you still have some obligations to do as a freelancer, such as paying your freelance taxes and national insurance. In this article, we will go more in-depth and explain how to pay freelancer taxes in the UK. So how to file taxes as a freelancer? While understanding how to pay taxes as a freelancer is a full-time job, we’ll explain the details clearly.

How to assess tax returns? 

  1. Check the government website to see if you are eligible for freelance tax rates. If you are sure that you are a self-employed freelancer, continue reading more. 

  2. In the UK, if you’re a sole trader, you run your own business, and you are considered a self-employed person. Don’t forget limited company setups aren’t considered as self-employment businesses. 

  3. If you are a self-employed freelancer who has earned more than £1,000, first, you should register HMRC. The good news is you can do your taxes on the internet. 

However, be careful not to miss the registration dates. For example, in your self-employed business set in June 2019, you should register to HMRC until the 5th of October. 

  1. After you register, you will receive a letter from HMRC that has your  10-digit Unique Taxpayer Reference. When you have the number, you can set up an online self-assessment service for yourself. 

  2. If you completed the online registration, you would receive another letter in 10 days with a code. When you use the code and the UTR number you received before, you can complete your online registration process. 

Payment on account is an advance payment towards your tax bill (including Class 4 National Insurance if you're self-employed). In such a case, you should make two payments on account every year.

In addition to this, you pay mandatory national insurance if you’re self-employed and making a profit of £6,475 or more a year.

 When you complete the whole online registration process, you are ready to use the online system to pay your freelance taxes. Please note that you will also be asked about the details about your business during the registration, like the company name and contact information. 

How much do you have to make to file taxes freelance?

If you are wondering how much you should earn to be obliged to tax payments, you are in the right place! In England, you should make at least £12,500. 

How Much Tax Do You Pay on Freelance Work?

In the UK, you have to pay freelance taxes according to your freelance earnings. It’s different than a flat rate. There are three bands: the basic price set at 20%, the higher rate at 40%, and the top rate at 45%. For the current freelance income tax rates for this financial year, check on the HMRC website. Or you can make self-assessment according to the calculation below considering your net freelance income. 

If your freelance profits, when added to your income from employment, push you into the higher rate band, you’ll be taxed at 40%.

Let’s say in 2020-21, Rachel earns £35,000 as a freelance pastry chef. She has expenses of £3,000, so her profit is £32,000. 

But Rachel is also employed part-time in a restaurant, bringing in an extra £15,000. 

Overall, Rachel earns £47,000. Her first £12,500 is tax-free. 

The slab between £12,500 and £47,000 would be taxed at 20%, and the remaining would be taxed at 40%.

Freelance Tax Rates

The freelance tax rates for 2020 is like below. For more information, you can check the government website. If you need more support you can always ask a professional accountant to answer your questions.

Band

Taxable income

Tax rate

Personal Allowance

Up to £12,500

0%

Basic rate

£12,501 to £50,000

20%

Higher rate

£50,001 to £150,000

40%

Additional rate

over £150,000

45%

When Do Freelancers Pay Taxes?

You have to declare your self-employment earnings every year until the 31 January following the end of the tax year on 5th April. 

Unlike the income earnt from your permanent employment, the money you earn from freelancing is untaxed, and it will need to be declared to HMRC.

Tax Documents and Freelance Tax Forms

You can download freelance tax forms and guidance on the official government website.

List of Deductible Expenses

Freelancers can deduct business expenses like any other employer before paying freelancer tax because the UK’s freelance tax is being paid only on the profits earned. 

Freelancer tax deductions list is as follows:

For the whole list of expenses for the self-employed visit gov.uk.

Frequently asked questions

  • Do Freelancers Pay Taxes?

In the UK, freelancers should pay freelance taxes if they earn enough income to be obliged. 

  • Do Freelancers Pay Freelance Income Tax?

Yes, in the UK, freelancers should pay income tax.

  • Do Freelancers Pay More Taxes?

No, freelancers pay according to their earnings, you can check the freelance tax rates on the government website. 

  • Do Freelancers Get Tax Refunds?

Yes, freelancers can deduct their expenses from their net earnings. For more information, check the tax return pages on the government website. 

  • Do Freelance Photographers Pay Taxes?

Yes, in the UK, freelancer photographers pay freelance taxes if they earn enough income to be obliged. 

  • Do Freelance Designers Charge Tax?

Yes, in the UK, freelancer designers pay freelance taxes if they earn enough income to be obliged. 

  • Do Freelance Writers Pay Taxes?

Yes, in the UK, freelancer writers pay freelance taxes if they earn enough income to be obliged. 

  • Do Freelance Artists Pay Taxes?

Yes, in the UK, freelancer artists pay freelance taxes if they earn enough income to be obliged. 

If you need further explanation on the tax bill, security and medicare taxes, employment income support scheme, or capital gains tax you can ask a tax professional or visit an official government website.

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İpek Tüzün

İpek Tüzün is a human being, digital marketing person, writer, researcher on the future of work, and sci-fi fan based on earth. Read more...

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