How do I pay taxes on freelance income in the UK?
December 19, 2011 8:33 AM Subscribe
Help me understand taxes as a freelance consultant in the UK.
Hello! I just moved to the UK recently, and have been doing some consulting and freelance work. I know you are not my accountant, but I have no idea how taxes work on this in the UK. Do I bill taxes to the company? Does the company pay taxes independently? Do I file a return? Is there any easy answer to this? The company is new to freelancers and isn't quite sure yet either. I'm familiar with the US system, if that helps illuminate my confusion. (People don't seem to file returns here as a general matter).
I'm hoping to do more freelancing, and would love some pointers as to what I should be doing, and whether I should get an accountant. (Probably, right?). Any tips or real world experience would be greatly appreciated!
Hello! I just moved to the UK recently, and have been doing some consulting and freelance work. I know you are not my accountant, but I have no idea how taxes work on this in the UK. Do I bill taxes to the company? Does the company pay taxes independently? Do I file a return? Is there any easy answer to this? The company is new to freelancers and isn't quite sure yet either. I'm familiar with the US system, if that helps illuminate my confusion. (People don't seem to file returns here as a general matter).
I'm hoping to do more freelancing, and would love some pointers as to what I should be doing, and whether I should get an accountant. (Probably, right?). Any tips or real world experience would be greatly appreciated!
HMRC site and they are great if you have a query, too and you have a coupel of months to register. I have been blogging about how to do this here, too - might be helpful for you:
Good luck!
posted by LyzzyBee at 8:44 AM on December 19, 2011
Good luck!
posted by LyzzyBee at 8:44 AM on December 19, 2011
Oops - accidentally put the link around the "good luck", sorry about that!
posted by LyzzyBee at 8:45 AM on December 19, 2011
posted by LyzzyBee at 8:45 AM on December 19, 2011
A friend of mine who freelances uses these guys and thinks they do a very good job.
posted by MuffinMan at 9:34 AM on December 19, 2011
posted by MuffinMan at 9:34 AM on December 19, 2011
Response by poster: Thanks so much -- this is incredibly helpful!
posted by caoimhe at 9:43 AM on December 19, 2011
posted by caoimhe at 9:43 AM on December 19, 2011
I freelance as a limited company and use crunch, who are great. They'll incorporate the company for you if you want. I've no idea if that's more tricky if you're new to the UK.
You may find registering as self-employed will be simpler and more appropriate, which which case crunch are not for you.
And yes, HMRC are really helpful, even if you need to wait on the phone for a bit.
posted by dowcrag at 10:26 AM on December 19, 2011
You may find registering as self-employed will be simpler and more appropriate, which which case crunch are not for you.
And yes, HMRC are really helpful, even if you need to wait on the phone for a bit.
posted by dowcrag at 10:26 AM on December 19, 2011
To contrast with MuffinMan's friend anecdote, I've met people who say that filling in the tax form yourself is no big deal, and that umbrella companies are a waste of money. I suspect that YMMV depending on how comfortable you are with tax forms.
Watch out for umbrella companies who claim that they have some kind of arrangement with the tax man to allow you to claim more expenses than you could on your own or with other umbrella companies. It's tax avoidance to do this, and if you're caught it's you and not the umbrella company that's liable for all the back taxes.
Of course, it's also possible to pay an accountant to prepare your tax form and plenty of self-employed people do this.
posted by emilyw at 10:29 AM on December 19, 2011
Watch out for umbrella companies who claim that they have some kind of arrangement with the tax man to allow you to claim more expenses than you could on your own or with other umbrella companies. It's tax avoidance to do this, and if you're caught it's you and not the umbrella company that's liable for all the back taxes.
Of course, it's also possible to pay an accountant to prepare your tax form and plenty of self-employed people do this.
posted by emilyw at 10:29 AM on December 19, 2011
I understand you have to register as self-employed within 3 months of your first gig. You will oay flat rate NI monthly probably.
If your self employment is very small in comparison to your PAYE income, it might not be worth registering. Rules are rules, but in practice it might just be easier to treat as a one off income on your tax return, and only deal with the issue once the situation becomes regular enough to discredit this status.
The main advantage for setting up a limited company is that you can evade paying national insurance contributions.
It would probably be easier and cheaper to just register self employed, unless you are paying 1k plus in NI.
posted by choppyes at 10:35 AM on December 19, 2011
If your self employment is very small in comparison to your PAYE income, it might not be worth registering. Rules are rules, but in practice it might just be easier to treat as a one off income on your tax return, and only deal with the issue once the situation becomes regular enough to discredit this status.
The main advantage for setting up a limited company is that you can evade paying national insurance contributions.
It would probably be easier and cheaper to just register self employed, unless you are paying 1k plus in NI.
posted by choppyes at 10:35 AM on December 19, 2011
Response by poster: Wow -- this is so helpful -- thanks everyone! Here is another newbie add on question: what about VAT? Is VAT charged for services? And am I responsible for passing that along?
posted by caoimhe at 4:05 AM on December 20, 2011
posted by caoimhe at 4:05 AM on December 20, 2011
You may not need to register to VAT dependent on your circumstances.
"If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £73,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT."
posted by MuffinMan at 8:24 AM on December 20, 2011
"If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £73,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT."
posted by MuffinMan at 8:24 AM on December 20, 2011
Yes, VAT is charged on services, if you are VAT registered, which you may or may not need to be, as described above. If you are under the VAT limit you can still register if you want, but this is unlikely to make sense for you.
As soon as you become VAT registered, you have to charge VAT on all your invoices, and you can claim back the VAT on all your expenses. If you want to claim back VAT you need to make sure you have a "VAT receipt", which is a receipt showing the VAT number of the company you are buying from.
posted by emilyw at 10:13 AM on December 20, 2011
As soon as you become VAT registered, you have to charge VAT on all your invoices, and you can claim back the VAT on all your expenses. If you want to claim back VAT you need to make sure you have a "VAT receipt", which is a receipt showing the VAT number of the company you are buying from.
posted by emilyw at 10:13 AM on December 20, 2011
This thread is closed to new comments.
Once you are registered, the government will start sending you a tax form once a year.
As a freelancer it's your responsibility to fill in the form and pay the tax; it's not usual for people to itemise taxes separately when invoicing customers. Your earnings are not all taxed at the same rate, so you couldn't really calculate how much tax a given project has incurred.
If you make more than 73k in "taxable turnover" in any given year you will also need to register to pay VAT.
posted by emilyw at 8:40 AM on December 19, 2011