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How to pay self-assessment tax as a freelancer?

If you are looking for flexibility in your work-life balance, you can consider freelancing. One of the main benefits of freelancing is that you get the freedom to work from anywhere you want.

After the spread of the Covid-19 pandemic, people are looking for flexibility in their work schedules. Therefore, many of them are switching to freelancing. While freelancing does provide you freedom, you must know that there are challenges.

Track your own expenses

When you start your journey as a freelancer, you need to track your expenses. You don't get any sick pay or holiday leave as a freelancer. However, you do have the flexibility to work at your convenience.

As a freelancer, you are responsible for paying your own taxes. But, how do you file for taxes? In the sections given below, we have covered every information on how you can track your expenses.

How to pay self-assessment tax as a freelancer?

Know the type of freelancer you are

To know how to file for taxes, you need to know what type of freelancer you are. When you commit yourself to full-time or part-time freelancing, you have a few options to consider.

There are usually two types of options you can consider for the extensive benefits:

1. Sole trader

Most of the small businesses in the UK started as sole trader. This is mostly because of all the benefits it has to offer. Comparatively, the sole trader is cheaper and has an easy process for setting up the company.

When you're planning to start your business as a sole trader, you also need to be familiar with the cons. When you work as a sole trader, the tax pay will be higher.

2. Limited company

Unlike a sole trader, the identity of a limited company is related to no one. They have their own identity. It is different from the owner's identity or from that of the staff.

When you work as an employee in a limited company, you don't need to worry about the company's debt. Hence, none of your personal assets will be at risk. One of the most important reasons to start a limited company is because the tax is comparatively lesser.

While the tax is low, you need to opt for two options: Business tax and personal tax. This can, however, be extremely risky. Nonetheless, as a business, you need to know the IR35 Legislation to provide the right business and comply with the rules.

What should new freelancers do?

The new freelancers must register their services. However, they need to follow the right steps before paying the taxes.

Every new freelancer must go through the steps mentioned below:

1. Fill out the HMRC self-assessment form

It is crucial to fill out the self-assessment HMRC form. You can register for the same from their official website. If you are new to the process or are finding any difficulty, you should consider reaching out to an accountant.

Freelancers must fill out the HMRC self-assessment form within the deadline. Failure to do so can lead to heavy fines. After registration, you will receive a UTR number. The UTR number is most likely to reach you within ten days of your registration. You need the UTR number while filing for taxes.

Once you have provided the information accurately, HMRC will set up the account. The online account will make it easier to file the taxes online.

2. Register for VAT

Apart from registering for HMRC, freelancers must also work towards registering for VAT. As per the latest records, the consumers need to pay at least 20% of VAT. When filing for VAT, you also need to inform about your business turnover.

You will receive a confirmation regarding your VAT registration only when you have provided the information accurately. Similar to HMRC form filling, it is crucial to register for VAT within the given deadline. You need to enter details regarding your return and payment.

Registering for VAT isn't a fast or straightforward process like HMRC. Therefore, in many cases, it can take up to years. You need to provide these details to your accountant to receive the benefits.

How to pay tax as a freelancer in the UK?

The deadline for paying the tax online for freelancers is usually the end of January. Nonetheless, before filing the taxes, you must ensure that you have appropriately registered with the platform. When you file via post, the deadline is till 31st October.

As a freelancer, when you are paying self-assessment tax, you need to ensure that you follow the HMRC guidelines. All the information about the guideline is available online. Furthermore, when you follow the information properly, you will be able to file the taxes.

Since freelancing is your primary source of income, you need to ensure that you add the earnings and expenses. Some of the common types of business expenses that you can mention include marketing, website designing, insurance, travel, office supplies and more. When you enter these details, the amount of tax you need to pay as a freelancer reduces significantly.

How much can you earn before paying the tax?

The freelancers get the benefit of a personal allowance. For the 2022-23 tax year, the personal allowance for freelancers set by the respective authorities is £12,570.

The allowance is usually set by HMRC for freelancers considering it is the main source of income. The tax you need to pay on the personal allowance will depend on your primary job. Therefore, for the tax year 2022-23, if your earnings are up to £12,570, none of the amounts will be taxed.

Associations for entrepreneurs and freelancers in the UK

People working as freelancers in the UK need to network with groups and associations that can help them. Therefore, numerous such associations and organisations in the UK can be of great help. Here are some of the most prominent ones to look forward to:

  • British Chambers of Commerce.
  • European Confederation of Young Entrepreneurs.
  • Federation of Small Business.
  • International Entrepreneurs Associations
  • Entrepreneurs Organization UK

If you are a freelancer in the UK, you need to be familiar with the rules and regulations about filing taxes. You must file the taxes within time to prevent any mishaps or problems in your business. Ensure to get in touch with an accountant who can help you understand the process clearly.

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