If you are a freelancer or contractor working in the UK, then your tax issues are likely to be a bit more complicated than people who are regularly employed. We've put together a guide to help you through it and sort out your tax. One major thing you need to sort out as quickly as possible is whether your business means you need to register a company or if you are self-employed and working as a sole trader as this can affect what tax you pay.
Then there's the issue of VAT. You don't have to worry about this too much if you're on low to average earnings, but if you earn over 64,000 a year then you need to register for VAT. This is so you can collect and claim for Value Added Tax. It can be a complicated business as it adds an extra complication to your tax return, so if you're worried about it you could ask an accountant to help you. It can be useful to separate the VAT when sending invoices.
National Insurance contributions are another tax issue you need to make arrangements for. Specifically, you need to make plans to pay Class 2 NI contributions, unless you have very low earnings which exempt you from paying it. Most people set up a direct debit with Her Majesty's Revenue and Customs to pay for it on a monthly basis. If you earn a lot, you'll also have to pay higher rate NI contributions, which lower earners can pay on a voluntary basis.
The self-assessment tax return is the cornerstone of tax issues for UK freelancers and contractors. The assessment runs yearly from April - April, which is based on the workings of the financial year. How much tax you'll have to pay depends on how much you earned in that year. This means you need to keep detailed records of how much you've earned and the costs you've incurred as part of your work to input them into the form for HMRC to calculate your tax.
One final and important thing to think about is the arrangements for paying your tax bill. Even if the subsequent tax year is a lean one and you don't earn much, you'll still have to pay your tax bill for the previous year, so it can be a good idea to have a cushion of money to fall back on. It's also a good idea to save money up throughout the year so you know you'll have enough to pay your tax bill when it comes to it.
Then there's the issue of VAT. You don't have to worry about this too much if you're on low to average earnings, but if you earn over 64,000 a year then you need to register for VAT. This is so you can collect and claim for Value Added Tax. It can be a complicated business as it adds an extra complication to your tax return, so if you're worried about it you could ask an accountant to help you. It can be useful to separate the VAT when sending invoices.
National Insurance contributions are another tax issue you need to make arrangements for. Specifically, you need to make plans to pay Class 2 NI contributions, unless you have very low earnings which exempt you from paying it. Most people set up a direct debit with Her Majesty's Revenue and Customs to pay for it on a monthly basis. If you earn a lot, you'll also have to pay higher rate NI contributions, which lower earners can pay on a voluntary basis.
The self-assessment tax return is the cornerstone of tax issues for UK freelancers and contractors. The assessment runs yearly from April - April, which is based on the workings of the financial year. How much tax you'll have to pay depends on how much you earned in that year. This means you need to keep detailed records of how much you've earned and the costs you've incurred as part of your work to input them into the form for HMRC to calculate your tax.
One final and important thing to think about is the arrangements for paying your tax bill. Even if the subsequent tax year is a lean one and you don't earn much, you'll still have to pay your tax bill for the previous year, so it can be a good idea to have a cushion of money to fall back on. It's also a good idea to save money up throughout the year so you know you'll have enough to pay your tax bill when it comes to it.