Tax Obligations for Freelancers
TL;DR:
- Register as self-employed with HMRC when you start freelancing
- File your Self Assessment tax return by 31 January each year
- Set aside around 30% of earnings for tax and National Insurance
- Keep detailed records of income and business expenses
- Consider using accounting software or an accountant to stay compliant
Getting Started: Self-Employment Registration
When you start freelancing, you need to tell HMRC you're self-employed. You have until 5 October in your business's second tax year to register, but doing it early saves hassle later.
Registration is free and straightforward through the HMRC website. You'll need your National Insurance number and details about when you started working for yourself.
Once registered, HMRC will send you a Unique Taxpayer Reference (UTR) number. Keep this safe – you'll need it for everything tax-related going forward.
Filing Your Self Assessment
Self-employed people must complete a Self Assessment tax return each year. The deadline is 31 January for the previous tax year (so your 2023-24 return is due by 31 January 2025).
Your return shows HMRC your total income, allowable business expenses, and calculates how much tax and National Insurance you owe. You'll also pay any outstanding amount by the same 31 January deadline.
Missing the deadline means automatic penalties, starting at £100 even if you don't owe any tax. The penalties increase the longer you leave it, so getting organised early pays off.
Managing Your Tax Budget
Unlike employed workers, freelancers don't have tax automatically deducted from payments. You need to set money aside yourself.
A good rule of thumb is saving 30% of your income for tax and National Insurance, though your actual rate depends on how much you earn. If you're earning under £12,570 (the personal allowance for 2023-24), you won't pay income tax but may still owe National Insurance.
Consider setting up a separate savings account for tax money. Move your 30% there as soon as client payments arrive, so you're not tempted to spend it.
Record Keeping That Actually Works
HMRC requires you to keep business records for at least five years. This includes invoices, receipts, bank statements, and records of business mileage.
You can use spreadsheets, accounting software, or even a well-organised shoebox system. The key is consistency – update your records regularly rather than leaving everything until tax return time.
Common deductible expenses for freelancers include office supplies, professional development courses, business insurance, and a portion of home office costs if you work from home.
Professional Help vs DIY
Many freelancers successfully handle their own taxes, especially with simpler setups. HMRC's online Self Assessment system walks you through the process, and there's plenty of free guidance available.
However, an accountant can be worth the cost if your finances are complex, you're earning significant amounts, or you simply want peace of mind. Good accountants often save you more in legitimate deductions than they cost in fees.
If you choose software, popular options for UK freelancers include FreeAgent, Xero, and QuickBooks. Many integrate with your bank account and can generate reports for your tax return.
FAQs
When do I need to register as self-employed?
By 5 October in your business's second tax year, but registering earlier is usually better.
What happens if I miss the Self Assessment deadline?
HMRC charges automatic penalties starting at £100, with additional charges for longer delays.
Can I deduct home office expenses?
Yes, you can claim a portion of household bills if you use part of your home exclusively for work, or use HMRC's simplified expenses rates.
Do I need to pay tax on payments from abroad?
Yes, UK residents must declare worldwide income, though you may be able to claim relief for foreign tax paid.
Jargon Buster
Self Assessment – The annual tax return that self-employed people must complete, showing income and expenses for the tax year.
UTR (Unique Taxpayer Reference) – Your 10-digit reference number from HMRC, needed for all tax correspondence.
Class 2 National Insurance – Fixed weekly contribution (£3.45 for 2023-24) paid by self-employed people earning over £6,515 per year.
Class 4 National Insurance – Percentage-based contribution (9% for 2023-24) on profits between £12,570 and £50,270.
Allowable expenses – Business costs you can deduct from your income before calculating tax, reducing the amount you owe.
Wrap-up
Tax obligations don't have to be overwhelming once you understand the basics. Register early, keep good records throughout the year, and file your return on time. Setting aside money regularly beats scrambling to find a large sum in January.
The most important thing is staying organised from day one. A few minutes updating your records each week beats hours of panic when your tax return is due.
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