As more and more people become freelance, more and more questions over tax bills and the like arise. And with the deadline looming, you're probably panicking if you haven't even looked at the form yet. But it isn't as difficult as it seems. I spoke to some financial experts to find out how to do your tax return if you're freelance as well as some all-important tips on organising yourself for next year's bill.
Firstly, you'll need to get to grips with how the UK tax system works. When you work for a company as an employee, your tax is automatically deducted from your pay. But when you're self-employed (or if you earn any additional income outside of your salary), you are responsible for telling HMRC how much you earned.
Instead of doing this every month, you are allowed to do it once a year using what's known as a self-assessment. The 2017-2018 tax year ran from April 6, 2017 until April 5, 2018, so these are the income dates you'll need to report. The deadline for this tax return is midnight on January 31. If you fail to meet this deadline, you will be fined.
"People find the prospect of trailing through paperwork and going through numbers intimidating and, for this reason, can often 'put off’ the stress until the last minute. However, it is far less problematic then people envisage," says David Baddeley from Scottish Trust Deed. Here's everything you need to know about getting your tax return right the first time round.
Do I need to file a tax return?
The easiest way to figure out if you need to fill out the self-assessment form is by using this tool on the government website. Alternatively, the following points list the general type of people that HMRC are expecting to hear from:
- Those who are self employed.
- Those who are a partner or a paid director in a business.
- Those whose income from savings or investments in the past year totalled £10,000 or more before tax.
- Those who earned £2,500 or more in untaxed income in the past year (for example, from renting out a property).
It's still wise to use the aforementioned tool as there are other options. Be aware that self-employed people who earned nothing in the past tax year will still need to file a tax return to confirm this.
So how do I file a tax return?
You will hopefully already have your unique taxpayer reference (UTR). This is a number that the government issues you with when you registered as being a freelancer or self-employed. However, you'll need more than this to start the process. Register for a Government Gateway account in order to receive an activation code that lets you log into the self-assessment portal. Bear in mind that this code is sent by post and can take up to 10 working days.
Once you have your activation code, you can start the form. You don't have to fill it all out in one go if you don't have time. Just don't forget to save your progress before leaving the site. Before starting, it's a good idea to gather all of your bank statements and expense receipts. You may have already been logging your income and expenses in a spreadsheet which will prove incredibly useful.
You are legally obliged to report any income, including earnings from work, property, and even things like eBay selling. Any interest or earnings from savings and investments also need to be detailed. If you worked as an employee for part of the year, dig out your P60 which will state exactly how much you earned and how much tax you have already paid.
The self-assessment form does contain helpful hints and you can also watch HMRC's guidance videos if you're stuck. If you're a freelancer who hasn't set up their own business, put your earnings in the "Other UK Income" box. If you do have your own business, enter your turnover figure in the "Business Income" section.
Remember to total up your expenses for the year as this figure will be deduced from your earnings, allowing you to pay less tax. Expenses can involve everything from travel costs and professional subscriptions to phone bills and stationery. A full list of allowable expenses can be found here.
Once you think you're finished, double check everything and press send. HMRC will then automatically calculate how much tax you owe. This will also need to be paid by midnight on January 31. You may also be asked to pay some of next year's tax up front. This is known as "payment on account" and usually has a deadline of July 31. If you don't have the money to pay your tax on time, contact HMRC's Business Payment Support Service as soon as possible to request a deferral. (Note you may still be charged a small fine.)
How can I plan better for next year's tax bill?
You're probably wondering how to organise yourself for the 2018-2019 tax return. Catherine Morgan, women's financial coach and founder of The Money Panel, says that forward planning is key: "Set aside 30 minutes a week to log your income and expenses. This doesn't have to be on a complicated spreadsheet, but it'll make the job a whole lot easier for next year. If it's not your area of strength, I would look to outsource this work to a bookkeeper or accountant. It's a myth that they are expensive."
If you do want to do the deed yourself, Baddeley recommends buying 12 large envelopes, one for each month of the year. Keep all of your expense receipts in the relevant envelope and log them on an affordable online system like Quickbooks. "Please note that the receipt that is printed from a card machine is not a valid expense if requested by an accountant," he says, adding that receipts must list what you have purchased.
Setting aside your tax each month is also a good idea if you're likely to accidentally spend it, advises Jordan Carter from Gear Hungry. "The internet is filled will online tools that work as calculators to estimate how much tax you will owe."
If in doubt, both Carter and Morgan suggest turning to Facebook groups full of freelancers who have been in the same position. "If you have left your tax return to the last minute, it can seem like the loneliest place in the world," says Carter. "However, you are not the first and you won't be the last."
Finally, don't be afraid to contact HMRC, says Baddeley. "There are no stupid questions and there is nothing they haven't heard before."