How to: Freelancing and HMRC

How to: Freelancing and HMRC

By Scott Bryan 10/05/12

You’ve just been paid for your first freelance job – but how do you make sure that you are dealing with HMRC correctly? Scott Bryan asked some accountants, tax experts and freelancers for advice...

First things first... 

All of our experts agreed that once you start earning you must notify HMRC. Quentin Pain – accounting expert and founder of accounting software Accountz – advises that, “Failure to do so could result in a penalty. Register as soon as you can.” 

Any payment you receive as a freelancer won’t be taxed. Instead, you pay it after the end of the financial year, which is after 5 April 2013. You can submit a tax return online or by post.

There’s also National Insurance to remember. “You may also need to register to pay Class 2 National Insurance if [your] profits are to be in excess of the earnings limit.” advises Alex Dyer, a partner at accountancy practice Theataccounts LLP – the earnings limit for self-employed people in this financial year (2012/3) is £5,595. You’ll also pay Class 4 National Insurance as well, but not until you submit your return. 

To sort this all out, freelance copywriter, marketing consultant and Guardian journalist Heidi Stephens recommends that you give HMRC a ring: “I set up a monthly direct debit for for my Class 2 NICS – about £10 a month.”

Check with experts within the industry you work in whether you need to register for self-employment. There may be the option to pay tax as PAYE (Pay As You Earn).

All of our experts agreed that once you start earning, you must notify HMRC. Quentin advises that, “Failure to do so could result in a penalty. Register as soon as you can.”


Do you need an accountant?

You do not have to have an accountant. Heidi says, “It depends how organised and numerate you are, and how many clients you have.” She takes half a day to sort out invoices and work out expenditure at the end of each month. 

However, accountants have a different view. Alex suggests that an accountant “can be beneficial in many ways and they can often save you more than they cost to hire.” They can do your tax calculation for you and provide tax advice in a language that you can understand.

If you want one, how do you choose? “Speak to other freelancers and use their advice and experience,” says Alex. “If you do choose to appoint an accountant, always use one who has recommendations from existing clients who are getting the results they want.”


Tax relief

“You can offset capital expenditure costs like a new laptop against tax,” says Heidi. “You can offset 45p per mile for business travel, which is well worth doing.” 

Trying to sort it out can be tricky. Alex suggests that “deciding what an allowable business expense is can be confusing and this is when an accountant should help and advise.” Heidi suggests that “there are full guidelines on the HMRC website and lots of helpful forums online.” 



How much money should you put aside for tax? Quentin offers a simple calculation:


  1. Add up all your sales for the year
  2. Deduct all your allowable expenses
  3. Deduct your personal allowance
  4. Put aside 30% of the remainder for tax.


Remember to keep invoices and reciepts.

How do you keep on top? “I keep a log of all the work I do, with a different tab for each client,” suggests Heidi. “This all feeds into a main summary sheet, where I keep a record of my invoices and payments received. This one spreadsheet covers everything.”

Two key dates to remember: if you are self-employed in this 2012/3 tax year, you’ll need to submit your tax return by post by 31 October 2013, or online by 31 January 2014. Read more about deadline penalties.


Read more How to articles.

Image: Tax Return by Images_of_Money, available under a CC BY 2.0.

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