Many freelancers love the work they do. It allows them to do a job they enjoy, work from anywhere and choose their own hours. The only downside is having to take care of pesky tax returns, which can be confusing, complicated and stressful for those who don’t know how to file them correctly.
Whether you freelance independently or work for a company for a specific amount of hours a month on a freelance basis, you’re considered self-employed by the government. When you’re employed by a company (for example, you sign an employee contract), your tax is usually deducted automatically from your wages. But for freelancers, you must do this yourself.
Your deadline will depend on how you file your return. If you submit a paper return, you must complete and send it off by Midnight on the 31st October. It may be due on Halloween, but that doesn’t mean the process has to be scary. While there’s help available from HM Revenue & Customs (HMRC), many still find the process difficult. Getting the support of a Milton Keynes accountants experienced in freelancing will make sure your tax return goes smoothly and that you don’t run into any problems.
If you choose to submit your return online, you’ll have slightly longer, until the 31st January.
If you’ve never filed a tax return before, you’ll first need to register for self-assessment. You should do this as early as possible, as it can take up to twenty working days to complete the process. Then, you’ll receive a ten-digit Unique Taxpayer Reference (UTR), which you’ll need to file your return.
After you’ve sent your report, HMRC will calculate how much tax you owe based on the income you’ve reported. You’ll need to pay your self-assessment bill by the 31st January, whether you file online or on paper.
Your tax return needs to be accurate. If you’re subject to an investigation and the HMRC find that your tax return doesn’t add up, you may be subject to a penalty, which will be a percentage of the total tax you owe.
You’ll need to keep records of all income and expenses, not only to make a tax return easier and more accurate but in case your claim is queried by HMRC, too. It’s also important to keep receipts for purchases related to your business, as they may be tax-deductible. Examples include your electric and internet bills — if you run your business from home — as a portion can be deducted. This means you’ll only pay tax on the remaining amount of your income, known as taxable profit.
Filing a tax return, unfortunately, is not a mere case of keeping invoices and receipts and putting them into a system. A Milton Keynes Accountants can help you understand the following:
What forms you need to fill in: This will depend on how much income you have, if you have any employment income (if you’re freelancing on the side) and if you receive any income from the property.
How much you need to pay and why: the rate of National Insurance you’ll pay will depend on your earnings. If you’re doing well for yourself, you’ll need to pay a higher rate.
How to file if you’re a limited company: if your freelance business is a limited company, you’ll need to follow a different set of rules, including deducting your business costs from your profit before tax.
Filing a tax return, whether it’s your first time or you’ve been filing for years, can be a difficult task. It’s not enough to be vigilant when you submit; you need to make sure you carefully record all expenses and profit throughout the entire year. An accountant for freelancers in Milton Keynes can help you develop a system for managing the financial side of your business, leaving you more time to focus on the work you love.