How much tax do freelancers pay in the UK?

It’s a key question if you’re considering going freelance, whether full time or as a side hustle to supplement your day-job wages. Naturally, you want to know how much you’ll earn and whether you’ll be better…

5 Minute Read

Last Updated: 18th April 2024

It’s a key question if you’re considering going freelance, whether full time or as a side hustle to supplement your day-job wages. Naturally, you want to know how much you’ll earn and whether you’ll be better or worse off financially if you leave your job to go freelance.

If you’re thinking of going freelance or you’ve already taken the plunge and want to make sure you know key tax facts, here are the answers to frequently asked questions about tax and freelancing. 

1. Is a freelancer self-employed?

If you work for yourself, you’re self-employed. It’s that simple. Freelancing is just a form of self-employment. Most self-employed people operate as “sole traders” (ie someone who runs their own business on their own), although some freelance through a limited company that they set up, which shelters them from personal financial liability.

Need to know! As a sole trader, you keep all of your business’s profits after paying tax on your taxable income.     

2. Do I need to register as a freelancer?

Depends how much taxable income you earn. If it’s more than £1,000 in a tax year (ie 6 April to 5 April), you must register for Self Assessment (the system UK tax authority HMRC uses to collect Income Tax), if you become a sole trader. When you register for Self Assessment, you also register for National Insurance (see 7).

Need to know! At the very latest, you must register for Self Assessment before 5 October in your business’s second tax year. If you don’t, HMRC can fine you.

3. What responsibilities do I have as a sole trader?

As a freelancer who operates as a sole trader, you must maintain detailed records of your business income and expenses. You must also complete and file a Self Assessment tax return (the SA100 form) every year, as well as supplementary tax return page SA103, summarising your freelance income and expenses. You pay Income Tax on your taxable profits and any Class 4 National Insurance contributions (NICs) due.

4. Do I pay tax on a side-hustle?

A side-hustle (ie something you do to earn extra cash while employed) is still classed as self-employment, so side-hustle income can be taxable if you earn more than £1,000 from it in a tax year and your income from employment is higher than the tax-free Personal Allowance.

5. How much freelance income can I earn without reporting it?

Thanks to the Trading Allowance, you can earn up to £1,000 in freelance income before any tax is due. However, if you’re a sole trader and claim tax expenses, you don’t get the Trading Allowance, so you’ll need to work out which option is more tax-efficient.

6. How much Income Tax do freelancers pay?

All of your taxable income will be added together and you’ll be taxed according to the Income Tax band you’re in. Your taxable income might include rental income, share dividend or pension payments, etc.

  • You don’t pay tax on your first £12,570 of income, as this is your Personal Allowance. This decreases by £1 for every £2 of net income over £100,000 and if your net income is over £125,140 – you don’t get the Personal Allowance.
  • You’re in the basic rate of Income Tax if your total taxable income is between £12,571 and £50,270. You’ll pay 20% Income Tax.
  • You’re in the higher rate of Income Tax if your total taxable income is between £50,271and £125,140. You’ll pay 40% Income Tax.
  • You fall into the additional rate of Income Tax if your total taxable income is more than £125,140. You’ll pay 45% Income Tax.

Need to know! As well as the £1,000 Trading Allowance, if you earn rental income you can also claim the £1,000 tax-free Property Allowance. However, you cannot claim either if you choose to claim tax expenses (see 10).

 7. Do freelancers pay National Insurance?

If you’re self-employed, registered for Self Assessment and your profits are £12,570 or more a year, you pay Class 4 National Insurance contributions (NICs) through Self Assessment. For the 2024/25 tax year:

  • Class 4 NICs are 6% on profits between £12,570 and £50,270 and 2% on profits above £50,270.

8. What if I’m employed and self-employed?

You’ll pay Income Tax and Class 1 NICs through your employer’s payroll, as well as Income Tax and NICs on your self-employed income via Self Assessment. The amount you pay is determined by your total taxable income. HMRC will let you know how much Income Tax and National Insurance is due on your taxable self-employed freelance income after you’ve filed your Self Assessment tax return.

9. Can UK freelancers claim tax expenses?

Yes, freelancers can claim a long list of tax expenses, which can lower your tax bill considerably. HMRC allows you to do this, which is why they’re called “allowable expenses”. You summarise your allowable expenses within your annual Self Assessment tax return and they’ll be deducted from your income before your tax bill is worked out, with tax allowances also taken into account.

10. What allowable tax expenses can UK freelancers claim?

Allowable expenses can include: raw materials or stock; printing and packaging; phone use and broadband; some travel costs (ie fuel, parking, train or bus fares); premises costs (eg rent, heating, lighting, business rates, etc); office stationery and postage

advertising and marketing costs; insurance and bank charges; accounting and solicitor fees; training and professional membership fees; wages/fees paid to others; safety clothes and business-branded workwear.

If you run your freelance business from home, you can claim for a proportion of your heating, electricity and water costs, Council Tax, mortgage interest or rent, broadband and telephone use. To save time and effort, rather than working out your precise business expenses, you can claim flat-rate simplified expenses for working from home (and vehicle use), but you need to ensure that this doesn’t leave you worse off.

Need to know! If you use something for freelance and personal reasons, such as your mobile phone, you can only claim allowable expenses for business-use. You must reliably work out such costs and HMRC can ask you for proof of all allowable expenses you claim.

11. As a freelancer can I write off a laptop as a tax expense?

Yes you can. If you use cash-basis accounting, which is where you only record income and costs in your business accounts when you are paid or pay money out, buying a computer can be claimed as an allowable expense. If you use traditional accounting methods, which is where you record income and expenses by the date you invoiced or were billed, you claim “capital allowances” after buying equipment such as a computer, or machinery or a vehicle for your freelance business.

12. Can I claim my lunch and travel as a tax expense?

A common myth is that sole traders/freelancers can have breakfast or lunch on their business every day, and claim it as a tax expense. Not true. You can only claim for food in exceptional circumstances, for example, if you were visiting a customer or supplier, or away at a conference or trade show that’s different from your normal place of work. You can also claim for an overnight hotel room and travel (ie vehicle costs and parking; bus, train or plane tickets). You can’t claim commuting costs, which means costs for travel to and from your normal place of work must come out of your own pocket.

13. Do UK freelancers charge VAT?

Some freelancers do, some don’t: depends on your turnover (ie total sales). You can only charge VAT if you’re VAT-registered. You must register for VAT if your total VAT-taxable turnover for the past 12 months was more than £90,000 (this is the VAT threshold) or you expect your turnover to go over £90,000 in the next 30 days.

14. Can I claim VAT back as a freelancer?

You can only reclaim VAT your sole trader/freelance business pays if you’re VAT registered. However, even if your VAT-taxable turnover for the past 12 months is below the VAT threshold, you can register voluntarily, enabling you to reclaim VAT you’ve paid. This can be worthwhile if your suppliers are VAT-registered and you buy a lot of things upon which VAT is charged. However, being VAT registered means having to submit digital tax returns every quarter.

15. How could HMRC find out about unreported freelance income?

Trying to conceal taxable income isn’t wise, because HMRC can find out from many other sources (eg door-to-door enquiries, quizzing the public or people you know, other government departments, investigations into businesses you’ve worked for, etc). HMRC also reportedly uses sophisticated software to find out about taxable income from bank records, savings, pensions and investment records, credit/debit card payments, as well as online platforms such as eBay and Airbnb to see if you’re earning taxable income. Trying to hide taxable income or inflating your tax expenses can lead to hefty fines and possibly worse if you’re caught. Serious tax evasion can lead to imprisonment.

If you’re a freelancer, GoSimpleTax makes completing and filing your Self assessment tax return a piece of cake. Not only will you save lots of time, you could also end up paying less tax. Don’t take our word for it – have a free trial on us. Like thousands of other freelancers and sole traders in the UK, we’re sure you’ll love GoSimpleTax.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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