Paying Tax For Freelancers And The Self-Employed Explained
No matter what point we are in the tax year, it’s never too early to start planning your taxes. As with employees, freelancers working as a sole trader must pay tax every single year. The main…
5 Minute Read
No matter what point we are in the tax year, it’s never too early to start planning your taxes. As with employees, freelancers working as a sole trader must pay tax every single year. The main difference is that, unlike employed workers, sole traders are solely responsible for paying their taxes.
If you’re worried about making a mistake on your tax return or you simply don’t know where to start, look no further. Here, we cover everything you need to know about tax for the self-employed, including:
- How to register with HMRC
- How much you can earn from freelancing tax-free
- The various tax bands, such as basic rate and higher rate
- How to declare income and pay Income Tax
How do I register as self-employed?
If you didn’t file a Self Assessment tax return in the previous tax year, you’ll need to register with HMRC as self-employed. If you don’t register by the 5th October in your business’ second tax year, you could be liable to pay a penalty. To avoid this, it’s recommended to register for Self Assessment and Class 2 National Insurance as soon as possible.
You can register online using the form CWF1. Once you’ve registered, you’ll receive a letter from HMRC with your Unique Taxpayer Reference (UTR) number. You’ll then receive a second letter containing the activation code for your account.
All done? Great. You can start filing your returns and paying tax and National Insurance.
Personal Allowance: How much can I earn tax-free as a sole trader?
If you were previously employed or have been self-employed before, you may have already heard about the Personal Allowance. If you haven’t, it’s essentially the amount of tax-free income you’re entitled to receive each tax year. The Personal Allowance for the 2019/20 tax year was £12,500 and remains the same for the 2020/21 tax year.
This amount can increase with inflation, so make sure to look out for any changes for the 2022/23 tax year on the official HMRC website.
How do I work out my Income Tax rate?
If you earn more than the Personal Allowance, you’ll need to pay what’s known as Income Tax. The amount you have to pay each year completely depends on how much of your total income is above your Personal Allowance and how much falls within each tax band.
In order to pay Income Tax on the money you earn from freelancing, you’ll need to first calculate how much tax you owe.
The Income Tax rates and tax bands for the 2020/21 tax year are:
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,500||0%|
|Basic rate||£12,501 to £50,000||20%|
|Higher rate||£50,001 to £150,000||40%|
|Additional rate||Over £150,000||45%|
While you don’t have to do this until you earn more than £1,000 in a tax year (known as the Trading Allowance), you can still choose to complete a tax return. To do this, you’ll need to register with HMRC and have a UTR number. Then check out our guide to completing a tax return here.
Once you’ve submitted your tax return, you’ll be given your tax bill. You can pay this through the HMRC portal, by post, or by BACS from your bank account.
How GoSimpleTax can help
There’s no denying that keeping on top of your taxes can be daunting, especially if you do it alone. If you’re struggling to complete your tax return, GoSimpleTax is here to help.
Our easy-to-use software makes the tax return process as simple as possible. We even have a mobile app available for iOS and Android that allows you to quickly input the relevant information as you go. What’s more, you can discover some of our software’s features as part of our freemium package.
Sign up and see how we can support you today!
Trusted by over 10,000 subscribers
You don't need to be an expert to complete your self assessment tax return.
Managing your finances has never been so easy.
Start you self assessment tax return today for free.Get Started
Creating An Invoice: A Guide For Beginners
03 Jan 2021
2021: The Year To Switch To Real-Time Record-Keeping
02 Jan 2021
What Expenses Can I Claim For Working From Home As Self-Employed?
03 Dec 2020
How GoSimpleTax Works
Simply register for free with your full name and email address.
Select Your Income
Select the income you receive and follow the hints and tips for potential tax savings.
Validate Your Information
Validate your personal information and submit directly to HMRC to get confirmation in just seconds.
Work Anywhere, With Any Device
Gone are the days of fretting over a calculator surrounded by scraps of paper at the eleventh hour.
GoSimpleTax’s tax return software uses the information you upload in real time to calculate your income and expenditure, working out the tax you owe and sending you helpful notifications when there’s the possibility of a mistake.
"The software is intuitive and proved very easy to navigate. I found the whole process refreshingly simple. I saved a lot of money too!"
"Easy to use and value for money. Everything you need to do your tax."
"It fills in all the forms and sends them to the Inland Revenue. Not expensive either. Takes the stress out of doing your tax return online."