Freelancer guide to tax – How to pay taxes as a freelancer in the UK

Last checked and updated on 13 April 2022

As a freelancer in the UK, it’s important to understand how to pay your taxes. This guide will outline the basics of tax and National Insurance for freelancers, as well as provide tips on setting up as a freelancer. Whether you’re just starting out or have been self-employed for a while, this guide will help you stay compliant with HMRC requirements.

From a tax point of view, what is a freelancer?

In the UK, a freelancer is someone who is self-employed and works for themselves. This means that they are not classed as an employee of a company, and so they don’t have the same employment rights or protections.

Freelancers are responsible for paying their own taxes and National Insurance contributions, as well as any other business expenses. This can seem daunting, but there are a few things you can do to make sure you stay on top of your finances.

Self Assessments

When you work as a freelancer in the United Kingdom, there are a few things you need to keep in mind when it comes to taxes. For starters, you’ll need to file a Self Assessment tax return each year. This is done by registering with HMRC and then completing and submitting your return by the deadline, which is usually in January if you’re submitting it online.

Income tax and National Insurance obligations as a freelancer

You’ll also need to pay Income Tax on your earnings, as well as National Insurance contributions. The good news is that you can set aside money each month to cover these payments, so you don’t have to come up with a lump sum at the end of the year. There are a few different ways to do this, so speak to your accountant or tax advisor to find the best option for you.

The importance of keeping accurate records
Finally, remember that as a freelancer, you’re responsible for keeping accurate records of your income and expenses. This will make it much easier to complete your Self Assessment tax return each year, and will also help you if HMRC ever needs to audit your return.

Does a freelancer pay more tax than an employed person?

In general, freelancers pay more tax than employed people because they are not entitled to the same employment benefits, such as paid holidays and sick days. However, there are some deductions that can be made to offset this, such as expenses for business travel and equipment. Speak to your accountant or tax advisor to find out more about these deductions.

What percentage of income should a freelancer set aside for tax and NICs?

There is no one-size-fits-all answer to this question, as it will depend on your individual circumstances. However, a good rule of thumb is to set aside 30% of your income to cover tax and NICs. This will ensure that you have enough money set aside when it comes time to pay your taxes.

How to pay tax as a freelancer – detailed step by step instructions

Now that we’ve covered the basics, let’s take a look at how to pay tax as a freelancer in the UK.

How to pay tax as a freelancer

  1. Register with HMRC

    The first step is to register with HMRC as a self-employed person. This can be done online, by phone, or by post. Once you have registered, you will be given a Unique Taxpayer Reference (UTR) number.

    If you are registering as a sole trader, you will also need to provide your National Insurance number.

  2. Calculate your tax liability

    Once you have registered with HMRC, you will need to calculate your tax liability. This can be done using the Self Assessment tax calculator on the HMRC website.

    The Self Assessment tax calculator will take into account your income, National Insurance contributions, and any deductions you are entitled to make.

  3. File your Self Assessment tax return

    Once you have registered with HMRC, you will need to file a Self Assessment tax return. This must be done by the deadline, which is usually in January. The return can be filed online, by phone, or by post.

  4. Pay your taxes

    Once you have submitted your Self Assessment, you will need to pay your taxes. This can be done online, by phone, or by post. You can find more information on paying your taxes here.

A note about payments on account
If you owe more than £1000 in tax, you will be required to make two advance payments on account. These are typically due in January and July.

Top 10 tips for being financially successful as a freelancer

Now that we’ve covered the basics of how to pay taxes as a freelancer, let’s take a look at some tips for being financially successful in this field.

As a freelancer, it’s important to stay on top of your finances and make sure you are organised when it comes to tax time. Here are our top ten tips for being financially successful as a freelancer:

  1. Keep accurate records: This will make it much easier to complete your Self Assessment tax return each year, and will also help you if HMRC ever needs to audit your return.
  2. Set aside money each month to cover your tax liability: This will help you avoid coming up with a large sum of money at the end of the year.
  3. Speak to an accountant or tax advisor: They can help you understand the tax implications of being a freelancer and identify any deductions you may be entitled to.
  4. Monitor your expenses: Keep track of your business expenses so you can deduct them from your taxes.
  5. Take advantage of technology: There are many apps and software programs that can help you track your income and expenses, as well as file your Self Assessment tax return.
  6. Create a budget: This will help you keep track of your income and expenses, and ensure you are living within your means.
  7. Save for retirement: As a freelancer, you are not entitled to a company pension. It’s important to start saving for retirement early so you can enjoy a comfortable lifestyle in your golden years.
  8. Build up an emergency fund: This will help you cover unexpected expenses, such as a sudden drop in income or an unexpected tax bill.
  9. Create multiple streams of income: Don’t rely on just one source of income. Diversify your income sources to reduce your financial risk.
  10. Think long-term: Financial success as a freelancer requires planning and patience. Invest in your future by setting aside money each month to reach your long-term financial goals.

By following these tips, you can set yourself up for financial success as a freelancer. Stay organised, monitor your expenses, and save for retirement to ensure a bright future for yourself and your business.

What are the most common mistakes made by new freelancers?

Not knowing how to price their services: When you’re first starting out, it can be difficult to know how much to charge for your services. It’s important to do some research and find out what other freelancers in your field are charging. You can use this information to help you come up with a competitive price for your services.

Not being organised: It’s important to stay on top of your finances and keep accurate records when you’re a freelancer. This will make it much easier to complete your Self Assessment tax return each year and avoid any penalties from HMRC.

Not setting aside money for taxes: One of the most common mistakes made by new freelancers is not setting aside money each month to cover their tax liability. This can lead to a large tax bill at the end of the year, which can be difficult to pay.

Conclusion

As a freelancer in the UK, it’s important to understand how to pay your taxes. This guide has outlined the basics of tax and National Insurance for freelancers, as well as how to file your Self Assessment tax return. Remember, if you have any questions, be sure to speak to your accountant or tax advisor.

Paying taxes may not be the most exciting part of being a freelancer, but it is an important part of remaining compliant with HMRC requirements. By following the steps outlined in this guide, you can ensure that you are paying the correct amount of tax and National Insurance.

Frequently asked questions

How much tax do I have to pay as a freelancer in the UK?

The amount of tax you have to pay as a freelancer in the UK will depend on your income and National Insurance contributions. You can use HMRC’s Self Assessment tax calculator to estimate how much you will owe each year.

What is National Insurance?

National Insurance is a system of taxes and contributions that funds the National Health Service (NHS) and other social welfare benefits in the UK. As a freelancer, you will need to pay both Class One and Class Two National Insurance contributions.

What is Self Assessment?

Self Assessment is the process of declaring your income and paying tax on it. As a freelancer in the UK, you will need to complete a Self Assessment tax return each year.

I’m a freelancer from outside the UK – do I have to pay taxes?

Yes, if you are providing services to customers in the UK, you will need to pay taxes on your income. You can use HMRC’s Self Assessment tax calculator to estimate how much you will owe each year.

What happens if I don’t pay my taxes as a freelancer?

If you don’t pay your taxes as a freelancer, you may be liable for interest and penalties from HMRC. In extreme cases, you may even be prosecuted for tax evasion.

How can I reduce my tax liability as a freelancer?

There are a number of ways you can reduce your tax liability as a freelancer. You can claim expenses for business-related costs, such as travel and office supplies. You can also make pension contributions to reduce your taxable income. Finally, you can donate to charity and take advantage of Gift Aid.

Do I need to register for VAT as a freelancer?

If you are providing services in the UK and your turnover is below £85,000, you do not need to register for VAT. However, you may choose to do so voluntarily if it would be beneficial for your business. For more information, please see HMRC’s guidance on VAT registration.

I’m a freelancer from the EU – do I need to pay taxes in the UK?

Yes, if you are providing services to customers in the UK, you will need to pay taxes on your income. You can use HMRC’s Self Assessment tax calculator to estimate how much you will owe each year.

What expenses can I claim as a freelancer?

There are a number of expenses you can claim as a freelancer. These include business-related costs, such as travel and office supplies. You can also claim certain professional fees, such as membership dues for professional organisations. For more information, please see HMRC’s guidance on expenses.

Can I claim for home office costs as a freelancer?

Yes, you can claim for certain home office costs, such as heating and lighting. For more information, please see HMRC’s guidance on claiming home office expenses.

Do I need to set up a limited company to be a freelancer in the UK?

No, you do not need to set up a limited company to be a freelancer in the UK. However, there are a number of benefits to doing so, such as limited liability and tax advantages. For more information, please see HMRC’s guidance on setting up a limited company.

How do I pay my taxes as a freelancer?

You can pay your taxes as a freelancer by setting up a direct debit with HMRC. You can also pay by cheque or credit card, but there is usually a fee for doing so. For more information, please see HMRC’s guidance on paying your taxes.

ⓘ Compare prices?

Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. We recommend that you always speak to a qualified professional to get advice about how to operate your business under your specific requirements and circumstances.