How many seasons are there in a year in the UK? Four, right? Wrong! There are five for people who consider themselves self-employed.
There is one season that lurks around in the background and comes to scare those of us who work freelance: TAX SEASON.
Two scary words that can see you start to stress out over the tiniest of details. That window between January and April to get all your things in order doesn’t need to be (pardon the pun) taxing. There are ways and means to get all your records in order, so your tax submission is absolutely perfect. In this short post, we’re going to look at some ways you can get everything sorted without having to spend nights huddled over the kitchen table with a box of receipts and a calculator.
Look To The App Store
Shoeboxes full of receipts and invoices stuffed in the back of drawers are so 20th century. You can make the painful journey to completing tax forms all that much easier by finding an app which works best for you.
Some of the best rated you should take a look at include:
- The official HMRC app
Some are free, while others have a membership charge. It’s best to download a few to see which interface you prefer and work from there.
Let Someone Else Do The Heavy Lifting
Avoid ever getting into a fight with the taxman by having someone in your corner. Hiring a digital tax advisor means all the bookkeeping and pernickety accounting problems are handled by someone who knows what they’re doing.
It’s a small fee to pay to give yourself back all the time you’d otherwise be wasting trying to figure out your deductions.
Know Your Terminology
“I consider myself a freelancer, so I’m not self-employed, right?” Wrong!
The government groups several terms under the self-employed banner, which includes the following:
Anyone in the “Gig Economy”
Zero hours contract, when you’re not on PAYE with the employer
Confusing, isn’t it? You’ll need to know what vague areas you fall under so your tax codes are valid.
Know Your Allowances
Always remember that any self-employed person is guaranteed the same allowances as someone under full time employment. In the 2019/20 tax year, the standard personal allowance is £12,500. That’s the golden number before anything after can count towards tax.
If you do work freelance, it’s best to read up and get in touch with HMRC. You’ll be surprised to learn that they genuinely want to help you with saving on your taxes rather than taking all they can get. It can get you out of a pickle when you’re trying to figure out things like what your personal allowance is when your freelance career is a part-time job and you have another job with a company, or when you don’t need to declare anything to the taxman (this usually happens when you earn less than £1000).
Know your rates too
0, 20, 40, 45.
There are the magic numbers when it comes to knowing the rate of tax that comes as standard when you’re self-employed. I’ve just mentioned that £12,500 is the flat allowance (the 0), and the other rates fall as follows:
- 20% if you earn between £12,501-£50,000
- 40% if you earn between £50,001-£150,000
- 45% if you earn over £150,000
Bear in mind, these are the minimum percentages in each threshold and may go up a bit the more you make in each bracket.
Get Ready to Pay
Finally, it’s important to remember that when your forms are all done and sent off to HMRC, you will have to pay. January 31st and July 31st are the dates to pay, so always keep those in mind. And if you’re just after your first year working self-employed, your tax bill will be 150% as you’ll have to pay for that year plus the first half of your second year in advance.