If you previously worked in-house as an employee, be prepared to lose the convenience of PAYE and start taking responsibility for your own taxes! As soon as you earn more than £6,475 as a self-employed person, you will have to file a tax return in January for the previous year of work.
Set up as a sole trader or limited company
You will also have to establish if you’re a sole trader or a limited company, qualify and separate your expenses, and then pay through the HMRC system. Yeah, it sounds terrible, but actually, once you have a system for it, it becomes a lot less of a chore.
Start your return in April
Also, rather than waiting till January to create a last-minute self-assessment (which is missing half your expenses and therefore leads to a way bigger bill!), do it on April 6. You’ll save money, time, and a lot of stress. You’ll also be able to clearly track your bill throughout the year so that you can save way more effectively.
A note on VAT
VAT, or Value-Added Tax, is a tax charged on the majority of goods and services in the UK. It was famously reduced recently for the Eat Out to Help Out Scheme. So, why would a freelancer need it? Well, if you have a turnover over a certain amount (usually £85,000 per year) and most of your clients are big corporations with VAT, most accountants recommend you include a VAT charge on your work in order to reclaim VAT on business expenses and so your clients can claim back on the expense of working with you.
A common misconception of VAT is that you need to keep your receipts. The truth is, you only need to keep receipts to track VAT, so if you aren’t VAT registered, then you don’t have to keep your receipts. Apps like these also give you the option to attach a receipt, so if you are VAT registered it’s just a few extra seconds per payment.