Across the land, freelancers are digging out old invoices, requesting receipts and figuring out which expenses they can put on their self assessment tax form as the deadline draws ever closer. However it's not just January 31st that freelancers need to be aware of, there are a couple of additional dates to put in the diary. Our friends at TaxScouts have compiled a handy checklist of key tax dates, ways to file your self-assessment and consequences if you don't to ensure freelancers stay on top of their financials.
Filing your tax return
There are different ways of going about your tax return, and while there is a lot of confusion around it, it is, in fact, a fairly straightforward process.
Before you do anything else, make note of the key tax dates:
- The tax year – 6th April 20XX – 5th April 20XX
- Register for Self Assessment online – 5th October
- Tax return deadline – 31st January
- Payment on Account – 31st July
Now to the detail…
Register with the HMRC
When you become a self-employed freelancer, the first thing you need to do is register with the HMRC (or in HMRC terms, register for Self Assessment).
You need to do this by the 5th of October of the second tax year that you operate as a freelancer. So, for example, if you became a freelancer in January 2019, you will need to register with the HMRC by 5th Oct 2020.
You can do this online here, or if you’re feeling lazy, we can do it for you.
You will just need to fill in a few details about your income and then, roughly 10 days later, HMRC will send you your Unique Taxpayer Reference (UTR) number in the post.
What’s a UTR, we hear you ask? Essentially, it’s a number HMRC uses to identify you as a taxpayer. You will need this number for your self-assessment from now on, so make sure you keep it safe.
Who needs a UTR number?
You need a UTR number if you’re:
- Self-employed / freelancer
- Employed but also earning more than £1,000 from freelancing in a year
- A landlord Earning over £100,000 a year
- An investor earning profits over the tax-free allowances
- Claiming additional or too much pension tax relief
Now get organised!
The tax you pay is calculated based on your income during the tax year, minus any business expenses, so no room for error.
Income:
There are numerous apps and programmes which can help you get organised, but a good old spreadsheet is as good as. When using a spreadsheet, the best way to record your income is to split your annual spreadsheet into monthly tabs – from April to April. Make sure to include all your untaxed income (so if you earned money from dividends, freelancing, and rental income, get it all on there!) to declare to HMRC.
Expenses:
You also need to make sure you record your expenses.
As mentioned earlier, you’re able to deduct your business expenses from your income to reduce the amount of tax you pay at the end of the year.
Business expenses can be anything, so long as you can prove they were for business only. This could include:
- Phone bills
- Accounting costs
- Marketing costs
- Laptop, work phone, software etc.
- Equipment
- Use of home as office (and associated bills)
- Business mileage
- Business memberships fees (such as your Freelancer Club membership)
Filing your tax return
There are a few ways to do this. You can:
- Do it yourself for free with HMRC. It’s completely free to do, but not always easy to understand. As you can imagine, there is quite a lot of jargon that not everyone will understand.
- Pay an accountant to do it. Using an accountant significantly reduces the chance of making a mistake but can get quite pricey.
- Sign up to TaxScouts, where you also get a certified accountant doing your tax return, but without the price tag. Our service is £119, all in (no matter how many sources of income you have, or how complicated your tax situation is)
Don’t forget that the deadline for filing your tax return is 31st January 2021, so not time to waste!
What happens if you don’t pay on time?
Well… there are penalties.
Late for registering with the HMRC
- 1 day – 3 months late: £100 flat fee
- 3 – 6 months late: £10 per day
- 6 – 12 months: £300 flat fee or 5% of your bill (whichever is more)
- >12 months: £300 flat fee or 5% of your bill (whichever is more)
Late filing your tax return
- 1 – 30 days late: no penalty
- 30 days – 6 months late: 5% of your tax bill
- 6 – 12 months: 10% of you tax bill
- >12 months: 15% of your tax bill
Having said this, if you have a very good reason for not paying your tax bill on time, HMRC will be lenient. After all, we’re only human.
Cover photo: Olya Kobruseva
