Tax As A Freelancer: What You Need To Know

Tax As A Freelancer: What You Need To Know

Nobody likes to think about tax. However, everyone has to do some personal admin at some point. Luckily for you, we’ve got some top tips to stop you from putting it off further. Because did you know HMRC can fine you for not paying your taxes? That’s even if you didn’t know you had to!

1. Understand if you need to pay tax for your freelancing or not

Firstly, if you’ve been earning income from freelancing for three or more tax years, it’s considered a job, and you need to pay tax. However, if you’ve been making £1000 or less in a tax year, it can be considered a hobby, and you don’t have to declare it. This is also known as the 2017 £1000 Trading Allowance.

A Tax Year is April to April, and the date can be found on the UK Government website. Remember, you only pay tax on your profit. So if you’re selling bookmarks, for example, you will be taxed on the money you make selling the bookmarks minus the cost of making them.

2. How do you work out how much tax to pay?

You need to work out your income tax rate. You can earn £12,500 (as of 2019) without paying tax on it. Therefore, the income tax rate is 0%. If you learn £12,501-£50,000, this is known as a basic tax rate at 20%. Consequently, you will have to pay 20% of your profit as tax. Earning £50,001-£150,000 will mean an income tax rate of 40%. Above £150,000, the income tax rate is 45%.

This also doesn’t include the tax you pay for National Insurance. For self-employed people (aka freelancers), they will normally pay Class 2 and Class 4 National Insurance tax. Therefore, Class 2 is £3 a week if your profits are £6,365 or more a year. Class 4 is 9% on profits between £8,632 and £50,000 and 2% on profits over £50,000.


So, say you earn £21,000 a year. You would calculate;

£21,000 minus your first £12,500 non-taxable income = £8,500

20% of this is £1700 = Income Tax

£21000 / 52 tax weeks in a year = £403.8 earnt a week

£403.8 – £155 which is tax free = £248.8 to be taxed

9% of £248.8 = £22.39 a week to pay in tax

22.39*52 = £1164.28 a year in National Insurance Grade 4

3*52= £156 Grade 2 National Insurance

£1164.24 +£156 = £1320.28 Grade 2 and 4 added together

£1700+£1320.28 = £3020

Take home money: (Annual salary – Income Tax – National Insurance) = £21000-£1700-£1320.28 = £17,979.72

£17,879/12 = £1498.37 a month.


Alternatively, you can use online calculators to work it out! For example, on the UK Government website.

3. How do you pay your taxes?

You’ve now hopefully worked out what tax you owe. Poor you – have a cup of tea and biscuit. Now it’s time actually to pay the tax. You can do this easily on the UK Government website. It can be a one-off payment, a bank transfer to HMRC or through corporate credit or debit card.

4. What is the deadline?

You have two deadlines! Firstly, midnight 31st of January 2019 for your ‘balancing payment’ and your first payment on your account contributing to the first half of the next year’s bill. This is what you have left to pay for the last tax year’s tax and half of the total tax you paid last tax year.

Secondly, on the 31st of July, you pay your second half of the year’s instalment, if you want to split it into two instalments. In addition, if it turns out that by the next January 31st you owe more tax, this is your ‘balancing payment’.

5. What happens if I still have no idea what you’re talking about and just want to cry?

Okay. Deep breath. Open your bank account, add up all your earnings, take away any business expenses (not including clothes, coffees and lunch!) and pay 20% of that. (You’ll need to work out more than that if you earn over £150,000 a year.) Then pay half on January 31st and the other half on July 31st, or all in one lump sum, if it’s easier. Therefore, you’ll never pay under the tax and if you overpay – you’ll get a refund the following year. It’ll be like a free money gift to you!

E.g £21000/2= 10500. 10500*0.2 = 2100. 2100 * 2 = 4200.

You’ll need to change the above calculation depending on how much you earn that year. Therefore on 31st January, you’ll pay 2100 + any extra you may owe from last year. On the 31st of July, you’ll pay £2100 again.

There we have it. All your taxes as a freelancer done and dusted for six months!

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