Freelance tax tips

Reviewed by RIFT CEO, Bradley Post

Ahh, the freelance life. Working from gig to gig, setting your own hours and only choosing the jobs that take your fancy. There are many benefits to being a freelancer, but not paying tax isn’t one of them. Whatever your freelance gig or specialism, you still need to pay tax on your earnings. It’s so important to know what, when and how to pay. Let’s take a look at what you need to know.

Freelance finances

When you’re an employee you pay tax every month. You see it on your payslip as those painful pounds taken out of your pre-tax salary.

But that’s not the case when you’re a freelancer. When you get paid from your various gigs you get the whole amount landing in your account. Amazing. But there’s a catch. The whole amount isn’t yours to hold onto – you still have to pay tax, but you only do so once a year through a self-assessment tax return.

Completing a self-assessment tax return

You need to complete a self-assessment tax return by 31st January for the tax year that ended in the previous April. So for the tax year ending 5th April 2024, you’ll need to submit a tax return by 31st January 2025. 

First you need to register as self-employed with HMRC. You can do this online at the gov.uk site. If you’ve never used the system before, you’ll need to get yourself registered by the 5th of October. 

Once you’re all set up with HMRC, you’ll get a Unique Tax Reference (UTR) number so you can submit your return on the Government Gateway.

Calculating how much you need to pay

Your self-assessment tax return is your way of calculating how much tax you need to pay, based on the below thresholds:

Remember there are a range of deductibles you can remove from your income before you calculate your tax. They include office costs, training costs, uniform costs and more. You’ll need to be super clear on what you can claim back, so you don’t overpay on your tax.

If you’re set up as a sole trader, you only need to complete a self-assessment tax return and your income (minus deductions) is all the money you make from your business.

If you decide to run your freelance business as a limited company, the income you make goes into the business account and you’ll pay yourself a salary and usually dividends. Not only do you need to do a self-assessment tax return on your income, but you’ll also need to submit your accounts and a corporation tax return. Learn more about tax insights for limited companies.

Tax deductions for gig economy professionals

When you’re self-employed, you deal with the taxman yourself. There’s no fancy HR department to hide behind. You are the fancy HR department. And every other role it takes to run your business successfully. So, you need to know where you can make savings with the taxman and get clued up on your tax deductions for self-employed people. 

This is what you need to know:

Mileage

If you drive for work and not simply to work, you can claim back on your mileage. Currently, the mileage allowance from HMRC is set at the following flat rates:

• Cars and goods vehicles first 10,000 miles: 45p
• Cars and goods vehicles over 10,000 miles: 25p
• Motorcycles: 24p

Say you drove 11,000 miles in your car for your freelance gigs in the last tax year. For the first 10,000 miles you can claim back a total of £4,500 (10,000 x 45p). And for the remainder you would be able to claim back £250 (1,000 x 25p). That’s a total of £4,750 – a tax deduction not to be sniffed at.

Allowable expenses

You’ll also have several other running costs for your business. You can deduct some of these costs to work out your taxable profit as long as they are allowable expenses.
Allowable expenses include:

• Office costs: Stationary or phone bills.
• Training courses related to your business: For example, courses that help you improve skills and knowledge you currently use for your business or that keep you up to date with technology used in your industry.
• Advertising and marketing: Including website costs.

Working from home expenses

If you work from home, you can also claim back a flat rate based on the hours you work from home, called simplified expenses. But you can only do so using this system if you work from home for 25 hours or more a month. This is to cover the extra spend on heating and utility bills, and covers:

• 25-50 hours per month: £10 per month
• 51-100 hours per month: £18 per month
• 101 and more: £26

Expert advice from RIFT Refunds

When you’re running a freelance business, it’s so important to stay on top of your finances and tax. These tips should help you out. 

✔ Keep on top of all the important dates

Remember your self-assessment tax return is due before the 31st January. Anything submitted after this date is subject to fines – you can be fined up to £100 for just a single day late and up to £900 for filing three months late. If you’re also filing a corporation tax return, you’ll need to know exactly when to do this too. 

✔ File as early as you can

Just because you can wait until 31st January doesn’t mean you should. You can file from any time after the end of the tax year – 5th April. Getting it in early not only means you make the deadline, but you’ll know well in advance how much tax you need to pay. It’s a lot less stressful all round. 

✔ Remember your deductions

There are plenty of expenses you can deduct and claim back. Make sure you stay on top of them and don’t overpay unnecessarily. 

✔ Keep your tax in mind

When you’ve got money coming in from your various freelance gigs, it’s easy to feel like it’s all yours or that the tax deadline is too far away to worry about now. Always keep some of your income back in a separate account so there are no nasty financial surprises when it does come time to pay the taxman. 

✔ Use an expert 

As a freelancer you’re relying on yourself for so many different things – from doing your day-to-day job to marketing yourself, sourcing new business and managing your finances. Outsourcing your tax affairs and tax returns to an expert like RIFT Refunds gives you one less thing to worry about.  Plus, you’ll be relying on our expert knowledge to help save as much tax as possible. 

RIFT CEO, Bradley Post adds:

Freelancing or side hustles are a great way to boost your income, especially with the cost of living putting a strain on people’s finances but it’s so important you have an expert at hand to keep you on the right side of HMRC rules and regulations.

At RIFT, our specialist accounts can take the hassle out of your self-assessment tax return. We’ll crunch the numbers with you, advise you how to lower your tax bill and get everything boxed off well in time with HMRC. Get in touch with us today to find out more.