If you haven’t heard the news, freelancing is a pretty big deal right now. In fact, if some studies are to be believed, this is slowly starting to eat into standard, employed work – and might even one day overtake it.
Of course, there are different levels of freelancers. There are those that earn a little bit extra money on the side, potentially as new parents, while there are those that are looking to completely replace their current career.
For the purposes of today, it doesn’t really matter which camp you fall into. The point we are trying to make is that there is a lot of misinformation that does the rounds when it comes to freelancing, and through the course of this article we will take a look at the tax side of your affairs. In other words, what you can do to not just stay on the right side of the tax man, but also limit your potential outgoings.
It’s not just about income tax
One of the points that hit a lot of freelancers the hardest is the fact the days of all of your tax affairs being calculated for you are long gone. There was once a time where your employer did all of the legwork, and told you the workings out on your monthly pay slip.
Well, the onus is well and truly on you now, which is one of the reasons why some people will turn to a service like 3 Wise Bears.
It’s not just income tax that you need to calculate either, National Insurance Contributions come into the mix. Then, if you have a student loan, you need to look after that. The list could go on (what about pensions?) but hopefully you understand that this isn’t just a case of finding out 20% of your income and going from there.
Remember the trading allowance
For those of you who are looking for something of a side income, there’s some hope in the form of the trading allowance.
Put simply, this allows you to earn up to £1,000 completely tax free. Not only that, but you don’t even have to declare it – which takes away plenty of work from your shoulders.
Unfortunately, there are caveats. The reason not everyone decides to tap into this benefit is that it also means that you can’t claim any expenses. Suffice to say, if your expenses total more than £1,000, the trading allowance probably isn’t for you.
The big debate: sole trader or corporation?
Well, let’s end with something of a debate. For the time being at least, there is a lot of contrasting advice about whether to be a sole trader or form a limited company.
There are advantages to both, and in truth you should look to seek specialist advice before proceeding with either. Generally, if your income is quite low, you probably don’t need to go down the company route.
However, if it’s higher or if you operate in an industry where legal challenges are common, the company approach might be something you consider. It means that your personal assets won’t be at risk, and you can in some cases pay less tax.