Tax can be a bit of a headache for anyone in business, and freelancers are no different. The danger of getting tax wrong could mean submitting tax returns late, incorrectly, or not at all – leading to some hefty penalties and time-consuming investigations from HMRC. Ouch! Take a look at the common mistakes.
Not registering for Self Assessment
While you can earn some money freelancing on the side, there is a threshold on how much you can earn before you must begin to pay tax. The short version is that if you earn more than £1,000 from one or more trades, then you have to tell HMRC.
The mistake some people make is getting confused with the basic personal allowance. In 2019-20 this means that everyone (as long as they earn less than £100,000 per year) can receive an income from any source of up to £12,500 before they get taxed on it. The crucial thing though, is that it still gets declared to HMRC, even below that threshold.
The Trading Allowance is a bit different in that it allows you to earn up to £1,000 through self-employed or casual income, and you may not have to declare it to. Once you cross the threshold, you may be liable to pay tax and National Insurance as if you were any other business owner. Don’t make the mistake of thinking self-employment taxes don’t apply to you just because you don’t think you’re running a real business!
Even if you’re also working for an employer, your self-employment taxes won’t be deducted from your salary automatically – you’ll need to tell HMRC exactly how much you’ve earned and then either pay them directly, or ask for your tax code to be changed so that it can be collected from your regular pay.
And yes, you’ve guessed it, there are deadlines for registering, as well as for submitting your return. You will need to register by October 5th in your business’ second tax year. For example, if you start a business in February 2019 (the tax year ends in April 2019), you will need to register by October 2019 because it’s technically in the second tax year (even if in the same regular year).
Not submitting a Self Assessment tax return on time
The deadline for filing Self Assessment is January 31st (for online returns) so you need to check whether you need to file a return for the upcoming deadline. It all depends on when you started earning money as a freelancer.
For the January 31st 2020 deadline, you’ll need to file a return if you received any self-employment income between April 2018 and April 2019.
Please, whatever you do, don’t leave your tax return until ten minutes before midnight on January 31st. While the return is relatively straightforward, it’s not worth the risk of submitting late. Your computer could crash, you could have an emergency or a hundred other things could happen when you try to submit. Instead, do it well in advance. That way you don’t have to rush or stress, you can take your time and do it correctly. And breathe!
Not saving for tax
Another big mistake that people make is failing to save for their tax bill. It can be a nasty shock, especially if you’ve forgotten to factor in for National Insurance, and it can be stressful to try and scrape it together at the last minute.
The smart way to save for your tax bill is to set aside a percentage of everything you make. Put it in a separate savings account and do not touch it! That way, when the tax deadline comes around, you won’t be joining all the others who are scrambling around trying to find a way to pay their bill.
We hope you don’t make any of these mistakes when you come to file tax returns. However, they are pretty common and easily made. If you are ever unsure about taxes and would rather have a professional take over and handle it all – get in touch with an accountant today.
About The Author
Content creator with a keen interest in writing about business and finance - moonlighting as a fiction writer and blogger. I write content on a variety of subjects to help businesses grow.