TAX Planning Tips for Freelancers in UK

While it is true that working as a freelancer means the perks of flexibility and absolute freedom because you can be your own boss, time becomes extremely precious. Sometimes, it becomes tough to seek rewarding projects and handle multiple tasks. You will have no time to look after your finances, and keeping your accounts in order will become challenging.

In the UK, you are expected to pay tax if your yearly income exceeds the £12,570 threshold. Here it is important to remember that for an income between £12,570-£50,270, you have to pay 20% tax, and for £50,271-£150,000, you have to pay 40% tax! So, if you think accounting is not your cup of tea and you are in dire need of some tax planning tips for UK freelancers, here we go.

Know the available tax deductions

At the core of tax planning is the maximum use of the available tax deductions. According to HMRC, various costs are categorized as allowable expenses. These include office costs, travel costs, staff costs, clothing expenses, bank charges, sub-contractor costs, stationery costs, travel expenses, advertising fees, subscription fees for business purposes, rent, and utility costs. Here one example of stationary cost is the cost involved in buying a new advanced computer that you require for your freelancing jobs like graphic designing or video editing.

Meanwhile, you can also claim your mobile phone and internet bills under stationary expenses. Again, if you work from home, you must find a rational way of dividing your costs. It can be based on the number of rooms used for your work or the time you spend working from home as a freelancer.

Contribute to the National Insurance

As a freelancer, you had to comply with the requirement of contributing to the National Insurance. So, first, get a National Insurance Number. There are several classes in the National Insurance, such as Class 1, Class 1A or 1B, Class2, Class3, and Class 4. Remember, contributing to the National Insurance will make you eligible to enjoy various allowances and State pensions.

Now, if you are doing a regular job and at the same time working as a freelancer at home, pay Class 1, Class 2, and Class 4 National Insurance. This will be based on your total income. However, if your yearly profit is £11,909 or above, it will not be considered for receiving state benefits. Here the best course of action is to hire a tax advisor to understand the amount you need to contribute to the National Insurance.

Make the most of the SIPP scheme

Think about the long term and make the most of tax-efficient pension plans like SIPPS. It is a Self Invested Personal Pension. The best thing about it is that you can even start with a small amount of £25 monthly payment and enjoy tax relief from the UK government. You also pay your profits into the SIPP scheme to reduce your income tax liabilities! Compared to a regular pension plan, it offers you an array of investment options. So, with SIPPS, you can invest in company shares (both in the UK and abroad), unit trusts, investment trusts, land, commercial property, and much more.

Engage your spouse in the freelancing business

It is best to keep the money in the family. So bring your spouse as a director and shareholder! Just ensure his income is low and he is skilled to add some value to your freelancing business. However, do this cautiously and get all the paperwork right.

In the UK, you can easily hire accountants or tax advisors who can understand your unique requirements and help you in tax planning. So hire a UK accountant so that you can focus solely on the work you enjoy!