Tax Advice For Contractors
If you are a freelancer or contractor working in the UK, then your tax issues are likely to be a bit more complicated than people who are regularly employed. We’ve put together a guide to help you through it and sort out your tax. One major thing you need to sort out as quickly as possible is whether your business means you need to register a company or if you are self-employed and working as a sole trader as this can affect what tax you pay.
Then there’s the issue of VAT. You don’t have to worry about this too much if you’re on low to average earnings, but if you earn over Aï¿½64,000 a year then you need to register for VAT. This is so you can collect and claim for Value Added Tax. It can be a complicated business as it adds an extra complication to your tax return, so if you’re worried about it you could ask an accountant to help you. It can be useful to separate the VAT when sending invoices.
You also need to make arrangements to pay your National Insurance contributions as the rules are slightly different for self-employed people. Unless your earnings are extremely low, then you’ll be expected to pay Class 2 NI contributions. You can normally set up a direct debit with Her Majesty’s Revenue and Customs in order to do this easily. You can also opt to pay a higher rate of national insurance or, if you earn a lot of money, you’ll be required to pay the higher rate.
One of the biggest tax issues UK freelancers have to deal with is the yearly self-assessment tax return. In order to complete this, you should keep a record of all costs associated to your work as well as all your earnings so you can input them into the form. This helps HMRC work out how much tax you owe. The tax return is based on the previous financial year (from April – April) and the tax you pay is based on your earnings in that year.
One last thing to consider is how you’ll be paying your tax bill. It can be a good idea to have a cushion of money put by in case the following tax year is a bit lean and you don’t earn much as you’ll still be expected to pay the tax bill for the previous year. It can also be wise to put aside money throughout the year so that when tax time rolls around, you’ll have enough saved that you’ll be able to pay is easily.