Implications of freelancing
Friday March 11, 2005 - Permanent link to this post -
I'm currently in a full time web design job which I'm very happy with and from which I have no plans of separating any time soon (are you reading this, Boss?), but to build a bit of commercial experience and a personal portfolio (and to get some extra cash) I've recently taken on a few freelance jobs (Tonia Biscotti and Docté Consulting for example).
These jobs have not been for vasts amount of money and considering the time I spent on them I think that my clients are getting a good deal out of me, but that's beside the point of this post. My concern, as I do more of these jobs is that I might actually be falling foul of the law.
It didn't dawn on me until I actually had to invoice a client for a project, that that client might get audited, which might eventually lead to me being audited, and I don't have a clue what might happen then. I just don't know anything about the legal obligations and implications of freelance work.
So I thought I'd ask you guys, some of whom I know are freelance web designers in the UK, others might be self employed in another profession, what I need to know.
- Do I need to declare to the tax office any profits taken from freelance work?
- Do I declare everything, including charges for domains/hosting that I'd have already shelled out for myself?
- Do I need to be V.A.T. registered?
- Do I have to register myself as a company?
- How important is it to keep proper accounts?
- Are there any benefits to doing all this?
Answers or suggestions pertaining to these questions, and any other information you might profer to keep me out of jail would be gratefully received.
At first I didn’t think about it and just asked for cash but once I went full time I decided to talk to an accountant.
It’s all nice and easy, the accountant charges about 200 quid a year (apparently, I haven’t had a bill yet) and all they need from me was a couple of forms and some ID. Now I just keep all invoices and work related reciepts and give the to the accountant at the end of the year.
The main thing was that you need to register as self employed, even if it’s part time, within three months of starting.
Hope it helps, basically speak to an accountant even if it’s just to get registered.
I am not entirely sure about all the answers I’ll give you, but you can check all that here anyway.
I think whatever you do as a freelance, at some point you’ll have to pay taxes for it. To be registered as a selfemployed doesn’t cost nothing, and you will pay taxes only on your income/outcome. As I get it, you pay only if you do some work which seems fair enough. It should work something like up to two grand your tax would be 10%, and anything over that is 22%. If you dont have more that 48 grand turnover, you don’t need to VAT register. You don’t have to register a company, but if as an selfemployed you use a company name instead of yours, and that name is on your invoices you will have to have an business account for it. Otherwise you will not be able to receive payments. If instead you use your own name on invoices, check this to be sure, your fine up to ten grand, which is when they suggest opening business account anyway.
Hope it was helpful :)
Keep some records of your outgoings and income (I found a load of helpful bits over at Business Link – http://www.businesslink.gov.uk/), and either sort out your own tax (self-assessment) around the end of the year, or just give an accountant a couple of hundred quid and he’ll do it for you.
With regard to being VAT registered, there’s no point if you’re not earning a lot (as in £45k plus) through freelancing, as it’s just loads more hassle and expense, accounting-wise. There are certain tax advantages to becoming a Limited Company, but I’m none too clear on the actual specifics, so once again an accountant is your best bet (notice a theme developing here? ;).
If you just make a list of questions you want answered and make an appointment, then the first 30 minute consultation should be free anyway, so you can find out most of what you need to know before shelling out any cash.
Hope that helps.
Just out of interest, how does your employer feel about you taking on freelance work?
I’ll try and find some time to really go through the Business Link stuff, and after yesterday’s responses I started tapping up someone from the Finance Dept. at work for some advice/help, although I’m sure I must know a proper accountant who owes me a favour.
Monooso – As far as I know, my employer doesn’t mind me doing the work as long as I don’t do it during office hours and it doesn’t affect my real work. In fact, one of the IT bosses once asked me if I’d do a website for his mum and dad’s pub, but I was too expensive for him.
Thanks for all the info fellas. You’re all stars.
I am joining this forum rather late but have you found answers to the questions you set out in your initial post? Specially if you are allowed to cost your hosting, the work you put in (in other words, your labour)and so on out of your freelancing income when they calculate your tax deductions. How about your rent?
Would appreciate any answers.
I’m still only doing bits of freelance on the side, but to save myself from any trouble, I registered as Self-employed a week or so ago. As far as I know, the tax you pay only counts for the money the company (you) takes as profit in the year. Any money taken for hosting goes straight to the hosts I think.
As far as rent goes, I’m not the person to ask as I don’t have specific premesis for my business. Obviously, the rules of my mortgage state that I’m not allowed to run a business from my address, so I do all my freelance work from the park, dialed in over a GPRS connection (ahem!).
I know that there are rules with regard to running business from home but do we call(tax-wise) self-employed person whose work is not constant as a business?
Having to go the park to do your freelancing instead of home is really inconvenience.
Well, as has been commented above, it is worthwhile to see an accountant.