22 Mar 5 Tax Tips For New Freelancers
Working as a freelancer has many advantages, including, being able to choose your own working hours, being your own boss and wearing comfortable clothes to your home office. However, there are some downsides too, one of which is dealing with your own tax under self-assessment. The good news is though that there is lots of help available to keep you on track. Here are 5 tax tips if you are new to freelancing.
(1) Track all your expenses
One advantage when working as self-employed is that you can claim back tax on expenses, which you wouldn’t be able to do if you were employed.
In order to pay the least tax possible, it is essential to track all business-related expenses, and keep evidence of the transaction in the form of receipts, invoices and bank and credit card statements.
Offsetting business expenses from business income keeps your profit low. To claim tax relief though, expenses must fit the HMRC rule of being “wholly & exclusively” for your business.
Work with an accountant to help you determine what you can legitimately claim and what you can’t.
(2) Put money aside for your tax
When you are self-employed another benefit, or perceived benefit, is that you don’t actually pay tax each month, like you do when you are employed.
Depending on when you start trading will depend just how many months pass by without you having to pay any tax at all.
However, when you start freelancing, it is vital that you start to put aside money for your future tax bills, so you don’t get stung down the line.
Even if you income isn’t flowing as fast as you hoped, don’t ignore the need to save; approximately 20 percent of everything you invoice is a good starting point.
(3) Maximise tax relief if you work at home
If your freelancing business means working from home, then you will be able to claim back some tax relief on your household costs.
How much is worked out through a careful calculation though; it isn’t a case of your home now being your “business premises” so you can claim all related costs.
In fact that is very dangerous, particularly if you own your own home as it could trigger Capital Gains Tax upon a future sale.
However, claiming the maximum proportion of your home costs, legitimately, is advisable.
An accountant can help you to work out the right allocation.
(4) Keep on top of your accounts and tax
Now you are a business owner, it is essential to plan ahead when it comes to your taxes.
There is a tipping point when it may be beneficial for you to trade as a limited company, instead of as self-employed. This depends on a number of factors but can certainly save you money in tax if you get the timing right.
Rather than only summarising your income and expenses come the year-end, making sure your records are up-to-date at least once per quarter means you can spot tax saving opportunities before it is too late and you miss the boat.
Using cloud accounting software enables easy management of your business finances and your tax position.
(5) Seek help from professionals
Preparing your own tax return is certainly a possibility when you are a freelancer, if your business is straightforward. HMRC have a logical platform where you can enter your income and expenses, along with other information to calculate your tax bill.
However, working with an accountant means you not only have professional eye, looking over your tax affairs for accuracy. They can also help to minimise your tax through other legitimate methods you may not be aware of.
AJN Accountants are specialists in helping contractors, freelancers and small businesses to save tax and time.
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