In the UK, freelancers are taxed depending on how much they earn. Whether you currently work as a freelancer or are thinking of taking a step into self-employment, it’s important to understand how much tax you’ll be required to pay. To learn more about working freelance and how much tax you will pay, continue reading.
What is a Freelancer?
A freelancer is someone who works for themselves. Essentially, a freelancer is another term for being self-employed. Whether you offer services or products, if you work for yourself, it’ll be considered freelance work.
Being a freelancer comes with many advantages, and often comes with more flexibility. However, working freelance means you need to pay your taxes just like those who are employed are required to.
While working as a freelancer, you’ll be completely responsible for your own taxes (such as Income Tax and National Insurance). There are a few different business structures that freelancers follow, including:
- Sole trader – someone who is self-employed and runs their own business. This specific business structure is the simplest type, and the business isn’t a separate legal entity to whoever owns it. Being a sole trader means that you have complete control over your business and a streamlined tax filing process
- Limited company – can often be more difficult to set up but is usually deemed a more professional business structure. Limited companies come with more accounting duties, but do offer some possible tax benefits
- Umbrella company – a third party acts as your employer, although you’re working self-employed. This means that tax and National Insurance contributions are handled by someone else (similar to being employed by someone). However, fees will be required by the umbrella company, which could eat into your profits and other expenses over time
Knowing which business structure is best suited for your work can be difficult, especially if you’ve only recently decided to work freelance. Tax implications, administrative work, and future plans for your business should all be considered before settling on your business structure.
How Much Income Can You Earn as a Freelancer Before Paying Tax?
In the UK, the Personal Allowance for the 2024-2025 tax year is £12,570, which means you can earn this amount before having to pay Income Tax to HMRC.
However, if you work freelance and make a large amount each year (anything over £100,000), you will lose £1 for each £2 that you earn. Once you start earning more than £12,570, you will have to start paying Income Tax at whichever rate applies to your income amount.
In England, Wales, and Northern Ireland, there are three tax bands:
Tax band | Taxable Income | Tax rate |
---|---|---|
Personal allowance | Earning up to £12,570 | 0% |
Basic rate | Earning £12,571 to £50,270 | 20% |
Higher rate | Earning £50,271 to £125,140 | 40% |
If your taxable income is over £125,140, you’ll fall into the additional rate of Income Tax, meaning you’ll be required to pay 45% tax.
Does a Freelancer Pay National Insurance?
Yes, freelancers do pay National Insurance. Depending on how much profit you make as someone who is self-employed, you’ll typically be required to pay Class 4 National Insurance.
The process of paying National Insurance is simple and can be done through your Self-Assessment. In cases where profit is low (less than £6,725), then you’ll be able to pay National Insurance voluntarily, which helps avoid gaps in your record.
How Does a Freelancer Pay Tax?
To successfully pay your taxes as a freelancer, you’ll need to follow some simple steps:
- Register as self-employed with HMRC by the 5th of October after the tax year ends in which you started working freelance
- File your Self-Assessment tax return either online or by paper form if necessary, and pay any owed tax by the deadline, which is the 31st of January
- Typically, as a freelancer, you’ll be required to pay two ‘payments on account’ (essentially two payment instalments, with one being due on the 31st of January as mentioned, and another further in the year on the 31st of July)
How much tax you’ll be required to pay will differ, depending on the amount that you earn. So, although you’ll need to register as self-employed and file your Self-Assessment tax return the same as others who are self-employed, the amount you pay could vary compared to someone else.
Can Any Expenses be Claimed While Working Freelance?
Yes, some expenses can be claimed while working freelance. HMRC allow individuals who are registered as self-employed to deduct some expenses – but you’ll need records to be able to claim anything. According to HMRC, a few key examples of what freelancers can claim for include:
- Office equipment, ranging from stationery to phone bills
- Travel expenses, such as bus tickets or fuel costs
- Clothing, if you require a uniform
- Financial charges, such as insurance
- Training courses, if they relate to your business
- Marketing and advertising, for example, website costs
Are Influencers Considered Freelancers?
Yes, influencers are considered freelancers. As the likes of Instagram and TikTok are on the rise, more people are turning social media into their full-time jobs. However, many influencers often aren’t equipped with the relevant knowledge that’s needed to accurately pay the right taxes.
When you go from posting online for fun to making it your full-time job, you become a self-employed sole trader who needs to pay tax when you begin making a certain amount of money.
Accountants for Freelancers
Whether you’re an influencer or work self-employed in a different sector, having access to guidance and support from a trusted accountant is vital.
At DH Business Support, we specialise in a range of industries, allowing us to help all of our clients who work freelance. Our dedicated team of professionals have the necessary skills to offer an expert accountancy service and ongoing tax advice.
If you’d like to discuss our services further and find out how we can help you, please get in touch with us today!