Working for yourself can give you freedom, but there is also a responsibility for tax, expenses and record keeping. A good accountant for freelancers should do more than submit your tax return to HMRC. They should help you understand what expenses you can claim, how profit you are making and help and answer any questions you have.
Self Assessment
Most freelancers operate as sole traders, particularly when starting out. If your gross self-employed income is more than £1,000 during a tax year, you will usually need to register with HMRC and complete a Self Assessment tax return.
Your return includes your freelance income, allowable business expenses and any other taxable income. A freelancer accountant can prepare the return, check the figures and explain your tax bill, this will include payments on account, which often catch people out in their first year paying tax.
Claiming allowable expenses
You can normally claim costs incurred wholly and exclusively for your freelance work. Depending on what you do, this could include:
- Computer equipment and software
- Professional subscriptions
- Website and advertising costs
- Business insurance
- Accountancy fees
- Telephone and internet costs
- Business travel
Some costs are partly personal and partly business. These need to be divided on a reasonable basis. Keeping receipts and recording expenses throughout the year makes this much easier.
Working from home
If you regularly work from home, you may be able to claim part of your household costs. You can use HMRC’s simplified flat-rate method or calculate a reasonable business proportion of costs such as heating, electricity and internet.
The best method depends on your circumstances. A freelancer tax accountant can compare the options and make sure the claim is sensible and supportable.
Choosing accounting software
Software such as FreeAgent, Xero or QuickBooks can help you send invoices, photograph receipts, track payments and see how the business is performing. It can also reduce the amount of work needed at year end.
The right software should suit your business rather than adding unnecessary cost or complexity.
When should you become a limited company?
There is no single profit level at which every freelancer should incorporate. A limited company may offer greater legal separation, tax-planning options and a more established image. However, it also brings additional responsibilities, including annual accounts, Corporation Tax returns and Companies House filings.
The right decision depends on your profit, how much money you need to withdraw, your other income and future plans.
GMS Accountants supports freelancers across Cambridge. If you need practical advice without unnecessary jargon, contact GMS Accountants to discuss your freelance business.
