UK freelancing: how vigilant is the taxman?

wonder if i can pay someone to sort it all out for me?

If you ever go back to a staff job and get put on the payroll, you'll pretty soon get a nasty letter along the lines of "So what were you doing for the past x months/years?" and that's how they get you.

You won't need all the receipts and invoices as long as you don't put anything down like "Travel: £4,000". As long as it's fair and you can work out what you owe them, and start to pay it back at a fair rate that you can afford on your current earnings - say £20 a month minimum if you earn up to around £20,000 - they won't bother you on the details. I paid back £200 once I'd completed the tax return and gave them the rest six months later. Plus around £200 in fines for being two years late in filing a return and paying what I owed, but that was nothing, and I think they might have refunded some of the fines I was due to pay. Don't forget that you'll owe National Insurance contributions as well.

Don't forget that if you only owe them tax from this financial year (April onwards), you won't need to do a tax return on it until next September.

In fact, for my last tax return I filled it out on the HMRC's online form and it was a doddle. It works it all out for you

Apparently - and this is probably rubbish, but it does come from my father who has worked at Customs and Excise for 30+ years - the trick is to overpay them by £10 or so once you've paid back everything you owe and they'll pretty much leave you alone as long as you keep filing tax returns every year because they don't want to have to pay you back the money THEY owe YOU.

i need a step by step here. i made about £1000 last year and never really thought it was enough to do any kind of taxxy thing, but it's becoming more. this is extra complicated because this is really a job on the sly thing, as i have a normal daytime job too.

how do the taxes work here? do they count seperately? (i guess for income tax they'll have to co-incide somehow).

help!

No. You *can*, but the tax rules on one-person companies changed a couple of years back, in a way that removed the main benefits of doing it.

If you don't, though, you should register yourself as self-employed instead.

how do the taxes work here? do they count seperately? (i guess for income tax they'll have to co-incide somehow).

They have to coincide, because the tax limits apply across your whole income. Presumably you're paying PAYE tax and NI on your day job income; so you'd have to pay tax and NI on the whole £1000 of your additional income because your other employers will have taken account of your tax code when calculating your PAYE taxes.

1) register as self employed
2) fill in tax returns

and that's it? what's the fine going to be now that i'm like a year late registering all these? or do you reckon i can just pretend that last year's money never happened?

yeah, this is what i've been thinking on -- how much, and of what? my g/f lances full-time, uses a room of the house, etc.

Remember that if you do set yourself up as a company you have to file accounts and annual returns here each year too.

Half of my rent
Half of my share of utilities
ALL magazines and newspapers
ALL transport (boy, do I love taxi receipts)
The vast majority of my phone bill
Depreciation in value of home computer (Ed is helpful here)
Interest charged by bank on overdraft.

I am really not sure what a person who is not registered for self-employed work and has a PAYE job would have to do to pay tax on that extra 1K.

Now this is key - if i have a full-time payroll job, and then earn freelance cash on top of that, do i have to pay tax on the freelance bit or is it just mine to splurge on beer and skittles?

therefore:

:-) (financially) and
:-( (so much for the second career)

-- CharlieNo4 (starsandheroe...), September 23rd, 2005.

i think i got away with paying no tax on the time out millions -- i declared, and they sent me some incomprehensible nonce-speak. but then i'd claimed all dvds and books against it, which probably came to more than i'd earned. these days i itemize fkn photocopier cards from libraries.

Is this a serious question? You pay tax on your earned income - it doesn't matter where it comes from!

I earned about £4K several years ago and never declared it, but the crux is this: if just ONE of my clients had been audited, and they had decided to follow up payments that client had made, then they would have had irrefutable proof that I had earned cashx0r and not declared it.

-- CharlieNo4 (starsandheroe...), September 23rd, 2005.

I wish I had some corrupt dole clerks round at mine. When I signed on at the end of last year I had to hand in all my freelance slips. It wasn't a huge amount but they added it up and took a deduction from my jobseekers, meaning I got about £31 a week. As I had a bit of a downturn in freelance work after signing on I was not a happy chappy, but there was nothing I could do.

wow! that's astonishingly decent of them: in my (admittedly limited) experience they usually cut you very little slack. after all, if you have a full-time job (which means you're obviously earning more than the tax threshold), then EVERY SINGLE PENNY you make on top should by rights be taxed.

the one thing i found is that the tax offices are usually very helpful and will do everything they can to explain the processes involved and make your life easier. yes, they want your cash - but, you know, they do have a right to it. in my experience, problems only ever arise when people bury their heads in the sand and hope they'll somehow get away with it.

suzy: you seem to be well on top of the whole game. where/how did you learn all the smart bits? do you have an accountant? can you recommend a good book explaining freelancer's guide to tax perks? my long-term life plans certainly involve freelancing, and when the time comes i want to be as prepared as possible. still: i imagine hiring an accountant will be the best idea.

So steps to take from now (if I want to be clean from now on is to) would be
1. register as self-employed
2. declare earnings this year (erm this year = from april 2005? I haven't actually been paid at all this year yet but will soon)?
3. claim any money off purchases/expenses to do with work? (erm, so that's 4 tube tickets)

okay, now: what about VAT?????

xpost

(And I don't mean he freelances as my mate. He's a full-time friend, on my staff-mate payroll.)

Basically if you end up making a profit from the taxman, you aren't making a profit from your business.

The key point is
a) keep everything
b) put away a quarter of your earnings in a seperate account/place so that it does not hurt at the end of the year when you have o pay yer taxes.

and that any computers i buy from now on can be claimed against VAT

I don't use an accountant. When I first freelanced I went to see a friend's accountant who gave me 30 minutes of free advice - which they will usually do. My turnover is not that high, though: London expense means that most years my income after expenses is under the tax threshold anyway. The dud bit of fulltime freelancing is the 'occasional' two-month wait for any form of money while your bank threatens to cut you off each time they spunk off £30 for a late direct debit for approximately £7.

In the days before broadband my yearly phone bill of appx. £1000 was a balm to my tax bill.

Ken, you need to prove that your compute ror anything you claim back is primarily for work use. If its mainly for home use you cannae claim back the VAT. That said, there is a government scheme to increase computer literacy where if you buy your computer through work you can claim the VAT back (and a user licence - vis a vis your packages used at work can be downloaded on to that home computer as well).

although i'm now most likely to buy this in hong kong instead anyway so it'll be cheaper even without tax cuts! lol.

so self-employed dudes (as opposed to a company) can do this VAT stuff too then?

proportion of earnings from freelancing/proportion of earnings salary. Up to 50% for rent and utilities, and all of office equipment, phone, broadband etc.

Remember what you are claiming back as business expenses is just the VAT, (or the tax relief on the same) not the whole cost. So you don't get half your rent paid for you by the government.

I didn't have the sort of accountant who encouraged me to rip off the system* (i.e. pay myself £4k salary and take the rest as dividends), and she wasn't terribly good at explaining just how I should go about filing expenses, so that assuaged some of my guilt at doing the LtdCo thing in the first place, but probably cost me a lost of money.

(* - enough of my contemporaries in the IT sector were doing this, however, for the IR35 legislation to come in and for it to become mildly disadvantageous to be a LtdCo at all).

Like Markelby, I also have a dodgy past as a freelancer.

My missus will probably be going the self-employed route after we move house. If we ever do. What's the distinction between "working from home" and "running a business from home" which I presume one isn't allowed to do?

I would hope not - selling tat on eBay is how we're getting by at the moment!

Pam would probably be subtitling from home on a laptop (on which we could recover the VAT, I guess) over wireless broadband (ditto) but she may also be making stuff to sell. As she'd be creating her "stock" at home, then we would have merchandise on the premises. It would hardly be a high turnover business, mind. She's probably already looked into this and I wasn't really listening when she told me...

Ken, you can't sell your cock through IBM.

As Pam's business would probably be low turnover she would not be able to register for VAT. But this means her cost price will be 17.5% less than her competitors. The running a business stuff can be completely different to being self employed (as most people would be employed by their business hence not actually self employed!)