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How to pay tax on your freelance work in the UK

If you're managing to squeeze in a side-hustle outside of your regular working hours, there are specific rules around paying tax when freelancing in the UK. So make sure you get it right by following this guide.

Want to understand the rules about paying tax on freelance work in the UK? Then this article’s for you. Because, whether you’re simply looking to make some extra income on the side, or trying out freelance work before fully committing to self-employment, taxes in this situation can be confusing.

The amount of tax you pay as a freelancer will depend on how much you earn. This guide is here to help you understand and document which taxes apply to you.

When do you pay tax on freelance work in the UK?

Tax on freelance work can apply if you earn more than £1,000 during a tax year. If this is the case, you’re legally required to declare your freelance earnings to HMRC. Make sure to inform them as soon as possible to avoid facing fines.

While you might not be legally obliged to tell your employer about your side hustle, it’s important to check that your contract of employment doesn’t forbid you from taking on other work.

Next, know that if your total earnings exceed the personal allowance of £12,570 per year, your freelance earnings will become eligible for income tax alongside your regular income. Also, if you’re running a business as part of your freelancing, you may also have to pay National Insurance (NI) contributions.

That said, whether your side income is classed as a business – or if, in fact, that few extra quid is just what’s called ‘casual earnings’ – will depend on a few factors.

So here’s the rule: if your freelancing is consistent with the aim of making a profit, it will initially be classed as a business.

However:

  • If the work isn’t continuous or doesn’t continue for months, it is then actually classed as casual income. In other words, you weren’t earning enough on a regular basis to start running a fresh new business from this endeavour.
  • Similarly, if the overall revenue you’re making on the side is less than £2,000 a year, your freelancing can also be considered casual.

How do freelancers pay taxes in the UK?

To declare your freelance income, you’ll need to register online and complete a self-assessment tax return. You should complete the return whenever you can after the 5th of April for the previous tax year, then when you know the tax owed you have to pay it by 31st January the following year.

If you’ve already registered yourself for a self-assessment form, simply add your freelance income to the ‘other income’ section.

Once you’ve completed a self-assessment form, your income will be eligible for both working full-time and freelancing tax.

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How much tax do I pay as a freelancer?

As you’ll be paying income tax for your total earnings, the freelance tax percentage will depend on your combined income. Current income tax rates are as follows:

  • Between £12,571 to £50,270 is charged 20%.
  • £50,271 to £150,000 is charged 40%.
  • Income over £150,000 is charged 45%.

How do you pay NI contributions?

If NI contributions apply to your freelance earnings, these will also have to be taken into account. With your regular income, you’ll usually pay for Class 1 NI through your employer. When freelancing on the side, the amount you pay for your regular job won’t change, but your additional profits will require you to pay either Class 2 NI or both Class 2 and 4 NI.

Class 2 NI is a flat rate of £3.15 per week, which you’ll have to pay if your freelance profits exceed £6,725 for the tax year. Payment for Class 2 will need to be paid via direct debit to HMRC online.

If you’re making a profit of between £11,909 and £50,270, you may also have to pay for Class 4 NI. Instead of a flat rate, this is charged at 10.25% for the tax year. For earnings above £50,270, the rate drops to 3.25%.

Completing a self-assessment tax return

Like your income tax rate, National Insurance contributions are calculated on your self-assessment tax return. This may seem like a lot of number-crunching, so using a freelance tax calculator online is advisable to fill out your return form. This will make your life a lot easier.

When juggling two income sources, you’ll also need to keep a close eye on your revenue and expenditure to make sure you can cover all your taxes and NI contributions. For more advice on managing your cash flow, read our guide here.

FAQs

How much can you earn self-employed without paying tax?

As mentioned, you can earn up to £1,000 tax-free through self-employment. This is known as your trading allowance. You don’t need to file a tax return if you’re unlikely to earn more than this.

Can I claim expenses?

As freelancing is considered self-employment, you can offset business expenses against your income. At the end of the day, you’ll only be taxed on your profits.

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