If you are deciding to become your own boss, as a Virtual Assistant or Freelancer, make sure you understand what the tax and NI situation applies to your new role and situation. All the information included in this post is important, so take note and make sure you have everything in place.
First thing to note is that in the UK if you are a freelancer or VA you are classed as a Sole Trader and so don’t fall under the same criteria as a “Limited Company (Ltd) and don’t need to register your new business with Companies House. The UK tax and NI laws are quite complex and sometimes hard to understand as they have a habit of changing every year. It is important that you stay up to date with your contributions as if you don’t, HMRC do not take any prisoners, no excuses and won’t look at your personal circumstances. The law is the law!
If you are in doubt or not sure what you need to do, contact an accountant or even contact HMRC to make sure you are compliant and following guidelines. HMRC have an online helpdesk via a chat service which includes lots of help and training videos for you to access, so there is no excuse! The link to the online chat: HMRC Online Helpdesk.
FAQs & Answers on Tax and NI
Q: How do I register as a Freelancer/Sole Trader?
A: When you start to work for yourself in the UK, contact HMRC and advise them of your status. You should complete a Self Assessment and National Insurance Contributions Registration Form. This form will register you as a Sole Trader & new status for your NI contributions. Once completed, the HMRC will send a unique tax reference, usually within 4-6 weeks.
Your unique tax reference will be needed when you submit your personal tax return online, ensure you sign up to the Government’s online Gateway to do this.
Remember, do you tax return before 31st January each year, this is your deadline. Don’t leave it to the last minute, plan ahead and have it ready in plenty of time.
Q: What Tax & NI Rates should I be paying?
A: OK, so this can be a little complicated, but this will make it a little simpler to understand. The current Personal Allowance for 20/21 is £12,500. Basically, you can earn this amount before you need to start paying any tax. Your Personal Allowance may be higher if you can claim Marriage Allowance. So the following rates are for 2019/20 for a standard Personal Allowance:
Band Taxable Income Tax Rate
Personal Allowance Up to £12,500 0%
Basic Rate £12,501 – £50,000 20%
Higher Rate £50,001 – £150,000 40%
Additional Rate Over £150,000 45%
To find out more about tax bands and rates in England, visit the HMRC’s info page: HMRC Tax Rates & Bands
For Scotland tax bands are different, to find out more about tax bands and rates in Scotland, visit the HMRC’s info page: HMRC Tax Rates & Bands (Scotland)
When it comes to National Insurance contributions, as a self-employed person, these are the two options for payments:
1. Class 2 – Pay £3.05 p/w – you need to be receiving “profits” of more than £6,475 per year, or
2. Class 4 – If you earn “profits” between £9,501 & £50,000 you pay 9%, then if you are earning over £50,000, you pay 2% on your “profit”.
To keep a track on your NI Contributions, log in to your Government Gateway NI Checker and check your account.
Q: How and When Do I Submit My Tax Return?
A: In the United Kingdom, the Financial Year starts from 6th April and ends 5th April the following year. You need to submit your tax return before 31st January doing so online, if you are sending your tax return by snail mail, send it in by the end of October. Failure to do so will result in a £100.00 fine, if you miss the deadlines. Following on from there, you have 30 days to pay your tax bill, failure to do this will result in an additional 5% on your bill. If you still fail to submit your tax return a £10 fine per day will be added until it reaches £900.00. It is important to pay your bill as soon as you can, as further penalties will be added if further deadlines are missed. This can quickly get out of hand and how many people get in trouble. So, make sure you keep on top of your tax!
More advice can be found on the HMRC Website or by calling 08459 154515.