Do I have to declare freelance income?

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Always check your contract

It’s unlikely, but some employment contracts may prohibit you from freelancing or taking on additional employment on the side. Before considering freelancing you should check that this is not written into your contract as you do not want to jeopardise your job or potentially damage your reputation in the industry.

What expenses can you claim as a sole trader?

A sole trader is someone who works as self-employed without operating through their own company or partnership. As a sole trader, you can offset certain business expenses against your income and you will only be taxed on your self-employed profits. The general rule of thumb is that you can only claim expenses on costs that are wholly and exclusively incurred for business.

Declaring income earnt from freelancing to HMRC

If you get paid more than £1,000 during a tax year and plan to further your freelancing career, you need to register online and complete a self-assessment tax return to declare your income.

You can register here.

You are required to declare your freelance earnings each year by the 31st January deadline following the end of the tax year on 5th April. Unlike the income earnt from your permanent employment, the money you earn from freelancing is untaxed and it will need to be declared to HMRC. https://www.fieldengineer.com/blogs/where-to-find-freelance-jobs-online

The amount of tax and National Insurance Contributions (NICs) that are due will depend on how much you earn as a freelancer and how much you are paid in your full-time job.

What Income Tax are you required to pay as a freelancer?

Your Income Tax will be calculated on your total earnings – combined income from employment and sole trader profits. You will need to pay Income Tax on any income above the personal allowance of £12,500 for the 2019/20 tax year.

The Income Tax rates for the 2019/20 tax year are as follows:

• Basic rate (20%) tax is due on income up to £37,500
• Higher rate (40%) is due on income from £37,501-£150,000
• Additional rate (45%) is due on income over £150,000

When you file your self-assessment tax return, you will disclose the tax already paid on your earnings from your employer. HMRC will then work out the amount of tax due on your profits from freelancing when you submit your self-assessment tax return.

Please be aware that if the profits earnt from freelancing push your total earnings into a higher rate tax band, you will be required to pay the higher rate tax.

How much National Insurance should you pay as a freelancer?

The amount of NI you pay on your income from your permanent employer will not change, but depending on how much you earn freelancing you may be required to pay Class 2 NI or Class 2 and 4 NI.

If your profits earnt from freelancing exceed £6,365 in the tax year you will have to pay Class 2 NI. This is a flat rate of £3.00 per week which is paid via direct debit to HMRC.

Class 4 NI – which is charged at 9% – will also be due on self-employed profits between £8,632 and £50,000. For all profits greater than £50,000 the Class 4 NI drops to 2%. Your Class 4 NI will be worked out when you submit your self-assessment tax return.