HMRC warning to anybody who's a freelance worker in UK
A warning has been issued to all freelance workers in the UK. Freelancers have been offered expert advice on how to trade, where to work and how to manage HMRC self-assessment accounts as the Cost of Living crisis continues.
Speaking to the Guardian newspaper and the Observer this weekend, David Maslen, head of tax at the accountancy firm Old Mill, says: “Profits from the business will be subject to income tax and class 4 NICs. Class 2 NICs are voluntary from 2024-25 and would only be made where needed in order to preserve access to certain benefits.
"Both the tax and NICs are reported and paid through the self-assessment system.” The Guardian's Emma Lunn warns: "The number one rule of freelancing is to put money aside for your tax bill. If you are a sole trader, you will need to pay tax by 31 January and 31 July each year. Miss a payment and you will be charged a penalty, and interest, too."
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You need to set up a business if you ‘trade’ in goods or services. HMRC says you’re likely to be trading if you sell regularly to make a profit, make items to sell for profit, sell items on a regular basis, either online, at car boot sales or through classified adverts and earn commission from selling goods for other people or are paid for a service you provide.
James Shaw, of the accounting firm Sapphire, says: “Hiring an accountant allows you to focus on running your business while they take care of the complex, time-consuming details.” Andrew Hagger, at the website MoneyComms, says: “Ideally, put away the maximum you can afford when you first start out as a freelancer to try to build a buffer for those times where work may dry up for a week or two.
“I think that as a minimum I’d recommend aiming for an ‘emergency pot’ sufficient to cover two months’ worth of your essential bills – ie, utilities, transport costs, food, rent/mortgage and, though not seen as essential, perhaps a bit extra to cover drinks/meals out, as you still need to live.”
“Mortgage lenders look for evidence of stable income, and professionally prepared accounts demonstrate that your business is financially sound, giving you the best chance of securing that loan,” says Shaw.