Not only is this not what you signed up for, but it can actually get you in trouble with HMRC! This is because of legislation called IR35, which was introduced by the government to help tackle the issue of tax avoidance.

What actually is it, though? And how does it affect you if you’re a freelancer? Let’s take a look.

What is IR35?

The primary motive of the IR35 rules is to determine an individual’s employment status for tax purposes. It was introduced in an effort to clamp down on ‘disguised employees’ slipping through the tax-paying net.

What would be the benefit of disguised employment?

A disguised employee is someone working for a client on a supposedly self-employed basis, when in reality the working relationship is more like an employer and employee.

Before IR35 was introduced, a business could take on a contractor rather than hiring the same person as an employee. They wouldn’t need to pay National Insurance or other contributions, and wouldn’t have the responsibility of looking after staff.

For the freelancer, it was an opportunity to pay themselves in a more tactical way through their own limited company. This usually resulted in a lower tax bill than they would pay as the client’s employee.

Of course, not all disguised employees come about as a result of dishonesty. Sometimes, it’s because business owners and contractors aren’t sure where the boundaries lie.

How do I know if I’m inside IR35?

Being ‘inside’ IR35 means the way you’re working with a client falls within the remit of IR35 rules. A basic rule of thumb is that if you’re being asked to work the same hours as a regular employee, at the same location, and without the power to decide, you’re almost certainly inside IR35.

There’s also the question of Mutuality of Obligation, where there is any kind of obligation to give or accept work (on either side), rather than having the freedom to accept contracts as you wish. Freelancing is, of course, supposed to be flexible, allowing you to pick and choose the projects you want to work on, so it’s something to look out for!

What happens if a freelancer is inside IR35?

If you’re ‘within IR35’ for a particular project or job, then this has implications on how you pay tax. You’ll be considered an employee for tax purposes, and the ‘client’ must therefore deduct Income Tax and National Insurance contributions in the same way they would for an employee paid through their payroll.

If you’re outside IR35 and therefore not considered to be an employee for tax purposes, your bill will be paid to you in full without deductions. Whether your client makes deductions or not, you must report your income in your tax return!

Who decides if a freelancer is within IR35?

It’s up to the client to decide, but only if they’re a medium to large-sized private company which has either:

• More than 50 members of staff on its workforce
• Annual sales in excess of £10.2 million

If the client doesn’t meet the criteria, then you’re responsible for determining your own IR35 status. If you think you might need help determining your status (or just to be on the safe side), you can make use of HMRC’s online CEST (Check Employment Status for Tax) tool.

Contesting IR35 decisions

It’s worth knowing that you can contest a client’s verdict on whether you’re operating within or outside IR35. HMRC’s Alternative Dispute Service enables you to escalate the issue and contest the decision.

When starting work on a new contract or with a new client, make sure you have agreements down in writing to refer back to if necessary. It’s also worth doing this for any ongoing existing contracts.

Can I freelance for an old employer?

This is where things get a little complicated. If a previous employer gets back in touch with you to try and enlist your services as a freelancer, what’s the correct response?

After all, you don’t want to get in trouble, and wouldn’t you automatically fall inside IR35 if you were to say yes? Well, not necessarily.

It really boils down to whether or not you operate in a way that contravenes the IR35 rules, based on the criteria outlined above. Again, the basic rule of thumb is that if you feel as if you’re being treated like a regular employee, you might have something to worry about.

Failing to comply with IR35 can result in financial penalties.

Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.

The post How Does IR35 Affect Freelancers? appeared first on Freelancer News.

However, because of the casual nature of the work, some freelancers are in danger of ignoring the legal implications of working on the side. You might not think your side venture counts as a business but it does, and you have certain responsibilities as a result.

Whether you’re planning on setting up a full blown business or are just thinking of an occasional casual thing alongside your job, the rules are the same and you still need to register as self-employed with HMRC if you plan to make any money from your ventures.

The good news is that it’s fairly easy to do.

What does being a sole trader actually mean?

As a freelancer, you’re going to have to register as self-employed and more specifically as a sole trader.

Despite how it sounds, it doesn’t actually apply to people who just work alone. So you can take on staff if you want. It just means that you’re solely responsible for the business.

How to register

You should register as soon as you can after starting your business and can through the government’s website here.

You have until 5^th October in your business’s second tax year in order to do so. If you don’t register in time you won’t face a penalty as long as you send your tax return and pay your bill on time.

How you register will depend on whether you’ve ever sent tax returns before.

Never sent one?

If you’re a sole trader who has never sent a tax return, you need to tell HMRC you want to be a sole trader by registering as a new business.

You will then register for Self-Assessment tax returns which you’ll use to report your income at the end of every tax year, and National Insurance at the same time. For more information about the different types of National Insurance you need to know about, click here.

Sent a tax return in the past?

If you’re a new sole trader who has sent a tax return before as an individual for things like investment or rental income, you will need to register as self-employed.

You will also need to register for Class 2 National Insurance using a CWF1 form. This will allow you to continue using your Self-Assessment account.

In order to do this, you will need your Unique Taxpayer Reference (UTR) so that HMRC can link your accounts. You can find this on your previous tax returns, online account or from documents from HMRC. Contact HMRC is you can’t find your UTR.

Starting up again?

If you’ve ever registered or done business as a sole trader, then you will need to reregister in order to set up trading again. You will need to reregister using the CWF1 form and your UTR so that you can use your existing account.

The process of registering as a sole trader will take around 10 working days, or up to 21 if you’re registering from abroad. This is because HMRC will post you an activation code which you will need when you sign into your online account for the first time.

Once you’ve registered and set up a system for managing your finances you can then go about growing your business. You may even want to hire an accountant who can take care of your bookkeeping and taxes so that you’re free of the stress and the time that you could be spending elsewhere on working on your business.

Your responsibilities

The work’s not over once you’ve registered. As a business owner, you have certain legal responsibilities in order to comply with HMRC’s rules to avoid getting penalised.

It’s important to make sure you’re always running your business by the books and aware of how much tax you’re going to owe so you don’t get hit either with a nasty surprise or even a fine if you don’t pay your taxes on time.

In order to keep your business above board, you will need to do the following:

• Keep records of sales and expenses, including bills for expenses
• Send a Self-Assessment tax return each year
• Pay income tax on your profits and Class 2 or 4 National Insurance
• Settle debts
• Register for VAT if your turnover reaches the threshold of £83,000

Hiring an accountant will make this process easier as they will be able to give you the best advice regarding things like expenses and tax efficiency as well as making sure that your business is doing everything the right way.

Hiring an online accountant and using a free accounting software like Pandle will help you save money.

Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.

The post How to Register as Self-Employed as a Freelancer appeared first on Freelancer News.

As a freelancer, your destiny is in your own hands, and this is the main reason so many people have made the switch and gone out on their own.

But the road less travelled is often precarious, with freelancing bringing its own set of challenges.

When it comes to securing a mortgage, for example, you may discover that you have your work cut out for you.

Why, though? And what, if anything, can you do about it? Let’s take a look.
 

Is it harder to get a mortgage as a freelancer?

Generally speaking, yes – it can be. From the perspective of a potential lender, freelance income is typically considered to be far more unpredictable than a salaried income. Someone who undertakes freelance work simply can’t provide the same level of certainty or reassurance as someone who is a PAYE employee on a fixed annual salary.

The reality is that not all loans are created equal, and so it’s reasonable to assume that, as a freelancer, you will be judged more harshly than someone in full-time employment.

On top of the fluctuation typical of freelance cash flow (which can be a red flag to mortgage lenders), there are also business expenses to consider on top of your personal costs, and these can further affect your ability to pay back what you owe.
 

What can freelancers do to help secure a mortgage?

So, where does that leave you? Is it all doom and gloom? Thankfully not, as there are some steps you can take to try and improve your overall attractiveness to potential lenders when you’re getting ready to buy a house as a freelancer.
 

Put down a bigger deposit

In most cases, the bigger the deposit, the more reliable (and therefore attractive) you’ll appear to a lender.

You’re essentially putting your money where your mouth is and demonstrating your commitment to repaying the loan in full, which of course makes the lender feel better about the whole thing.

It ultimately comes down to your own unique situation and financial circumstances, meaning it’s a good idea to seek advice from a specialist in the field. A mortgage broker or lender will be able to go over your options, and a good accountant will be able to get into more detail about affordability.
 

Gain experience as a freelancer

As we’ve established, mortgage lenders can be wary of freelance applicants due to the unpredictable nature of freelance work, which can result in missed payments.

It’s smart to try and log at least two to three years’ worth of freelancing financial records before you approach any potential lenders, as this way you’ll have something to point to which demonstrates your reliability.

You’ll still need to show that you have plans for the future, but, more than anything else, historical information serves to reassure lenders that you actually know what you’re doing (no small thing).

Also, you can use the extra time to increase the size of your deposit!
 

Maintain a good client list

Like the financial records, a good client list will go a long way towards convincing a potential lender that you can be trusted to deliver.

The best way to attract clients is by putting a marketing plan into effect, and this should include such things as an online presence and pitching. If you’re just starting out, you’ll want to start relatively small and build up to taking on more work (and from a wider variety of clients).

One thing to remember is not to put all your eggs in one basket, so to speak. For example, by relying on one big client who could up and leave at any time. At the beginning, you want to focus on baking muffins, not cakes!
 

Keep good credit and business records

This should really go without saying, but any potential lender will more than likely conduct a credit check on your business, and so it’s a good idea to deal with any outstanding loans in advance.

More generally, you should also ensure your records are in good shape (accurate/up-to-date) and keep an eye on your cash flow.

If you think you might need help with this but you don’t want to hire an accountant or bookkeeper, good bookkeeping software will automate the whole process, meaning you don’t have to rely solely on your own judgment.

It’s also worth noting that if you operate as a sole trader, then legally speaking there’s no difference between you and the business. It makes it even more important that you can show a separation between freelancing finances, and your personal transactions.
 

Find an accountant

Working with a good accountant can be another marker of stability in the eyes of a mortgage lender. They’ll help you keep your finances in order and minimise mistakes, while an exceptional accountant will also advise you on how to be more tax efficient in the process.

Of course, they can also assist you with a mortgage application, making sure you’re giving yourself the best possible chance.
 

How much can a freelancer borrow?

Unhelpfully, there’s no cut and dried answer to this, as borrowing is based on an individual’s annual income and unique circumstances. This means the amount you can borrow is different for everyone.

Generally speaking, though, the higher your annual income, the more you will be able to borrow, and an accountant can help you get the best deal possible.

 
Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.

The post Can Freelancers Get a Mortgage? appeared first on Freelancer News.

The nature of freelance work is that it’s flexible, meaning it affords businesses a certain level of freedom when it comes to making new hires. If it doesn’t quite work out with a particular freelancer, then the company simply won’t hire them again in the future. It’s also useful if you only need someone temporarily.

More broadly, hiring freelancers gives you access to a large range of skills, and this is where an online marketplace proves invaluable. So where do you start?
 

Access to a larger pool of available freelancers

While a lot of people like to bemoan the so-called digital age, it does mean we’re more connected than ever. Perhaps the most obvious advantage of using an online freelance marketplace is that it provides access to thousands – if not millions – of available freelancers looking for work.

This makes these online marketplaces ideal for quickly finding freelancers to complete one-time or rarely occurring tasks, and, again, you have the flexibility to trial as many people as you wish without being locked into anything long-term.

It usually won’t cost you, though some sites might charge a fee and/or charge the freelancer a percentage of their earnings.

Larger sites like Upwork and Guru will have the widest possible selection, though you might find there’s actually too much choice.
 

Access to a diverse range of talent

Not only do online freelance marketplaces give you access to many freelancers, but also to a huge range of valuable skills – skills which would probably be difficult for you to source locally, or even elsewhere online.

The majority of freelance marketplaces even allow you to filter your search for freelancers with the exact skills and experience level you need, meaning you can be sure you’ve got the right person for the job.
 

Ranking system

Another major advantage of hiring through an online marketplace is that it will most likely have some kind of internal ranking system. This is typically based on a number of key factors, including:

• Feedback score
• Reliability
• Successful/timely task completion
• Onsite tests
• Money earned

Gone are the days of working your way through a mountain of CVs to try and (hopefully) find a half-decent candidate. With an online marketplace, the boring bit is taken care of, and you can focus on choosing the absolute best person for the role on offer.

You also don’t need to spend money on an agency which may not even do a good job.

After all, no one knows what you’re looking for better than you, and an online freelance marketplace enables you to take matters into your own hands and find reliable candidates with great reputations.
 

Simplified payment process

A common theme here is that online freelance marketplaces make things quick and easy, and the same is true when it comes to making payments.

There’s no need for an array of different payment methods (talk about confusing), as you can quickly and easily pay all of your freelancers via the online marketplace.

Most online marketplaces will allow you to bring over any existing freelancers you may use, so you won’t have the hassle of having to pay them the old way – or even potentially losing them for good in the process of switching to online.
 

Streamlined admin and communication

In the same way an online marketplace can simplify the payment process, it can help you manage both communication and work submission through its online workstreams and messaging systems. This can be helpful if you’re currently working through WhatsApp, and having to transfer work to a different device.

A lot of sites also feature inbuilt terms and conditions, which ensure you and your freelancers are on the same page when it comes to general expectations, as well as things like deadlines.

In addition to making your life as an employer easier, these terms give you a kind of safety net should anything go wrong, as you’ll have recourse to a third party (the marketplace itself).

 
Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.

The post Five Advantages of Hiring Freelancers on An Online Marketplace appeared first on Freelancer News.

This demonstrates the growing popularity of freelancing as a full-time career or side hustle, with more and more people exploring this flexible way of working.

But how many people actually understand what a freelancer is? And to what extent does this differ from the role of a contractor? The two are often confused and the titles are used interchangeably, but there are some notable differences you need to know.

What does a freelancer do?

A freelancer is somebody who works independently, for themselves, as opposed to working for an employer. This means that freelancing is classified as a form of self-employment, even if the person only freelances part-time to supplement their main full-time job (also known as a ‘side hustle’).

The term ‘freelancer’ isn’t actually a business structure in its own right, so a freelancer might run their business as a sole trader or as a limited company.

A freelancer will often work for multiple clients at once, juggling various projects simultaneously. As a result, freelancers will charge for their services on a task-by-task basis or by the day, hour, or something even more granular – a freelance copywriter could charge per word, for example.

Sometimes, if a freelancer works with the same client on a regular, consistent basis, they’ll set a monthly retainer fee.
 

Are freelancers the same as ‘gig workers’?

Due to the non-permanent and fluid nature of how a freelancer works, they fall neatly under the umbrella of ‘gig work’ or the ‘gig economy’.

This encompasses all those working on projects or with clients on a temporary, flexible basis and therefore not contracted to a full-time role as a permanent employee.
 
Common types of freelance jobs include:

• Videographer/video editor
• Photographer
• Web developer
• Journalist
• Copywriter/content writer
• Social media manager
• Public relations
• Data
• Software
• Influencer
• Graphic designer
• Marketing
• Accounting and bookkeeping
• Editing and proofreading

What is the difference between a freelancer and a contractor?

Freelancers and contractors are both self-employed professionals that offer independent services in exchange for a fee, but there are a few nuances that separate them.

While freelancers are generally nomadic and work remotely on an ad-hoc basis, contractors tend to provide a service for a designated length of time.

Another point of difference is that contractors can sometimes be tasked with managing subcontractors or employees of the business they’re working for – something freelancers are rarely asked to do.
 

The benefits of being a freelancer

There are a number of reasons why freelancing is an appealing option for more and more professionals around the world, but certainly in the UK, including:

• Freedom to ‘be your own boss’ and the associated advantages of working so autonomously.
• Flexibility around where, when, and how you work, so you aren’t tied to the traditional 9-to-5 life.
• Being able to work remotely means you can travel and see the world while you earn.
• Flexibility around working hours and location is also beneficial if you have pets or a young family.
• You can scale your workload up and down according to what’s happening in your life, which means you can scale your earnings too.
• In some instances, freelancers get paid significantly more than employees. In a recent survey, nearly 60% of freelancers said they make more money than their counterpart working in a full-time job.

There are some potential downsides to consider too though

• Freelancing (and self-employment in general) doesn’t offer the same job security as full-time, contracted employment.
• Freelance wages aren’t always as consistent or predictable as a monthly employment salary.
• When you’re self-employed, you’re responsible for your own taxes as your income isn’t taxed at the source as it would be through Pay As You Earn (PAYE).
• You don’t get access to employment benefits such as employer pension contributions, private healthcare, or annual bonuses – something to consider when you’re working out what to charge!
• Working for yourself can get a little lonely at times.

It’s crucial to consider the cons of freelancing before embarking on a full-time freelance career so you can make more informed decisions.
 

How does a freelancer pay tax?

As we mentioned earlier, a freelancer’s earnings aren’t typically taxed at source as they aren’t paid through the PAYE system like the employee of a business is.

This means a freelancer is required to submit tax returns to HM Revenue & Customs (HMRC) to report all income, gains, and expenses so they can pay the necessary tax.

What type of tax return a freelancer needs to submit is dictated by how their freelance business is structured:

• Sole trader
• Limited company

Below, we summarise each so you can decide which one might be right for you.
 

The benefits of freelancing as a sole trader

• As the only person attached to the business, you get to keep all the post-tax profits for yourself.
• Sole traders don’t have to register with Companies House, only HMRC, which also makes the process quicker and easier.
• No shareholders, partners or directors means you will always have total control over the business, including all financial decisions.
• You’ll need to submit Self Assessment tax returns to report your income and pay any tax. If you were to operate a limited company, you’d need to submit a Company Tax Return, and then a Self Assessment return to report your personal income.

The benefits of freelancing as a limited company

• As a limited company, the business’s finances and liabilities are viewed as separate from your own, which means your personal cash and assets won’t ever be involved.
• Operating a limited company might be more tax efficient, depending on your earnings and how much you take out of the business.

 
Note: You need to register your business with Companies House and HMRC if you want to set up as a limited company.
 
Head over to our Freelancer Hub where we have a whole host of guides and resources.

The post What is a Freelancer? appeared first on Freelancer News.

With freedom, though, comes a greater responsibility to protect yourself as you operate in the professional world as a lone ranger. One way to do this is by investing in insurance cover specifically designed to safeguard those working in a freelance capacity (or similar).

There are different types of business insurance available for freelancers, so if you do decide to go ahead and buy cover, your personal circumstances will probably affect which one you go for. In no particular order, these include:

• Professional indemnity
• Income protection
• Public liability
• Product liability
• Contents
• Personal accident
• Portable equipment
• Legal protection
• Cyber and data risk
• IR35

But first, let’s take a look at why investing in relevant insurance cover could be a good idea, even if it does feel like a financial burden.

The benefits of insurance for freelancers

Buying insurance can seem like just another cost to add to your growing list of monthly expenses, we get it. However, there are a whole host of advantages that insurance cover allows you to unlock, including:

• Financial support if you suffer loss of income
• Legal protection if a customer wants to take action against you
• Protection for your business-critical equipment and workspace
• Added security for sensitive data and information
• Ultimate peace of mind

Plus, insurance typically comes in tiers with different levels of cover, so you can control how much you choose to invest versus how much security you want.

What type of insurance should a freelancer have?

Now we’ve explored why freelancers benefit from insurance, let’s take a closer look at 10 different types of cover worth doing some research on.

Professional indemnity

This type of insurance helps to cover the cost of settling any claims clients might want to make against you. If you’re a freelance HR consultant, for example, and one of your clients says that your guidance harmed their business or an employee, they may wish to take action.

Professional indemnity cover helps you deal with the financial repercussions of this situation. This is arguably one of the most highly recommended forms of insurance for freelancers and certainly worth investing in.

Income protection insurance

If you become unable to work, perhaps because you’re ill or injured for example, for a prolonged period of time, income protection insurance is there to ensure that you still have some money coming in while you’re out of action.

This is particularly beneficial for freelancers who don’t have the safety net of sick pay that those in employment do.

Public liability

If you conduct most of your work from home, or with minimal face-to-face contact with your customers, you don’t really need to worry about this one.

However, for those freelancers who do a lot of public-facing work, this type of insurance cover is worth considering.

It helps protect you if a client wants to make a claim or sue as a result of being hurt or injured on your premises. It covers both the legal fees and compensation you might have to pay out, so it can be well worth the small investment.

Product liability

If you sell a product, such as skincare, food, or gadgets, product liability insurance helps protect you if a customer wants to make a claim on the grounds of your product injuring them or damaging their property.

It also applies to services, such as personal training or wedding videography, where customers could claim your advice or equipment caused them or their belongings harm.

Contents insurance

Contents insurance is similar to home insurance in that it serves to protect the belongings you keep on your premises. In fact, some items might crossover so be sure to check your home insurance policy first if you work from home a lot.

Contents insurance is more tailored to business-related items such as equipment, technology, and safety gear. This type of cover also protects against fire, theft, and accidental damage.

Personal accident insurance

As a freelancer, if you’re injured at work, there’s no such thing as putting your feet up and sleeping soundly knowing that sick pay has got you covered.

That’s why personal accident insurance is so important, so that you can make sure there’s still some money coming your way while you’re incapacitated. This type of cover will provide you with applicable payments until you can get back to business.

Portable equipment insurance

Freelancers often need to lug equipment around with them, which puts your invaluable tools at risk every time you step out of the door. Think photographers, mobile pet groomers and sports trainers as classic examples of freelancers who need to transport tools in order to do their jobs.

Portable equipment insurance safeguards you if your equipment gets damaged at work and needs replacing.

Legal protection insurance

Dealing with legal matters can be extremely daunting as a freelancer entirely responsible for yourself and your business. That’s why seeking professional help is always the best course of action, but this does come at a cost. Legal protection insurance helps cover this cost if or when you come to need it.

Cyber and data risk insurance

In the digital world, your personal data and information need as much protection as possible, as does your customers’, and particularly in a climate of heightened fraud and cybercrime.

This type of insurance helps to cover the cost of recovering lost data, making up for lost income, and any GDPR claims you might face.

IR35 insurance

As you might know, IR35 has been implemented by HMRC to clamp down on so-called ‘disguised employment’. Understanding whether you’re ‘inside’ or ‘outside’ IR35 can be confusing, but it’s important to get it right in case you are investigated.

IR35 insurance covers the fees of a professional dealing with the investigation process for you, so that you don’t have to take time away from your workload and deadlines.

This list of recommended insurance for freelancers is by no means exhaustive. There are several other types of cover that you might wish to look into, such as private healthcare insurance, life insurance and business insurance. If you’re unsure, seek professional advice before making any decisions.

Find more freelance support and guidance in our info hub!

The post Do Freelancers Need Insurance? appeared first on Freelancer News.

This spike seems a direct result of the pandemic, but many businesses have kept the remote-first culture. Of course, working from home also affects freelancers, sole traders and self-employed people who were working remotely long before the pandemic.

Fortunately, there is tax relief available if you work from home and use personal resources for your business, so it’s time to make sure you’re taking advantage of it!

To help you make the most of the relief that might be available to you, we explain what self-employed people can claim when working from home, and how to go about calculating it. We also address a number of frequently asked questions, including:

• Do I divide work from home expenses by how many people use the space?
• Do I need to pay business rates to qualify for work-from-home expenses?
• What happens if my workspace has a dual personal use?

What expenses can self-employed people claim when working from home?

Self-employed people who work from home can claim many of the costs which relate to their business as an allowable expense, such as:

• Electricals (e.g., lighting)
• Gas and heating
• Maintenance and repairs
• Internet and telephone costs
• Water, in eligible cases (i.e., if you are a hairdresser who needs to use a lot of water as part of your business activity). Water usage needs to be substantial and directly related to the business.

What’s crucial is that you only claim for expenses which relate to your business. So, if you claim for maintenance costs, they must relate to the room that you use for business, and so on.

How to calculate working from home expenses

When it comes to calculating what you’re going to claim as a home-working expense, there are two main options: simplified expenses (also known as the flat rate expense method), or as a proportion of your costs. As long as you’re eligible for it, it’s up to you which method you use – so it’s worth calculating your expenses to see which method is most beneficial to you!

Explaining simplified expenses for freelancers

The simplified expenses route is a great option if you work from home for 25 hours or more every month. You’ll claim expenses as a flat rate set by HMRC, on the basis of how many hours of home-working you do.

Here’s the breakdown of what you can claim depending on the hours of business-related home-working you do each month:

The main benefit of claiming your WFH expenses this way is that you won’t need to calculate what proportion of your bills were used for business-related activity. Hence why they’re called simplified expenses!

It’s important to note that the flat rate expense method for working from home does not include telephone or internet expenses.

You will need to claim these by working out the actual cost of your business usage instead.

The downside of simplified expenses is that, in some cases, the flat rates might not be high enough to cover the actual costs you incur. In that case you can use the costs method to claim your expenses instead, but it’s useful to have a good idea of what your costs are, to make sure you use the right method.

Claiming the cost of working from home using the costs method

Rather than using a blanket approach like the flat rate method, working out your actual costs can be rather revealing – it’s often more than you think!

Just make sure that you use a fair method to work out costs. You might need to show that you’re only claiming for the portion of your expenses which relate to business use, and not personal use.

For example, you have a house with 5 rooms in it, and use one of them as an office. One fifth of your home is used for business. If your electricity bill for the month is £100 (and these days – lucky you!), you can claim one fifth – £20.

Do I divide work from home expenses by how many people use the space?

Yes – if two or more people use the same office space in your home, you will need to divide the allowable expenses between yourselves. You won’t each be allowed to claim the full amount, but there might be the possibility for higher relief on utilities and bills according to specific usage.

Do I need to pay business rates to qualify for work from home expenses?

Whether you pay business rates or not, you will still be able to claim tax relief if you use your personal property for some business-related activity.

Whilst we’re on the subject though, if you only use a small portion of your home for work-related activity, you won’t need to pay business rates. For example, if you work from a home office or run an eCommerce business that requires you to send goods by post, you don’t need to worry about business rates.

However, there are some instances where you might need to pay business rates and Council Tax, including:

• If your property is part-home, part-business (e.g., if you live above a takeaway restaurant)
• If you have employees who work at the property
• If customers come to your property to purchase goods or services
• If you’ve made significant alternations to the property to accommodate business-related operations (e.g., if you have extended to build a home gym for personal training services)

What happens if my workspace has a dual use?

If you use a room or a space in your home for personal use as well as for work-related activity don’t worry, this is absolutely fine. It just means that you’ll need to work out how much of the time it is used for business, and how much of the time is for personal use.

Find even more advice and guidance for freelancers in our info hub!

The post How Do I Calculate Expenses for Working from Home? appeared first on Freelancer News.

One of the most troublesome topics that mobile business owners often find themselves navigating is the matter of travel expenses. Many are unsure as to whether they are able to claim travel expenses and as a result, wind up in a muddle when it comes to their accounts, bookkeeping and tax returns.

Fear not though, freelancer, because we’re here with some expert advice on the subject to hopefully answer your questions and iron out any confusion you may be experiencing.

What qualifies as a mobile business?

A mobile business is exactly what it says on the tin – a service, offering or profession that is mobile, as opposed to being rooted in one permanent location such as a shop or office.

Some common examples of mobile businesses include:

• Hairdresser
• Nail technician
• Make-up artist
• Gardener
• Dog walking and/or training
• Plumber
• Electrician
• Food truck
• Pet grooming
• Personal trainer or sports coach
• Educational tutor
• Bicycle repair
• Car valet
• Event or wedding planner
• Photographer
• Influencer

These are all businesses that don’t require bricks-and-mortar or a fixed location in order to function or provide for their customers. The benefits of operating in this way are manifold, including being able to expand your reach and limit the cost of overheads that non-mobile businesses are subject to.

As a mobile business owner, the nature of the job means you’ll likely spend a great deal of time travelling from A to B. That’s why it’s so important for mobile entrepreneurs to understand what they can claim back as travel expenses.

What kind of costs are covered under travel expenses?

Travel expenses are allowable for any journeys you make for business reasons, outside of travelling to your normal workplace. For example, if you have an office, you can’t claim for the cost of travelling there from home, because it’s your normal place of work.

But, if you need to make a different journey, such as buying train tickets to a client meeting or staying overnight in a hotel for a conference, these are allowable.

Other typical examples of travel expenses include:

• Flights
• Transport such as taxis and trains
• Car rental
• Lodging
• Food
• Fuel
• Parking

Are mobile business owners allowed to claim travel expenses?

As somebody who works for a business, you cannot claim travel expenses for travelling from your home to your place of work. So, for example, if you work in a shop or in an office and you’re based there every day, you can’t claim for your commute.

For mobile business owners, however, things are a little different because you are allowed to make reasonable travel expense claims for journeys to and from a temporary place of work.

A hairdresser or plumber, for example, who has to travel from their home (or elsewhere) to a client’s premises in order to deliver their service, is allowed to claim the cost of this work-related travel.

This includes things like:

• Train, bus and underground tickets
• Car mileage
• Road tolls
• Taxi fares
• Parking costs
• Ultra Low Emission Zone (ULEZ) fees (London only)

The 24-month rule for claiming expenses

If you’re working on an extended contract then you might need to travel to and from a premises for a longer period of time. The trouble is, do this for too long, and it starts to look like it’s regular place of work, and you’re just sneaking in expense claims for it. To clear things up, HMRC introduced the 24-month rule.

The 24-month rule dictates that if a contractor works at a temporary place for a rolling period of 24 months or more, they aren’t able to claim travel expenses.

These time periods are based on contract expectation, rather than on how long the contract ends up being. Below are a couple of examples to demonstrate what we mean by this.

First Scenario:

You agree to a 12-month project for a client, which involves travelling to their site every day. Because the expected length of the contract is less than 24 months, you can claim travel expenses.

The project is extended for another 6 months, which brings the contract to 18 months in total. You can still claim, because you are within the 24-month period.

Second Scenario:

You agree to a two- and half-year contract, which involves travelling to the client’s site each day. The contract is expected to be longer than 24 months, so you cannot claim travel expenses, even if the contract ends up taking less time.

Third Scenario:

You agree to an 18-month project for a client, which involves travelling to their site every day. Because the expected length of the contract is less than 24 months, you can claim travel expenses.

The project is extended for another 12 months, which makes the contract longer than the 24-month period. You cannot claim travel expenses for the extended period.

The 40% rule for travel expenses

It’s also crucial to be aware of the 40% rule because it overrides the 24-month rule in scenarios where you don’t work more than 40% of their time in one place.

A workplace is classed as temporary when a contractor spends less than 40% of their time there. Again, this is a rolling, cumulative amount, just like in the 24-month rule regulations.

It’s worth noting here that HMRC defines a ‘place’ of work not as the final destination (client premises) but rather as the journey you take to get there.

An example:

If an electrician has three different clients all based in Manchester city centre and goes to each of their premises on a different day of the week, HMRC classifies this as one ‘place’, as the journey to reach each one is substantially similar.

So, where the 40% rule is concerned in this example, the contractor would need to consider how much time they’re spending in Manchester city centre – not how much time they’re spending at each individual client premises in this vicinity.

These are all vital factors that come into play when calculating what travel expenses a mobile business can claim for.

Looking for more advice on all things finance and accounting? Head over to our Freelancer Accounting section where we’ve got a whole hub of handy guides ready to help you out.

The post Can I Claim Travel Expenses If I Have a Mobile Business? appeared first on Freelancer News.

The world of work is so diverse that it’s even more important to make sure you get tax right for your particular solution. In this post, we are tackling the (sometimes thorny) subject of self-employment and what it means if you are also employed. We’ll cover:

• Tax and employment law are different things
• What are HMRC worried about?
• What is self-employment?
• Can you be self-employed and work for only one company?
• A word about directors
• Can you be both employed and self-employed by the same client?

Tax and employment law are different things

This is an important distinction, but one that is often not made clear. Surprisingly a person can be classed as employed (or a “worker”) for employment purposes but still be self-employed for taxation, such as in the famous case of Pimlico Plumbers. So, it is important to state that we are talking here about tax law here.

We could write a book about the differences and indeed, the area is so complex that there have been numerous cases which have, rather confusingly, found for both sides of the debate over the years.

The overall message has to be that you need to be really careful, and not take a view based on one case. Look at all of the circumstances of your situation even-handedly and of course, if you are unsure, take advice!

Why is my employment status so important?

Employers pay National Insurance Contributions (NICs) and pension contributions on the wages and salaries that they pay to their employees. The employees also pay tax and NI on what they earn.

If they use the services of a self-employed person, the business is able to avoid making these employer’s contributions by contracting with someone, rather than employing them.

Consequently, many employers took advantage of this distinction over the years. It’s why HRMC is wise to the idea, and introduced rules about disguised employment in order to tackle potential tax avoidance.

Essentially this follows the duck rule; if it walks like a duck and quacks like a duck, then it is probably a duck. If someone looks and acts like they are employed, then their employer should be paying national insurance!

What is self-employment?

Self-employment is where someone is working on their own behalf. They could have hundreds of customers or only a few but they will be working in their own business.

Typical features of self-employment from a tax point of view include:

• The person has control of how they do their work
• They insure themselves
• They advertise or seek work rather than being presented with it
• They provide their own equipment
• They have to put things right at their own expense if they go wrong
• They have no obligation to accept work
• Their client has no obligation to offer them work

A self-employed person who works as a sole trader will submit a Self Assessment tax return each year and pay their own tax and NIC, rather than having an employer deduct them from their wages. They’re also responsible for their own pension and sick pay.

Can you be self-employed but only work for a single client?

Yes, you can, but you do need to be careful that what you’re doing isn’t actually ‘disguised employment’.

HMRC accepts that people might well be self-employed but work for one company at a time. For instance, if the person had just started out in self-employment and was actively seeking more clients, without the knowledge of their employer.

It is also possible that people may work for only one client at a time, and then move on to another job. For example, someone doing a specific role in a project, a camera operator working on a film, or a social worker doing an assessment.

The question is whether, over a reasonable period of time, they either have more than one client or they are looking to get more. So, although a camera operator may work solely on one film at a time, if you look at what they do over the course of a year or two, they may work on several.

What does this mean for company directors?

Directors fall into a category all of their own called officeholders. It’s often the case that directors think they should be paid as self-employed people, especially where they hold more than one directorship (a portfolio director) or where they are acting in a non-executive capacity.

However, HMRC mandates very clearly that all officeholders should be paid through PAYE and aren’t actually self-employed. In this respect, directors are basically an employee of the company, even if they own the company.

Can you be both employed and self-employed by the same client?

It is possible to both be employed and self-employed by the same company, but you have to be very careful. If you look like you are employed, then you probably are!

As an example, imagine a person who works as a graphic designer part-time. The company asks them to do more work on their non-working days, and to bill them as a self-employed person.

It’s difficult to see how this couldn’t be disguised employment. They’re doing exactly the same work, for the same client, at their instruction and using their equipment. In this case HMRC would say that they should be paid through PAYE.

So how could you both work and not work for a company?

Now let’s imagine someone who works as a delivery driver for a business and also has her own DJ business at nights and weekends. She’s very popular and often works 3 or four nights a week in local clubs and at weddings, meaning she has a wide range of different clients, and she also advertises for work.

The company pay her to DJ at the annual Christmas party using her own equipment. In this case, we can see that she meets the tests of self-employment and the work she is doing is highly unlikely to be covered in her employment contract. In other words, it is outside the scope of the PAYE employment.

She’d have an arguable case that the two were completely different and could be paid as a self-employed person.

In truth, the majority of cases won’t be so clear cut as these, so you need to be careful. If you are unsure, then it is always sensible to put it through PAYE.

Summary: self-employment Vs PAYE – a case of blurred lines

The main problem when we are talking about self-employment is that many of the rules aren’t totally clear, and it’s a difficult task to make a single rule to fit every situation. Add into the mix where people are employed at the same time, then you have a recipe for disaster.

Frankly, in the majority of cases, you’ll know whether you should be paid PAYE or self-employed. Remember that HMRC see cases like this every day, so we can promise that anything you think of, HMRC has already seen!

Deliberate deception allows HMRC to double the penalties it levies as well as charging you for the tax and NICs not paid, as well as interest on top, so it really isn’t worth it.

Where your case is not clear cut then you do need to take advice and make sure you are playing fair. Even if you get it wrong, HMRC will often take the view that if you took advice, you did everything you reasonably could and so are less likely to hand out penalties.

Find more freelance support and guidance in our info hub!

The post Can I Be Both Employed and Self-Employed for the Same Client? appeared first on Freelancer News.

However, if you are going to go down the route of secondary self-employment, alongside your regular ‘day job’, there are some things you need to consider. For example, if you earn more than £1,000 from self-employment activities in a tax year, you’ll need to let HMRC know by registering for Self Assessment. And then, of course, submitting tax returns so that you pay the right amount of tax on your earnings.

Informing HMRC is one thing, but what many side-hustlers are concerned about is their employer finding out about their extracurricular activity.

Can you register for self-employment if you’re already employed?

Absolutely! Even if you’re on the payroll for a full-time or part-time job, you’re still allowed to work for yourself outside of those hours. For example, somebody who works in marketing might do some freelance copywriting or social media management on the side. This secondary source of income classes as self-employment and can run parallel alongside their regular employment.

The benefits of working for yourself as well as for an employer are many, but the most common include:

• Earning more money – perhaps the most appealing advantage and most common motivation.
• Being able to develop and explore the skillset you use in your regular role.
• A chance to dip your toe into the water of new or alternative skills that you aren’t able to fulfil through your employment.
• Expanding your network of contacts.
• Being able to turn a passion into income.
• You get to learn a great deal about business ownership and being on the other side of the books.

Will a full-time employer find out if you’re self-employed?

Unless you tell your employer directly, there is no reason why they should have to find out about your self-employed work. The only other way they might find out is if you tell a colleague or mutual connection about your side hustle and it gets back to your employer that way.

However, in terms of tax codes and self-employment registration – two things that many employed people are concerned will give them up – you’ve got nothing to worry about.

Your tax information is highly confidential so HMRC will never inform your employer if you register as self-employed. Nor would that be necessary as your PAYE income and self-employed earnings are entirely separate in the eyes of HMRC. The only reason that this might change is if you ask HMRC to collect your self-employed tax through your tax code.

What if I register a limited company?

The only other way this might become a potential issue, if you’re hellbent on hiding your side job from your employer, is if you register a Limited Company.

These details are shared publicly on Companies House so all your employer would need to do is a quick search to find information about your business. That said, it’s highly unlikely they would do this unprovoked, or without prior knowledge.

Is honesty the best policy in this situation?

Although it’s very unlikely that your employer would find out about your self-employed work without you telling them directly, is it worth being transparent with them about it?

Honesty is usually the best policy, but the decision is yours alone to make. Just consider:

• There might be something in your employment contract that forbids you from having any additional work, which means a side job would be in breach of that.
• Transparency lays the foundations for a healthy relationship with your employer – something that is going to be pivotal in your future success within your role there.
• If your employer is supportive of your self-employment, they might even be able to help you out with some contacts or advice.
• Again, if your employer is in support of your side hustle, making them aware might mean they can be more flexible around things like annual leave and working hours to accommodate your other commitments where possible.

Our top tips on balancing more than one job

If you are juggling both regular employment and self-employment, it can be tricky to strike a healthy balance between the two. The aim of the game is to find a balance that means you can maintain your own wellbeing whilst ensuring that you’re doing your best possible work for all involved.

Here is our advice on how to master the juggling act:

• Be realistic about what your clients can expect from you – and be honest with them about it!
• Identify your goals. Are you hoping to make some extra income, or to become fully self-employed, for instance? Keep these in mind – it will help you remember when it’s time to say no!
• Know when you’ve reached your capacity so that you don’t get burnt out.
• Make sure you’re registered as self-employed so that you can report your additional earnings to HMRC and pay the necessary deductions. Failing to do so could land you in some serious trouble.

Wondering where to begin? Read our guide to becoming a freelancer!

The post Will My Employer Know If I’m Self-Employed? appeared first on Freelancer News.