Thankfully, knowing where people tend to go wrong makes it easier for you to avoid the same pitfalls.

In this article, we’ll cover the most common mistakes, why each one matters, and what to do instead.

First, though, let’s quickly go over the basics.

What is IR35?

IR35 is a set of UK tax rules designed to determine an individual’s employment status for tax purposes.

It was introduced as part of an initiative to clamp down on ‘disguised employees’ slipping through the tax-paying net.

But what’s a disguised employee?

Simply put, one who supposedly works for a client through their own limited company, when in reality the relationship is closer to that between an employer and employee.

In other words, they’re functioning as a typical employee.

Having an IR35 status isn’t a fixed thing; it works on a case-by-case basis, meaning the rules apply to each individual project you take on as a freelancer. So, you can be both inside and outside of IR35 for different clients.

Why does it matter?

Essentially, if you’re within IR35 for a particular project, this has implications for how you pay tax.

You’ll be considered an employee for tax purposes, and your “client” (if they are a medium or large company) will typically deduct Income Tax and National Insurance contributions in the same way they would for an employee paid through their usual payroll.

It’s worth noting that even though you’re classed as an employee for tax purposes, you won’t get employee perks such as holiday leave, sick pay, etc. So, this is worth considering when you take on a project/client, because you’ll be losing the benefit of choosing how you pay yourself, along with no employee perks. If you work for a small business, it’s down to your own company to work out your status and pay any tax and NI due.

If you’re outside IR35, you aren’t considered an employee for tax. Your client will pay you in full, and you’ll report and pay tax on your earnings like any other limited company.

Key mistakes

Learning from where others have got it wrong can help ensure you get it right.

To start you off, let’s go through some of the biggest mistakes a freelancer can make.

Assuming IR35 doesn’t apply to you

IR35 is aimed at situations where an individual provides their services to a client through their own intermediary – most commonly a limited company or personal service company (PSC) – and would otherwise be considered an employee if they worked directly for the client.

In this sense, it’s the nature of the working relationship that determines someone’s IR35 status, not simply the label of ‘freelancer’ or ‘contractor.’

A basic rule of thumb is that if you’re being asked to work the same hours as a regular employee and lack control over when and where you work, you’re more than likely inside IR35.

While sole traders are not caught by IR35 itself, their employment status is still relevant.

For a sole trader, the question is whether they are genuinely self-employed for tax purposes.

Relying on the contract alone

To continue with the idea that it’s not just about the label, HMRC looks at how the contracted work is actually carried out in a practical way.

They consider the working relationship between a freelancer and a client, including factors such as who controls the work, whether the individual can send a substitute in their place, how they’re paid, and whether they’re operating an independent business.

Two of the big ones are whether you have a genuine right to send a substitute, and whether there’s mutuality of obligation, meaning any obligation to offer or accept work on either side, as there is between an employer and employee.

Accepting a status determination without question

Since 2021, it’s been for the client to decide whether a freelancer they’re working with falls within the remit of IR35 rules (so long as that client is a medium-to-large-sized private company).

Nevertheless, it’s important for freelancers to remember they have a right to contest a client’s verdict on whether they’re operating inside or outside IR35. Your client must give you a written status determination with reasons. If you disagree, they have 45 days to review it and respond.

If you undertake freelance work for a small private company, then the onus is on you to determine your own IR35 status, and you can do this using HMRC’s online CEST (Check Employment Status for Tax) tool.

Not adjusting fees when inside IR35

As we alluded to earlier, an IR35 status determination applies to a specific engagement, not to you as an individual.

This means that if you do find yourself inside IR35, you can actually just negotiate a higher fee or day rate to compensate for the deducted Income Tax and National Insurance contributions.

IR35 does not impose a cap on what a freelancer can charge; the commercial rate remains a matter for the contractor and client to agree.

Poor record keeping

Good record keeping is crucial for all sole traders and business owners, helping to keep you on track and organised for when it comes time to submit your tax returns.

It’s particularly important for IR35, though, as employment status depends on the facts of each separate project considered alone.

Accurate and up-to-date records provide evidence of how the arrangement actually worked, and so can support or oppose an IR35 determination.

In a nutshell, IR35 is determined by the reality of the working relationship between a freelancer and a client – not just what the contract says – and good records allow you to demonstrate that reality.

 
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 Key Mistakes Freelancers Make When It Comes to IR35 appeared first on Freelancer News.

Your destiny is also in your own hands as a freelancer, meaning you set your own payment terms, and find your own clients.

But how do you ensure you’re setting the right rate to cover your time, holidays, sick leave and your pension?

Thankfully, there are some useful tax calculators available online which help to remove some of the guesswork – so that you can get back to doing what you do best.

Limited company or sole trader tax calculator

The way you pay tax as a freelancer depends on how you choose to set up in the first place. For most freelancers, this usually means operating as either a sole trader or a limited company, with each having different rules for reporting and paying tax (as well as different tax rates).

In order to ensure you’re operating in the most tax-efficient way possible, you can use a tax calculator to estimate how much tax you’d pay on your profits as a sole trader versus as a limited company.

The calculator will provide an overview of which structure is likely to be more tax-efficient for you, based on your own unique circumstances.

Just remember that the amount of tax you’ll pay isn’t the only reason why you might choose one structure over another!

Freelance rate calculator

Seeing as you don’t earn a typical salary, setting the right rates can be critical to your success as a freelancer, but it’s easy to get them wrong.

If you charge too much, you may struggle to attract clients, let alone retain their business. Conversely, if you charge too little, you risk overworking yourself in pursuit of diminishing returns. You might even put people off if you seem too cheap!

Your rates should be based on a variety of factors, including your income goals, your expenses, and the number of hours you work.

A freelance rate calculator (hourly or daily) can assist you in setting sustainable rates whilst also covering all expenses and taxes, and this should help to ensure a profitable business model.

It also enables you to factor in all costs and time spent on non-billable tasks, increasing your overall accuracy.

VAT calculator

If your business is VAT-registered, you must regularly report your taxes to HMRC. Depending on your numbers, you will either owe money or be eligible for a refund.

• You owe HMRC: If you collected more VAT on your sales than you paid out on business expenses in the same time period
• HMRC owes you: If you paid more VAT on purchases than you charged to your customers

A VAT liability calculator estimates your upcoming bill by automatically finding the exact difference between your sales tax and purchase tax. Keeping good records will help you report everything correctly in your VAT return, but a simple online calculation will at least help you prepare!

You can also use it to compare your VAT bill using the standard scheme versus the VAT Flat Rate Scheme, helping you understand which might be more efficient for you in the long run.

Mileage calculator

Mileage claims are worked out by multiplying the rate per mile for the vehicle you used by the number of business miles you travelled in it, and a mileage calculator can simplify this for you.

The rate you can claim per mile depends on what type of vehicle you used for your journey. For example, using your car or a goods vehicle for a business trip in the 2026/27 tax year means you can claim 55p per mile for the first 10,000 miles in a tax year.

Our tip

Some bookkeeping software (such as Pandle) includes a mileage tracking tool which will you can use to track a journey, and then automatically convert it into a mileage claim in your bookkeeping.

Crypto calculator

In today’s digital world, crypto is all the rage. When it comes to paying tax, though, the way you earn your crypto profits makes a big difference.

Very generally speaking, you’ll need to pay Capital Gains Tax on the profits you earn from trading, and Income Tax on those from mining and staking.

A crypto calculator estimates how much crypto tax you owe, taking into account your total profits for the year, as well as any other income you might have.

Finding more help

If you still feel like you need help with any of this, an accountant can answer any questions you might have, check your compliance status, and make sure you’re operating in the most tax-efficient way 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 Tax Calculators Freelancers Should Know About appeared first on Freelancer News.

Some freelancers find they benefit from registering as a limited company instead, especially if they’re aiming to be as tax-efficient as possible. In this article we’ll share some common signs as to when this might be.

Tax for sole traders

As a sole trader, there’s no legal separation between you and your business, so you pay Income Tax on your profits (whether or not you actually use them personally).

There’s no extra step needed to access what you’ve earned because they’re yours to keep, but on the other hand you can’t just leave profits in the business to defer tax the way a limited company can.

Why would this be a problem?

Freelancing can be a tempestuous career, with fluctuating income playing havoc with your cash flow. One healthy year could tip your earnings over into the higher-rate 40% tax bracket, and then the next might be quieter (or you simply want to take it easy for a while) and put you back below the threshold.

If you can’t separate yourself from your earnings, then you’ll take the tax hit in year one, and then lose it again in year two. Which leads us to limited companies.

Tax for limited companies

In contrast, a limited company is considered a separate legal entity. The company will pay Corporation Tax on its profits, but any remaining cash stays in the business until you decide to pay yourself. You only face personal tax on this money when you choose to extract it.

If you know that you’ll earn lots one year, but not so much the next, then you might decide to split your income across two years – and keep both years under the higher rate tax threshold.

There are a number of ways you can pay yourself, with most company directors choosing to pay themselves a mix of a tax-efficient director’s salary, and then dividends.

Taking a salary from a limited company

Taking a salary means:

• Your company may need to pay Employer’s National Insurance on it (and if you’re a sole director with no other staff on the payroll, you won’t be able to claim the £10,500 Employment Allowance that larger companies use to offset this cost)
• You’ll personally pay Employee NI

So, to bypass this, most directors and shareholders choose to pay themselves a small salary right up to the most tax-efficient NI boundary and then take the remainder of their income as dividends.

Taking dividends

A dividend is a payment made to a shareholder from the company’s profits after tax. You’ll still need to pay tax on the dividend, but this starts at a much lower rate than basic Income Tax. And the other bonus is that they’re not subject to National Insurance!

When might it be more tax-efficient for a freelancer to register as a limited company?

Just because there are other factors at play doesn’t mean this isn’t a big one – or even the big one. This used to be a more clear-cut answer, but tax rates and thresholds for limited companies and dividend payments have changed quite a bit, so there isn’t really a threshold at which it becomes better to form a company.

It can vary depending on:

• How much profit your business makes
• Any other income you might have
• How much your income tends to fluctuate from one year to the next

The efficiency doesn’t come from lower tax rates, but from flexibility. By operating as a limited company, you can pay yourself a small salary and take the rest as dividends, which are not subject to National Insurance. It helps you manage your profits more efficiently – but this depends on your circumstances.

Get advice from an accountant if you need help!

What if I have more than one freelance business?

Another sign you should consider switching to a limited company is if you have multiple sources of income, as this can significantly increase the amount of tax you need to pay.

Although you report the figures from each source separately on your Self Assessment, the amount of tax and NI you owe as a sole trader is based on the total profits from all your sole trader businesses, which can push you into a painful 40% tax bracket.

Should freelancers incorporate for tax reasons alone?

While most freelancers who choose to incorporate a limited company do so in an effort to be more tax-efficient, there are other worthwhile reasons, too.

Potential benefits

For example, it can also be beneficial if your business is considered high-risk in terms of potential liability, such as:

• Dealing with the public
• Handling large transactions
• Paying high expenses up front, with an unpredictable gap for recouping this from sales (such as a builder buying materials so they can build a house and sell it on)

Because you’re legally separate to your business if you run a company, it means the company owns any debts or problems. It keeps your personal assets safe if there are any issues.

Still, there are potential drawbacks to be aware of.

Things to consider

You’ll need to keep detailed and accurate records regardless of your business structure, though being a sole trader typically means you have less admin than if you run a limited company.

Sole traders pay Income Tax and NI on their earnings either by submitting a Self Assessment tax return to HMRC, or through MTD Income Tax submissions if their income is over the MTD threshold.

In a limited company, on the other hand, there’s even more reporting required.

On top of reporting the personal income they take from the company, owners of limited companies are also required to submit a Company Tax Return, along with submitting accounts and confirmation statements to Companies House.

All in all, it’s up to you to weigh up the pros and cons and decide whether it’s worth it for your business to register as a limited company. It can be more tax-efficient past a certain point, but that doesn’t mean it’s absolutely necessary.

Do I need an accountant?

If you still have questions about this, an accountant will be able to simplify everything even further and evaluate your current situation to help you decide whether you might need to switch to a limited company.

 
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 When Does It Become More Tax-Efficient for Freelancers to Operate as a Limited Company? appeared first on Freelancer News.

A step in the right direction

The mileage allowance increasing from 45p to 55p is one of the most practical real-world changes for self-employed people. The rate has been frozen since 2011, and could mean significant savings when claiming back expenses.

The catch:

The rate change only applies to people who use their personal car or van for work. It means self-employed people from trades to driving instructors and dog walkers can claim up to £1,000 more in allowable mileage for the first 10,000 miles.

Perhaps not far enough:

The rate remains unchanged at 25p for any mileage above 10,000 miles. After a 15-year wait for policy change, this may leave some frustrated.

What the savings could mean

Lee Murphy, Managing Director at The Accountancy Partnership, explains why the uplift is really important for self-employed people and what mileage rate savings could mean:

“We’ve seen lots about what this change means for employees, but we really want to highlight what this means for people who are self-employed. The same benefits apply.

“Many self-employed people like tradespeople will rely on their personal vehicle to drive between jobs, be it a van or a car. They’ve likely been absorbing persistent cost of living increases associated with that vehicle, such as rising fuel and maintenance fees.

Potential cash flow relief

“The change in allowance marks a step in the right direction, something that can make a practical and meaningful difference to their taxable profits. As small as it sounds, that 10p extra can provide cash flow relief and increase financial security on something relied upon for work.

Backdated relief

“What’s really useful to see is that the new 55p rate can be backdated to April 2026. We advise our clients to keep accurate mileage records, so it’s great to know they’re able to receive the full benefit of the change this tax year, not next.

Tips for claiming self-employed mileage expenses

Helping to clear up any confusion around the latest mileage allowance update, Lee Murphy reveals his tips for how self-employed people hoping to understand and benefit from the government update:

Keep accurate mileage records

“HMRC may ask for evidence to support vehicle expense claims, such as mileage. Keep records accurate and well organised for at least six years after the end of the relevant tax year.”

Remember to back date

“Don’t forget the increase in mileage allowance is backdated to the beginning of the tax year (April 2026). Use your mileage records to claim the full benefit of the updated policy with the new rates.”

Ensure you’re using a personal vehicle

“The mileage allowance increase only applies to the use of personal vehicles for work. It may not apply in the same way if you are hiring a vehicle or if you own a vehicle through your limited company.”

Don’t include personal trips

“It’s important to make a clear distinction between a personal or business trip. Business miles must be exclusively made up of travel for business purposes. You can’t include commuting to work.”

Check you’re using the most efficient method to claim

“It’s up to you whether you work out your claim using the simplified flat-rate per mile method, or by calculating the actual costs such as fuel, maintenance, and insurance. If the actual costs are higher than what you’d get back claiming the rate per mile, use those instead.”

The post What The 55p Mileage Rule Means for Self-Employed Drivers appeared first on Freelancer News.

In this article, we’ll break down everything you need to know, and even explore ways you can legally reduce your tax bill. Let’s get into it.

What gets caught out by the 60% tax trap?

Most people in England, Wales, and Northern Ireland pay income tax using one or a combination of the the standard rates of 20%, 40%, or 45%, depending on how much they earn:

• Personal Allowance: Earn up to £12,570 and pay 0%
• Basic rate: Earnings between £12,571 to £50,270 are taxed at 20%
• Higher rate: £50,271 to £125,140 is taxed at 40%
• Additional rate: Anything you earn over £125,140 is taxed at 45%

So where does the 60% rate come into it? This tax trap kicks in for some higher rate taxpayers – specifically, anyone earning between £100,000 and £125,140. If your income falls in this bracket, you may be hit by a 60% tax bill (also known as the 60% tax trap, or the 100k tax trap).

How does it work?

The so-called tax trap happens because your tax-free Personal Allowance (which is £12,570 for the 2026/27 tax year) begins tapering off once your earnings tip over the £100,000 mark.

It reduces by £1 for every £2 you earn over £100,000, so if you earn £125,140 or more then your allowance disappears entirely.

What this ultimately means is that, for every additional £100 you earn between £100,000 and £125,140, you keep only £40 after income tax: £40 is charged at the higher rate, and then a further £20 is effectively lost because of the reduction in your Personal Allowance.

Does it affect freelancers?

The effective rate of 60% tax will affect anyone, including freelancers, whose earnings take them over £100,000. We have a separate guide which explains how freelancers pay tax in more detail!

Does it affect Scottish freelancers too?

Yes, and for Scottish taxpayers it can actually be worse. The UK-wide Personal Allowance of £12,570 is set by the UK government, so the tapering rules are exactly the same north of the border: you still lose £1 of your allowance for every £2 you earn over £100,000.

But here’s where you could end up paying more. Scotland sets its own devolved income tax bands, and earners over £100,000 fall into the Advanced Rate band, which taxes income between £75,001 and £125,140 at 45% (compared to 40% in England, Wales, and Northern Ireland).

This means that for every £100 you earn over £100,000, £45 is taxed straight away. Then, because you’re also losing 50p of your tax-free allowance for every £1 earned in this range, an extra £50 becomes newly taxable at 45%, adding another £22.50 to the bill.

Add these together, and you’re left with just £32.50 from every £100 you earn – a marginal tax rate of 67.5%, rather than the 60% faced elsewhere in the UK.

Can I avoid the 60% trap?

There are several perfectly acceptable ways to legally reduce the amount of tax you have to pay, therefore avoiding the trap, such as by increasing pension payments or exploring salary sacrifice schemes. We go into more detail below.

Pension payments

One of the best methods is to start paying into a pension or, if you’re already contributing, increase your payments.

By doing this, you’ll lower your adjusted net income, which means you can then reduce the amount of Personal Allowance you lose. You might even get the whole thing back if your income drops below the £100,000 threshold.

Salary sacrifice

Salary sacrifice is another good option, allowing you to give up or “sacrifice” part of your gross salary in exchange for non-cash benefits. For example, things like additional annual leave, cycle-to-work schemes, or electric vehicles.

It should be noted that pension contributions under salary sacrifice will be capped at £2,000 each year from 2029, so this may not be a long-term solution.

Gift Aid

Donating through Gift Aid means charities and community amateur sports clubs can claim an extra 25p for every £1 you give (but it won’t cost you any extra). As such, you can make charitable donations through Gift Aid to lower your taxable income.

This works by expanding your Basic Rate tax band, which helps to reduce the amount of income subject to higher-rate tax at 40%. For example, if you were to donate £1,000, that would equate to £1,250 of additional Basic Rate income.

Limited company

You could also consider setting up a limited company for your freelancing work.

As a director of a limited company, you’re legally separate from the business, and so you’re technically an employee (even if you’re also the owner!). This means, as both an employee and an employer, you get to decide the most tax-efficient way to pay yourself.

Most company directors opt to do this by taking a low salary (sometimes below minimum wage, which is allowed for directors) and paying themselves the rest through dividends – which aren’t subject to National Insurance.

Do I need an accountant?

While not strictly necessary, speaking to an accountant about your tax bill can be very reassuring! They will be able to simplify everything so you understand the impact of different options, and ensure you’re operating in the most tax-efficient way whilst staying strictly compliant.

 
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 What is the 60% Tax Trap and Does It Affect Freelancers? appeared first on Freelancer News.

It’s rolling out in phases, beginning in April 2026, but whether or not you need to start complying with the MTD rules depends on your qualifying income.

In this article, we’ll go through the key changes and also explain how you can best prepare yourself for the switch to MTD.

What is MTD IT?

Making Tax Digital for Income Tax (MTD IT) is HMRC’s plan to replace the Self Assessment with a new digital reporting system. It’s being rolled out gradually, starting with sole traders and landlords.

What will change?

In short, the arrival of MTD IT means instead of submitting a Self Assessment tax return, those that qualify will need to record their Income Tax records digitally and submit quarterly updates to HMRC via approved software.

You must also send a final submission (called a ‘Final Declaration’) once the tax year is complete; this will include all your income from the year, not just your ‘qualifying’ income.

What counts as qualifying income?

MTD IT applies to any sole trader and property (rental) income, and refers to your gross turnover (total money in before expenses), not your net take-home profit.

Your final submission may also include income from other sources (e.g. dividends, wages from traditional employment, or your share of a partnership’s profits). HMRC won’t count this towards your qualifying income for MTD reporting purposes, but you’ll need to include it on that final tax return so you can be taxed on everything correctly.

Does MTD affect freelancers?

As a freelancer, you earn self-employed income, so if you operate as a sole trader these changes will apply to you.

When exactly you need to start complying depends on your income level, with the new system rolling out gradually over time.

For example, if your qualifying income from freelancing and/or property is over:

• £50,000 in the 2024/25 tax year; from April 2026
• £30,000 in 2025/26; from April 2027
• £20,000 in 2026/27; from April 2028

If your turnover is more than £50,000, it could be worth considering operating through a limited company for tax-efficiency.

That would mean completing a Company Tax return and paying Corporation Tax instead – but ask an accountant first to weigh the pros and cons.

What happens if you don’t pay?

There are penalties for non-compliance, with HMRC using a points-based system based based on a percentage of your earnings for this and late payment penalties.

As MTD IT is still in the early stages, penalties are not currently being issued if you’re late submitting a quarterly update, but they will start being issued after the 2026/27 tax year.

After this, missing a deadline to submit a quarterly update will earn you a point, and you’ll receive a penalty of £200 if you receive four points.

Your MTD Income Tax Return is due annually, and missing the deadline earns you a point.

With this, though, a £200 penalty is applied if you receive just two points.

How do I comply with MTD?

The MTD IT rules talk about keeping ‘digital’ records, which means you’ll need to start recording your income and expenses using MTD-compliant software.

Once you have the software, you’ll:

• Create digital records for all your business transactions
• Send quarterly updates – due one calendar month and 7 days after the end of each quarter
• Submit a Final Declaration (which will include all of your other income too, not just your self-employment/property income – so it replaces the current Self Assessment)

Is anyone exempt?

You can apply for an exemption against using MTD IT if it’s simply not practical for you to keep and submit digital records – for example, due to age, disability, or religious beliefs.

You won’t need to comply at all if:

• Your qualifying income is below £20,000
• You’re a non-resident company, trust, or estate
• You don’t have a UK National Insurance number

Preparing yourself for MTD

So, you need to start complying.

Even if you don’t just yet, getting started with digital record keeping now will make your life a whole lot easier down the line – and if MTD IT is on the horizon for you, there’s no harm in getting ahead of it.

Thankfully, there are a number of steps you can take to help get yourself ready.

Get software

The first thing you’ll want to do is look for online accounting software that’s fully compliant with Making Tax Digital.

Ideally it will meet the requirement for digital bookkeeping and be able submit your quarterly updates and final declaration directly to HMRC. Not all software will do both, so you might need additional bridging software to connect your digital records to HMRC unless the connection is already available!

Do some research and try to find bookkeeping software that’s right for you, based on your own needs and preferences.

Remember: the simpler the better.

Align your reporting periods

Your quarterly updates will align with the standard tax year quarters. Fortunately, under recent tax rule changes, your accounting software will automatically handle this timing for you, so you do not need to worry about changing your business year-end dates.

Plan ahead

Now, if you are someone who doesn’t yet need to follow the MTD rules, you can actually choose to opt in early – and if you’re going to start digitising your records anyway, then this makes a lot of sense.

If you do sign up early, you must obviously make sure you’re following the rules and meeting the various deadlines throughout the year.

It might not be mandatory for you yet, but getting everything in place early is the smart way to go.

You could also speak to an accountant, who will simplify the whole process and ensure you’re operating in the most tax-efficient way possible.

They may even be able to recommend MTD-compliant bookkeeping software.

 
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 When Will MTD Affect Freelancers? appeared first on Freelancer News.

In this article we’ll go over what you can claim for, and how to work out your mileage expenses.

How much is the mileage allowance for freelancers?

Freelance sole traders can claim a mileage allowance based on what type of vehicle they use for the journey.

The flat rate for mileage is set by the government:

• Cars and vans in the 2025/26 tax year: 45p for the first 10,000 miles and then 25p for any miles beyond that
• Cars and vans in the 2026/27 tax year: 55p for the first 10,000 miles and then 25p for any miles beyond that
• Electric cars and vans: 45p for any number of miles
• Motorcycles: 24p for any number of miles
• Bikes: 20p for any number of miles

It’s also worth noting that if you employ anybody under your own company and you’re travelling with them, you can add on an additional 5p per mile, per passenger.

This method of claiming the mileage allowance is also known as the flat rate or simplified expenses method, because it’s designed to make it easier for freelancers to work out their claim – but you can’t use simplified expenses if:

• You’re a company director travelling on company business (instead, your company will reimburse you for the expense using the mileage rates, and then claim the cost of repaying you on its Company Tax Return)
• You’re using a vehicle designed for commercial use, like a taxi or a dual control driving instructor car.
• You’ve already claimed capital allowances for the vehicle or included it as an expense

So, what happens if you’re not eligible to claim your mileage using simplified expenses, or your costs are higher than the flat rate would allow you to get back? There is another option available to you.

Claiming your actual vehicle expenses

The direct cost (also known as actual expenses) method allows you to claim the exact cost of using your own vehicle for business travel. It can be useful if you’re not able to use simplified expenses, or if the flat rate amount isn’t enough to cover the cost of your trip.

This method requires you to be far more specific because you will need to calculate, as a percentage, how much of your motoring costs were directly related to business purposes.

Once you know this percentage, you can then claim that portion of all motoring and vehicle costs incurred, which can help save you more money than if you were to just apply flat mileage rates.

Actual expensing also calls for more meticulous bookkeeping and accounting because you will need to keep a record of things like fuel receipts, vehicle repairs, servicing, breakdown cover, parking, etc.

What trips can I claim travel expenses for?

You can claim the mileage allowance (or your actual costs) for journeys where you’re:

• Travelling from one work location to another (e.g. office to office, project site to project site, etc.)
• Travelling from a temporary business-related location such as a client’s premises or an event venue. This has to be somewhere you spend less than 40% of your time or somewhere you don’t expect to visit for more than 24 months to qualify as ‘temporary’.

The main thing to remember is that you can only claim allowances for trips or vehicle usage that is 100%, exclusively for business-related purposes. Anything personal-related will need to be discounted from your allowable expenses.

There are some scenarios in which mileage allowance won’t be applicable, and you won’t be able to claim any compensation for this type of journey, whether that’s the full journey or part of a longer journey. We’ll give you a few examples below.

Example scenario 1

You are asked to travel 30 miles to attend a meeting at a client’s office. In this case, you can claim mileage allowance on the whole journey (all 30 miles) because it was exclusively for business purposes.

Example scenario 2

You are asked to travel 30 miles to attend a meeting at a client’s office. However, on the way, you decide to take a 5-mile detour to run some personal errands while you’re on the road.

In this case, you can claim for the 30 miles required for business-related travel but the 5 miles at the start of the journey will need to be discounted.

You travelled 35 miles, but only 30 were for business, so the mileage allowance will only apply to this portion of the trip.

Example scenario 3

You decide to drive to The Lake District to spend a bank holiday weekend exploring. You cannot claim any mileage allowance for this trip because no portion of the journey is business-related. These are all personal miles.

How to record and claim mileage allowance

You should record the start and end point of every journey, the date on which it took place, and what method of travel you used. It’s up to you how you keep these records, as long as they’re complete, accurate, and clear!

There are different types of mileage tracking software and apps which might help, and some bookkeeping apps even include mileage tracking features – such as Pandle.

You can then claim your mileage expenses through your Self Assessment tax return, along with any other costs, by deducting your claim from the total income you make, so you only pay tax on the profits left over.

Even if you only travel occasionally for business purposes, it’s still worth calculating, recording and claiming mileage allowance because every little helps towards keeping your tax bill down.

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

The post Can Freelancers Claim Mileage? appeared first on Freelancer News.

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.

One of the main advantages of being a freelancer is that you answer to no one, but this also means you’re solely responsible for ensuring the smooth running of your business. No pressure!

Bookkeeping, the process of recording all the transactions in your business, is one area where it can be particularly difficult to keep track of everything all on your own, which is why good software can prove invaluable, simplifying your financial management and saving you precious time in the process.

There are lots of great options out there, though. So how does one know which to pick?

Well, hopefully we can help with that, as we’ve compiled a list of the three best bookkeeping software applications for freelancers based in the UK. We’ll go through the pros and cons of each, and see which one comes out on top.

Xero

This is one of the most popular and well-established options in the UK, among businesses and self-employed individuals alike. Some of the key features include:

• Real-time bank feed integration
• Customisable invoicing
• Detailed financial reports (profit and loss, etc.)
• Making Tax Digital (MTD) compliant

Pros

A big factor in Xero’s popularity is its commitment to integrating third-party apps (PayPal and HubSpot, for example). This allows the software to feel somewhat familiar, even if someone’s never used it before.

On top of this, Xero’s overall design is incredibly intuitive, and this further reassures new users, who actually get the sense they know what they’re doing.

Xero is also just a good all-round option, being suitable for businesses of every size, and in every kind of industry.

Cons

In spite of the intuitive design, there are some more advanced features which new users might struggle to make proper use of right away.

And then there’s the price. The premium plans offered by Xero are a little more costly than many of those offered by its competitors, and so this is something to take into consideration.

What’s the difference between the standard and premium plans? For starters, the standard plan puts a limit on the number of invoices you can send, as well as the number of bills you can enter.

You also miss out on several key features, such as the ability to track projects and use multiple currencies.

Essentially, the more expensive the plan, the more features you have access to and the less restrictions are placed on you.

FreeAgent

This is another leading bookkeeping software specifically designed for businesses, freelancers, and contractors based in the UK. Its key features include:

• Self-Assessment and tax calculation
• Project management (track time and expenses, etc.)
• Real-time bank feeds
• MTD compliant

Pros

The main advantage of using FreeAgent as a freelancer is that it boasts features which are specially tailored for people like yourself. A prime example of this is the project management tool, which is ideal for those who bill by the hour (like most freelancers!).

Pricing is also inclusive, meaning you are able to have unlimited users, clients, and projects. It’s a fixed price at £14.50/month for the first six months, and £29/month thereafter.

Cons

FreeAgent is obviously less equipped to handle larger or more complex businesses, but this shouldn’t really be a concern if you’re self-employed.

There are also limited integration options in comparison to software like Xero.

Pandle

Last but not least, there’s Pandle, which offers free bookkeeping software for freelancers and business owners. What are some of the key features?

• Send quotes and invoices
• Automated payment reminders
• Bank reconciliation
• Accept invoice payments online
• Mobile app
• Business reports
• Multiple currencies
• MTD compliant

Pros

First of all, ease of use is a priority, with Pandle having been built to be used by pretty much anyone. It even has safeguards in place to help users minimise the risk of making mistakes in their bookkeeping – so even if you think you’re rubbish when it comes to tech stuff, you can rest assured you’ll be fine.

If you do find you need assistance, though, you’ll have access to a support team of specialist bookkeepers.

Another big thing is that it saves you time by automating a lot of the more boring and usually lengthy processes.

In addition, Pandle includes features to assist you in working with customers and suppliers more efficiently, and these are all on top of the standard banking, accounting, invoicing, and reporting tools.

What about pricing? Well, as previously mentioned, the base version is totally free, but even the paid tier (Pandle Pro) is still reasonably priced at £5 + VAT per month. This makes Pandle a more viable option for freelancers than a lot of the other ones on the market.

What’s our verdict?

Xero is an excellent one-size-fits-all option, with its real-time financial insights making it a top choice for businesses looking to streamline their bookkeeping.

FreeAgent, on the other hand, is a great choice for freelancers specifically, offering a straightforward tool that simplifies self-employment tax, as well as project tracking.

All in all, though, it must be said that Pandle offers the most comprehensive package at the best price point. It’s not just an affordable alternative; it’s a top-quality service, and the perfect choice for any freelancer who wants to finally take control of their accounts (but without breaking the bank).

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 Best Accounting Software for Freelancers appeared first on Freelancer News.