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.

Does it matter that you used to work for them? Would you fall inside IR35 if you were to say yes?

You probably have a lot of questions (including, “What’s IR35?”), but that’s ok because we have a lot of answers.

What is IR35 for freelancers?

In a nutshell, the IR35 rules were brought in to make it more difficult for employees to avoid tax by working for former employers through their own limited companies. They’re part of a wider initiative to try and tackle the issue of tax avoidance.

Now, you might be wondering what exactly constitutes a disguised employee. This is basically a person who works for someone on a self-employed basis, when in reality they’re functioning as a typical employee. Employers will often benefit from this kind of arrangement in that they wouldn’t have to pay National Insurance or other contributions, while the disguised employee wouldn’t have to pay as much tax.

The primary motive of IR35 is to determine a person’s employment status for tax purposes, and this ensures that everyone is paying the correct amount of tax and contributions.

One important point to note is that being IR35 compliant isn’t a fixed thing you achieve once and that’s it. In other words, the rules apply to each individual project you take on as a freelancer, and so it’s a constant battle to stay compliant. IR35 is also relevant to all industries and sectors, not just the creative ones (a common misconception).

If I work for an ex-employer, will I instantly be inside IR35?

Not necessarily. It all depends on your own unique situation. For example, are you in a position to set your own fee and choose when and where you work? If the answer is yes, then you’re more than likely fine.

If not, and the way you work is more like an employee in everything except for name, you could be heading into dangerous waters. Failing to comply with IR35 can result in financial penalties.

A basic rule of thumb is that if you’re being asked to do a 9-5 working exactly like you used to, you’re probably inside IR35. As a freelancer, you shouldn’t be treated like a regular employee.

Signs you’re inside IR35

There are additional signs to look out for:

• Your role is indispensable, meaning you can’t easily be replaced by another freelancer
• There’s a Mutuality of Obligation (any kind of obligation to give or accept work on either side, like there is between an employer and employee)
• Your work isn’t contracted by the client company directly
• You don’t invoice your client directly, and use an intermediary
• You’re not responsible for your own Public Liability insurance or Professional Indemnity insurance (where applicable)

Who decides if a freelancer is inside IR35?

Since April 2021, it has been for the client to decide whether a freelancer they’re working with is inside IR35 or not, so long as that client is a medium-to-large-sized private company.

In this context the company is one which has more than 50 members of staff, or has annual sales in excess of £10.2 million.

An important reminder here for freelancers is that you can contest a client’s verdict on whether you’re operating inside or outside IR35.

If you undertake freelance work for a small private company, then the onus is on you to determine your own IR35 status. Use HMRC’s online CEST (Check Employment Status for Tax) tool and keep a record of the determination, and the information you use to get that result.

Can I take on my ex-employer’s clients?

This is something else you might be wondering about if you’re now out on your own as a freelancer. As an employee, you had access to important information regarding clients – phone numbers, email addresses, etc. – but are you now allowed to make use of that information, even though you don’t work for the company anymore? Would this be ethical? Or even legal?

‘Solicitation’ in the context of employment law occurs when an ex-employee intentionally “persuades” previous clients, suppliers, vendors, other employees, or other affiliates of their former employer to work with them and/or their new employer instead.

Whether an employee is soliciting or not is a fact-specific thing, and whether it is legal or not depends on the unique circumstances.

For example, if there’s some kind of enforceable ‘non-solicitation’ agreement or written contractual term prohibiting the employee from soliciting from their employer – even after the end of their employment contract – then the employer can choose to sue the employee to hold them accountable.

In general, then, you want to try and exercise discernment when undertaking freelance work for a former employer. IR35 status is quite a nebulous concept which can be difficult to fully comprehend – even for HMRC!

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 I Freelance for an Old Employer? appeared first on Freelancer News.

We explore what OnlyFans is, why it qualifies as a legal job, and what your tax liabilities are whether it’s your full-time job or a self-employed side hustle.

What is OnlyFans?

OnlyFans is an app created in 2016 which has since grown into a large online community of content creators and subscribers, with more than 120 million registered users worldwide. OnlyFans creators share their content with subscribing members for a monthly subscription fee.

Content covers a range of topics such as fitness and music, although the platform is probably best known to cater for adult tastes.

Whilst most platforms have strict rules which censor or disallow content of a sexual or pornographic nature, OnlyFans doesn’t, enabling creators to share or sell this type of material more freely.

Does OnlyFans qualify as a legal job?

Yes, OnlyFans is classed as a legal job and does qualify as a valid way to generate income. There are many individuals who have turned to OnlyFans as their primary source of income, while others use it as a side hustle to earn extra money.

Like most online creator sites, running an OnlyFans account can involve:

• Dedicating substantial time and effort to creating content – such as producing, shooting, and editing, which are all skill sets in their own right
• Engaging and interacting with subscribers
• Developing a marketing strategy, such as creating and managing content on additional platforms like Twitter, TikTok, or Instagram
• General account management and maintenance

Creators who use the platform are generating income just like any other business or online content creator, and so the rules about recording and reporting income will still apply.

Do creators pay tax on OnlyFans earnings?

Yes, the money which OnlyFans creators can earn from paid subscriptions or selling content is taxable just like any other income can be, regardless of its source.

This is because any money generated through OnlyFans contributes to your total personal income during the tax year, and this is subject to Income Tax and National Insurance.

As a creator you’ll pay tax based on the total amount you earn in the year, with your self-employed income being added to any other earnings you might have.

This means that if you have a full-time job and run an OnlyFans in your spare time, the money you make from self-employment will be added to the money you’ve already paid tax on through your employer in order to work out which tax rate will apply to your OnlyFans earnings.

• Personal Allowance: You won’t pay any income tax on earnings between £0 – £12,570.
• Basic rate: 20% on income between £12,570 and £50,270
• Higher rate: 40% on earnings between £50,271 and £125,140
• Additional rate: 45% on earnings over £125,140

The good news is that OnlyFans still counts as ‘miscellaneous’ income, so the trading allowance will apply. If the total amount you receive from self-employment is less than £1,000 in a tax year, you won’t need to tell HMRC or pay tax on it. Once you cross the threshold, you’ll need to register as self-employed.

Can I claim any allowances or tax relief?

As with any other type of self-employment earnings, you can claim tax relief for allowable expenses that are directly related to the running of the business. This might include a portion of your utility bills and internet usage if you’re working from home.

Can I have an OnlyFans side hustle if I am employed?

Technically, yes – somebody who is employed could also be self-employed and run an OnlyFans account as a side hustle. However, there are some important things to consider and establish first.

It’s often worth looking at your employment contract to check if there are any guidelines around what you can and cannot do in terms of additional employment or secondary earnings.

Broaching the topic of OnlyFans with your employer might not be something you’re willing to consider, but you may be able to take advice elsewhere if you’re unsure.

Even if secondary earning is permitted within your contract, the nature of your OnlyFans account might cause a separate issue. For instance, someone who works with children or vulnerable people may be required to disclose this.

Some employment contracts now include a reference to online behaviour or expectations around employee conduct, so take some time to consider what this might mean for you.

 
Looking for more advice on all things finance and accounting? Head to our information hub where we’ve got a whole host of handy guides and resources for you to explore.

The post Do OnlyFans Creators Need to Pay Tax? appeared first on Freelancer News.

The standard VAT rate is 20% and this applies to most qualifying goods and services, although some things like sanitary products, financial services and children’s clothing have reduced (5%) or no (0%) VAT applied.

The end customer is the one that ultimately pays VAT but as you know, even as a business owner, sometimes you’re also the customer.

How does VAT work for freelancers?

Here are some key things to know about VAT as a freelancer:

• VAT works the same for freelancers as it does for any other type of contractor or business owner. Registration is only mandatory once your VAT taxable turnover reaches a certain threshold.
• You only need to charge VAT as a freelancer if you are VAT-registered
• Once you are registered for VAT, you will need to start adding VAT to your client’s invoices and submit VAT Returns to HMRC

Do all freelancers have to register for VAT?

No, not all freelancers will need to register for VAT. As with all types of business owners, you only need to register for VAT once your VAT taxable turnover (the total amount of sales you make of anything that isn’t exempt from VAT) exceeds the legal threshold.

The VAT threshold is currently set at £90,000. So, if your VAT taxable turnover is over this amount, you will need to register for VAT by law. The registration deadline is within 30 days from the end of the month in which you exceeded the threshold.

As long as your taxable turnover is under this threshold, you won’t need to worry about registering for VAT or charging your clients VAT. However, some people choose to register for VAT voluntarily.
 

Voluntary VAT registration

Unless you only sell goods or services that are VAT-exempt or zero-rated, you can voluntarily register for VAT, even if your taxable turnover is nowhere near the £90,000 threshold yet.

The benefits of registering for VAT voluntarily include:

• Making savings as you can reclaim VAT on business-related purchases. In some cases these can also be backdated for up to four years prior to your VAT registration date.
• Making your business appear more established and therefore more credible in your clients’ eyes.
• Making some types of EU invoicing easier.
• Eliminating the need for you to do it at a later date when your business will be bigger and you’ll be busier.
• Mitigating the risk of exceeding the legal VAT registration threshold without realising.

If you fail to register for VAT once it becomes mandatory, you risk being slapped with a financial penalty of between 5-15% of what you owe on top of the outstanding tax. If you think you’re going to pass this point within the next 30 days, it’s time to get VAT-registered, pronto!

Just be aware that:

• You’ll have more admin to do as you’ll need to account for VAT on your invoices and in your bookkeeping, and submit VAT Returns to HMRC.
• VAT registration can affect your pricing structure. Because it’s an added charge, you might decide to pass this on to your customers (so the amount they pay is higher), pay it yourself (which will eat into your profits), or a combination of both.

It’s important to note that if you aren’t registered for VAT, you aren’t allowed to charge or claim back any VAT.

Once you’re registered, whether it’s voluntarily or mandatory, you will need to start charging VAT on your goods and services.
 

The different VAT schemes

If and when you do register for VAT as a freelancer, you’ll need to understand the various schemes so you can choose how to charge, claim and report VAT in a way that suits you. These include:

• Standard VAT accounting scheme
• VAT Flat Rate Scheme
• VAT Cash Accounting Scheme
• VAT Annual Accounting Scheme
• VAT retail schemes
• VAT margin schemes

Let’s explore four of the most common schemes to help give you an idea of how each one works.
 

Standard VAT

The Standard VAT scheme is a great option if your cash flow is healthy and you have regular clients who are reliable payers.

Using this scheme, you charge VAT to your customers (output tax) and reclaim VAT on your purchases (input tax). You then pay HMRC the difference between these two amounts as part of your VAT Return, even if your customers haven’t paid you yet.
 

Flat Rate VAT

As the name suggests, this scheme is where you pay a flat rate of VAT to HMRC as a percentage of your turnover, as opposed to calculating the difference between output tax and input tax like you do with the Standard VAT scheme.

Once the flat rate is paid, you get to keep the difference between what you charge your clients in VAT and what you pay HMRC. For some business owners, this scheme is preferable because it’s quicker and easier than calculating specific amounts.

However, with the Flat Rate scheme, you aren’t allowed to reclaim VAT on your purchases. This scheme is good if you want something predictable and standardised or if you don’t typically pay much (or any) VAT on the things your business buys.
 

VAT Cash Accounting

Cash Accounting might make the most sense for you if your freelance clients aren’t regular or if your clients are notoriously bad at paying their invoices on time.

With this scheme, you account for the VAT on sales and purchases when the payment happens, rather than using the date of the invoice. This means you don’t need to pay the VAT you collect from a customer until they actually pay it, but likewise cannot claim the VAT you owe to a supplier until you pay them.
 

VAT Annual Accounting

VAT Annual Accounting is where you make advance payments towards your next VAT bill during the year, either on a monthly or quarterly basis, and then submit an annual return. You can request a refund from HMRC if the advance payments result in an overpayment.

The key thing to consider about the Annual Accounting VAT scheme is that you can only reclaim VAT on an annual basis. So, although it is one of the simpler methods, reclaiming on a yearly basis might not work for you (or your cash flow).
 

How do I add VAT to my freelance costs?

To charge your freelance clients VAT, you’ll need to figure out which VAT rates apply to your goods or services. Once you know this, you can then add this to your original costs on your invoices.

For example, if you charge a freelance client a £500 day rate and want to add VAT at the standard 20% rate, you’ll invoice them £600 in total. This is the £500 day rate plus 20% VAT (£100).

On your invoices, you should detail:

• The original cost (the price excluding VAT)
• The VAT rate (% amount) being applied
• The total (original cost plus VAT)
• Your VAT number

When discussing your prices with clients or displaying them on your website, make sure to communicate clearly that you charge VAT on top of your standard costs.

Remember to keep excellent records of all your financial transactions, and to record your VAT dealings in detail!
 
Looking for more expert business support? Head over to our info hub for more news and helpful resources.

The post Do Freelancers Need to Charge VAT? appeared first on Freelancer News.

If you’re in employment and on maternity leave, you will likely be receiving Statutory Maternity Pay (SMP) if you are a qualifying employee.

To qualify, you must:

• Have been working for your employer for at least 26 weeks by the 15th week prior to your baby’s due date
• Earn a minimum of £123 per week (pre-tax)
• Have given notice to your employer at least 28 days before stopping work
• Have provided proof of the pregnancy (typically this is a MATB1 form you can get from a doctor or midwife)

How much is Statutory Maternity Pay?

SMP is given at 90% of your average weekly earnings (pre-tax) for the first 6 weeks of maternity leave and £172.48 per week for the remaining 33 weeks (or still at 90% of your average weekly earnings if it’s less than £172.48).

For some new parents, freelancing while on maternity leave is a way to earn more money to top up SMP payments. Especially given that employees can take up to 52 weeks of maternity leave but SMP will only be paid for the first 39 weeks.

Self-employment allows for more financial freedom and flexibility if you do want to take the full maternity leave period of 52 weeks but can’t afford the additional 13 weeks with no SMP.
 

Can I freelance while on maternity if I’m employed?

If you’re on maternity leave from your job and considering freelancing at the same time, there are some important things to know.

• The first key thing to be aware of is compulsory maternity leave.

This legally prohibits anyone from doing any kind of work for two weeks after they give birth. You’ll probably want to spend those two weeks cuddling and adjusting anyway but this legal requirement is worth noting.

After that two-week compulsory maternity leave period, you can start freelancing if you like. You should consult your employment contract first to make sure your employer doesn’t prohibit freelancing while working for them (and then decide what you want to do with that knowledge).

Even when you’re on maternity leave, you’re still legally bound by all the rules and regulations in your employment contract, so you will need to continue complying with them.
 

Will freelancing affect maternity benefits?

If there’s no clause in your employment contract and you’re permitted to freelance while on maternity leave from your job, your Statutory Maternity Pay shouldn’t be affected.

In this case, self-employment won’t stand in the way of your SMP and you will still receive these payments along with any earnings you make through freelance work.

For the sake of clarity, it’s important to note that if you carry out any work for your employer while you’re on official maternity leave, this will stop your Statutory Maternity Pay. This includes working for your employer on a ‘freelance’ basis for the period of time you’re on maternity leave.

Some new parents think this is a crafty loophole to earn more without having to find or service new clients but this is extremely risky. If you were to be found out, you could lose your maternity benefits, have to pay extra tax to HMRC, and end up out of pocket.
 

Maternity Allowance and KIT days

Unlike employed people, self-employed freelancers are not entitled to the regular SMP but they can apply for a Maternity Allowance (MA) instead although you can’t have both at the same time.

Even if you start freelancing while on maternity leave, if you’re already getting Statutory Maternity Pay through your employer, you can’t also have the Maternity Allowance.

With the Maternity Allowance, it’s also important to be aware of ‘Keeping in Touch’ (KIT) days. These days allow you to work for a maximum period of 10 days within the time you’re receiving MA and no more. If you work beyond the 10-day threshold, you will lose your entitlement to MA.
 

Do I have to pay tax on my freelance earnings?

When you’re juggling a new baby and freelance work, you’re certainly going to have a lot on your plate. It’s essential that you still make time to track your income and register for Self Assessment once you go over the tax-free trading allowance.

The trading allowance is the amount of income you can make in a tax year from casual and/or miscellaneous means before starting to pay tax on those earnings. The current threshold is set at a maximum of £1,000 per tax year, and doesn’t apply to the wages you get from your employer.

So, if you make more than £1,000 through your freelance work in a tax year, you’ll need to submit a Self Assessment tax return and pay tax on the earnings over the trading allowance threshold.

You will still be taxed as normal for your employment earnings through your employer’s payroll system. Registering for Self Assessment just means you can pay tax on the extra you make through self-employment.

And no, your employer won’t know unless you tell them, or unless you ask HMRC to collect any tax you owe through your tax code.
 

Track earnings and expenses with good bookkeeping software

The best way to keep track of your freelance earnings and expenses is by using bookkeeping software. This means you can access your accounts from anywhere with an internet connection and track things like spending and invoices on the go.

If you do start earning more than the trading allowance, bookkeeping software makes it far simpler to figure out how much of your income will then be taxable.

If you hire an accountant to do your Self Assessment tax return for you, bookkeeping software also makes providing them with all the information they need much easier.

Plus, with good bookkeeping practices, an accountant will also be able to help you freelance as tax-efficiently as possible and claim as much tax relief as you can.
 
Find even more advice and guidance for freelancers in our info hub!

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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. Travel in your own car or van, for example, and you can claim 45p per mile for the first 10,000 miles of business-related travel you do during the tax year, and then 25p per mile for the rest of the tax year.

The flat rate for mileage is set by the government:

• Cars and vans: 45p 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 and QuickBooks.

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!

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This process deals with how you record and manage what money is coming into the business (income) and what is going out of it (expenditure). Keeping an eye on this flow of cash (literally known as your cash flow!) is what will help you stay financially healthy, and hopefully improve your chances of making a profit.

With so many different types of bookkeeping software available for freelancers to choose from, we thought we’d take a look at why record-keeping is so important, and what software can do to help.

How can bookkeeping software help freelancers?

There are lots of reasons why freelancers should spend time making sure their bookkeeping is up to date and accurate, but this can be time-consuming. Accounting software can often help freelancers by processing data automatically, rather than relying on entering everything manually. Let’s look at some of the most common advantages of using bookkeeping software below.

Better budgeting and business decisions

Your financial accounts tell the real story of how well your freelancing is going. For example, it might seem like you have lots of money coming in, but if you’re also spending a lot on office space or coworking desks, things might not be as healthy as they seem.

Good record-keeping helps you manage your budget, and make more well-informed decisions about your spending. It’s also a great way to hold yourself accountable for setting money aside to pay your tax bill!

Lots of accounts software will include reporting tools, so you can look at your bookkeeping data in a way that’s easier to digest, rather than a wall of numbers.

Are your customers paying you on time?

As a freelancer, one of your biggest challenges can be battling late-paying clients. Following up can be time-consuming (and frustrating) so some bookkeeping software includes automated reminders.

You can usually set contact intervals and personalise the message, leaving the software to fire out an email reminder until the invoice is marked as paid.

Are you paying the right amount of tax?

Paying too much tax will leave you unnecessarily out of pocket, while underpaying runs the risk of fines on top of the tax bill you still need to pay – neither of which are ideal! Your bookkeeping records are the foundation of everything you tell HMRC about your business, so accuracy is key.

If you decide to use bookkeeping software, you can usually connect it to your bank account and pull information straight into your records. It tends to mean there’s a lower risk of errors or missing anything.

Helps make sure you’re getting as much tax relief as possible

And on the subject of accuracy, good bookkeeping habits also help you record and claim allowable business expenses which will reduce your tax bill.

If you declare income that hasn’t had expenses deducted from it, you’ll end up paying more tax than you should. So don’t!

Using cloud-based bookkeeping software means you can access your accounts from anywhere with an internet connection. This means you can upload receipts as you go, rather than saving and compiling random scraps of paper everywhere.

You can even track your mileage, upload photos of receipts and manage invoices.

You can spot a potential problem before it arises

Bookkeeping records can be compared over time, making it easier to spot trends and patterns over time – or even potential problems as they develop. A good accounting app will include reporting functions which make this easier.

For example, if you can see your cash flow moving into a situation that isn’t so healthy, you can quickly and easily ascertain where you’re overspending and where you need to cut costs for a while to get back on the straight and narrow.

Do I need to hire a bookkeeper for my freelance business?

No, it isn’t a legal requirement to hire a professional bookkeeper or accountant, and lots of freelancers take care of everything by themselves – but there are advantages to outsourcing your accounts to someone else.

Freeing up your time

As a business owner, time is a hot commodity. You really start to understand the true meaning of “there aren’t enough hours in the day”. Outsourcing your accounts to a professional buys you back more invaluable time to spend working with clients, sourcing new work, and building your freelance business.

Maximum tax efficiency

While you’re busy growing your empire, a bookkeeper or accountant will help you spot ways to be more tax-savvy. You’re more likely to capture (and claim) your allowable expenses, as well as take advantage of things like tax relief and allowances.

Better planning for the future

Having a professional in your corner will allow you to evaluate your financial records more effectively and accurately. This, in turn, will help you make more informed decisions about the direction of your freelance business.

How do I choose accounting software?

To make sure you’re reaping all of these benefits, the most important thing to do is find bookkeeping software that works for you.

Do some research, read reviews and even take a few free trials to get a feel for the kinds of features and user interface you want.

If you do sign up for any free trials, don’t forget to cancel the ones you don’t want or else they’ll end up being recorded in your accounts as an outgoing expense and wasting your hard-earned money.

How often do I need to review my bookkeeping as a freelancer?

How often you do your bookkeeping, if you’re doing it yourself, is mostly down to personal preference and how busy your schedule is, although the general rule is to do it as often as possible!

Again, going back to bookkeeping software, automated tools and feeds will help you keep your records closer to real-time without having to do quite so much manual intervention.

The choice is yours but the more meticulous you are with your routine, the easier the whole bookkeeping and accounting process will be.

 
Head over to our freelancer information hub for more guides, tips, and advice.

The post A Beginner’s Guide to Bookkeeping Software for Freelancers appeared first on Freelancer News.

They all exist in the same professional realm, so the terms do overlap but there are nuances between them which are important to note for legal and financial reasons.

Some of the terms we use to describe self-employment actually describe the legal structure of your business, and these have an impact on how you register your business as well as for tax compliance.

It can be quite confusing, so we explain what it means to be self-employed, freelance, or a sole trader, and give guidance on the various tax implications to help steer you in your desired direction.

What does it mean to be self-employed?

As the name implies, being self-employed is where you work for yourself rather than as an employee of someone else. Self-employment means you own your own business and are responsible for your own income.

Self-employed business owners may also employ staff and be responsible for paying their wages (and relevant employee contributions like National Insurance and pension) too.

This can apply to businesses of all shapes and sizes (sectors and scales). Whether you own a boutique marketing agency or you’re a solo plumber, if you own the business and generate income from it, you’re self-employed.

Responsibilities

As a self-employed worker you’re in control of things like the scope of work, setting your pricing and rates, and which clients you want to work with. This level of autonomy is one of the most appealing things about being self-employed versus working for somebody else who calls those kinds of shots.

That said, with freedom comes great responsibility and being self-employed also means the onus is on you to deal with things like invoicing, chasing payments, financial accounts, and taxes. (Unless, of course, you get an accountant to help you out, which we’d always recommend doing if you can afford it!)

Self-employed vs. Freelancer vs. Sole trader

It’s important to note, before we go any further, that sole traders and freelancers are self-employed.

Freelancer and sole trader status are not separate or different from self-employment. The crucial difference is that the term ‘sole trader’ describes a legal structure that you can register the business as. Another type of legal structure is a limited company.

So, someone who is self-employed might be a sole trader or they might have a limited company. In summary:

• Sole trader: A type of legal structure that you use to register the business
• Self-employed: You work for yourself, and you can do this as a sole trader, a limited company, or in a partnership
• Freelancer: Someone who is self-employed (and that can be under any business structure you like). The thing that’s different about freelancers is the way they work.

Who qualifies as a freelancer?

A freelancer is somebody who works for themselves, so in that respect you’re self-employed. Freelancers tend to work remotely, and usually work by themselves although they might also collaborate with others as part of a larger project. Freelancing tends to involve:

• Working for multiple clients or on a variety of projects at once
• Being hired on a retainer basis or for adhoc work and projects, rather than on a set contract length
• Controlling the scope of work and rate of pay, including the payment basis (such as with a day rate or project cost, and how often payments are made, such as with milestone payments or on completion)
• Invoicing clients for payment
• Reporting profits and expenses, and paying Income Tax and National Insurance (NI) contributions

Somebody who is a freelancer might operate as a sole trader or as a limited company. They might also work for an employer at the same time as running their own freelance side hustle.

What is a sole trader?

A sole trader is a self-employed person who works for themselves and owns their own business—and is therefore responsible for earning their own income and reporting it for tax purposes.

The main difference between a sole trader and a limited company is that sole traders have unlimited liability. This means that the business owner’s personal finances aren’t considered to be separate from those of the business itself.

Limited companies, on the other hand, keep the business owner’s personal finances and assets separate. This means they will be protected if the company finds itself facing debt or any other financial problems.

Can you be employed and self-employed at the same time?

Yes, you can be employed and self-employed at the same time. Some people choose to run a business outside of their employment to supplement their salary or invest in another skill or passion.

This is what is often referred to as a ‘side hustle’. According to recent research published by finder.com, 43% of Brits have a side hustle as an additional source of income.

This self-employment side hustle falls under the umbrella of self-employment but could be under the remit of freelancing, sole trader or owner of a limited company, etc.

How do self-employed people pay tax?

How self-employed people report and pay tax depends on how their business is set up, which is why the point about business structure is important. For instance, being a freelancer doesn’t actually tell you what type of tax you need to pay. The way you set up your freelance business does.

• Sole traders submit Self Assessment tax returns and pay Income Tax on all of the profits they make
• In a limited company the business owner submits a Company Tax Return to report the company’s profits and pay Corporation Tax on them. They’ll also need to report their own individual income that they take from the business.

Head over to our freelancer information hub for more guides, tips, and advice.

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