Many freelancers across different industries are balancing invoices and incomes from multiple sources.
While this can mean greater financial security and freedom, it can also bring additional administrative headaches when it comes to taxes.
According to Lauren Harvey, Accounts Manager at The Accountancy Partnership, an expert in accounting and tax for freelancers, she sees many make life harder for themselves when it comes to tax.
“Freelancers in all sectors, whether this be the creative industries or sports, are wearing many hats; one day hosting a workshop, the next day travelling to a client meeting and then the next settling down to take care of the admin.
However, HMRC doesn’t care how many income streams you have; all they care about is that you declare them properly and on time.”
Lauren discusses five of the most common mistakes she sees from freelancers juggling different income streams.
1. Not tracking every penny
When you’re juggling multiple income streams, the most important habit to get into is to record every single payment you receive, no matter how small it is.
HMRC requires you to declare all taxable income, even if it’s just a couple of pounds. It’s often the ‘little bits on the side’ that freelancers forget about, but these are the ones likely to cause the most problems if they’re missed off a tax return.
Make sure you can identify which business or income stream a transaction belongs to for your own reporting and understanding, but it’s crucial to make sure you include everything when you’re supposed to!
2. Understand what HMRC expects
If the total amount you earn from self-employment or other miscellaneous activities is more than £1,000 in a tax year, you’ll need to tell HMRC about it using a tax return, even if you’re also in full-time employment and taxed through PAYE on earnings from your employer.
HMRC doesn’t separate your additional freelance income from your main job, so you’ll need to include everything on your tax return although you won’t pay tax on the same money twice!
3. Claim allowable expenses properly
When you have more than one income stream, it’s easy to blur the lines on what expenses you can and can’t claim back against tax. However, each stream may have its own distinct set of allowable expenses. If you don’t record these clearly for HMRC, then you could miss out on some vital savings or even raise red flags (businesses without any expenses at all may be unusual!).
The golden rule is to keep every receipt and invoice, however small. Many freelancers find it helpful to use digital bookkeeping apps where receipts can be photographed and uploaded straight away. This avoids the classic ‘shoebox of crumpled receipts’ in January and makes it far easier to evidence claims if HMRC ever checks.
It’s also absolutely crucial to make sure that you don’t claim the same expenses twice if they relate to multiple income streams.
4. Budget for taxes throughout the year
Many people forget that tax is a thing until the Self Assessment tax deadline comes, and they think they have more income than they do. Multiple income streams can make it harder to estimate how much you’ll owe by January, so a simple solution is to set aside 20-30% of your income as you earn it into a separate pot. This way, you’re not caught short at payment deadlines, and anything that’s left over is a little bonus!
5. Consider professional support
HMRC don’t always make things easy, and when your income comes from more than one source, the calculations can get quite complex. Having your own accountant can ensure you’re compliant, as well as reducing the stress that comes with having to do your own accounts.
They’re also great at helping you find additional tax reliefs you might be able to claim, so they might well help you save more than the amount it costs to hire one!
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.
