Financial Future

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If you are a freelancer or contractor working in the UK, then your tax issues are likely to be a bit more complicated than people who are regularly employed. We’ve put together a guide to help you through it and sort out your tax. One major thing you need to sort out as quickly as possible is whether your business means you need to register a company or if you are self-employed and working as a sole trader as this can affect what tax you pay.

You also need to consider the issue of Value Added Tax to work out if you need to register for it or not. You won’t have to register for VAT if you’re on low to average earnings, but if you’re a high earner on over £64,000 a year then you need to register for it. This is something you can get an accountant to help you do and you might want to separate the VAT when sending invoices. This is so you can collect and claim for VAT.

Paying your National Insurance contributions is another thing you need to arrange if you’re a freelancer in the UK as it’s different for self-employed people. Most people will be expected to pay Class 2 NI contributions unless their earnings are very low, exempting them from the charge. It’s relatively easy to set up a direct debit with Her Majesty’s Revenue and Customs to pay for this. If you’re a high earner, you’re also required to pay a higher NI rate which you can volunteer to pay, too.

Self-assessment tax returns are one of the big issues for UK freelancers and contractors. These are based on the previous financial (which runs from April – April) and you will be charged tax based on how much you earned in that financial year. You need to make sure to keep a record of all your earnings and all costs related to your work so you can input them into the form and help HMRC come up with an accurate figure as to how much tax you owe.

One last thing to consider is how you’ll be paying your tax bill. It can be a good idea to have a cushion of money put by in case the following tax year is a bit lean and you don’t earn much as you’ll still be expected to pay the tax bill for the previous year. It can also be wise to put aside money throughout the year so that when tax time rolls around, you’ll have enough saved that you’ll be able to pay is easily.

Now Try – Contractor Tax Or Contractor Umbrella Company

When shopping for the right umbrella company for your freelance business, there are a number of things to watch for in a perspective firm. With all the promises and manipulative statements you see on the television, it can be difficult to know what to look for, so take your time and learn as much about the companies as you can.

While many companies will advertise that they are IR35 compliant, in reality, all umbrella companies are. With changes in the laws over the years, the only remaining option is to be paid by PAYE, making compliance irrelevant. One sign that a company is not trustworthy is if they claim that you can submit expenses without receipts. That may be true, but the HMRC will likely investigate the company eventually, and you will be held accountable for any expenses you cannot prove.

Carefully examine the company’s fee structure. While most charge a flat fee for services provided, some charge rates that are income based. If you are a high earner, you will pay more for the same services as someone who earns less. If your income increases, so will the rate you pay, so it is best to make sure the firm charges a set amount monthly. Watch out for set up or exit fees, and make sure there are no penalties for terminating your contract.

Ask the company how long it takes them to pay clients. Some umbrella companies are slow to send out invoices, and in turn, are slow to pay. For some freelancers, timely payment is a very important detail, but can easily be overlooked. Find out if they take money from your pay for future payments like holiday and sick pay. This may be a desirable service for you.

Find out about their customer service. They may provide speedy, online services, but you need to know how long it will take for them to get back to you and help if you have a problem. Ask if you will have a manager that you will deal with on a regular basis or if you’ll be passed around from one person to the next to explain your problem.

A good umbrella company should be able to provide you with testimonials from clients and good references. Another useful tool is to ask around for referrals from fellow freelancers and friends. Word of mouth is usually a good indicator of a company’s reputation, and friends and colleagues will be able to tell you which companies are good, and which ones to avoid. If you ask the right questions and know what to look for, you will have no trouble finding the right umbrella company for you.

Now Try – Umbrella Companies