Freelancers’ Questions: Now I’m registered self-employed, when do I self-assess?
Freelancer’s Question: Four aspects of registering as self-employed with HMRC are troubling me. Firstly, I registered as self-employed sole trader a couple of weeks ago, so when will I have to complete my first tax return?
Secondly, I registered to be self-employed and received my ten-digit number and I registered using a code number on the tax return website; is that all I needed to do to be fully registered? Third, aside to keeping accurate records, is there anything else I must do or will HMRC just email me when my tax return is due? Lastly, do I ‘de-register’ if I stop freelance work?
Expert’s Answer: As you have recently registered for self-employment, your first tax return will be for the 2019/20 tax year (April 6th 2019 – April 5th 2020). And yes, HM Revenue & Customs will contact you in writing after April 6th 2020 to remind you that a return is due.
If you decide to submit your tax return by paper you will need to complete it by October 31st 2020. But if you decide to submit the return electronically, either via the HMRC website or a third-party software provider, you have until January 31st 2021. Payment of self-assessment tax is normally paid in three instalments -- two payments of 50% of last year’s tax due (by January 31st in the tax year and July 31st following the tax year), with the balance due on January 31st following the end of the tax year.
However, in the first year, HMRC doesn’t know how much tax is due until the tax return is submitted, so the whole of the tax for the first is not due until January 31st following the end of the tax year. At the same time, 50% of that sum is also payable as the first instalment on account for the 2020/21 tax year.
NICs, records & VAT
You will pay two types of National Insurance as a sole trader; Class 2 (£3 per week) and Class 4 (9% for profits between £8,632 and £50,000 and 2% thereafter). Both the Class 2 and Class 4 National Insurance Contributions are paid via the self-assessment system noted above.
You ask about record-keeping. Well, in addition to keeping accurate records, you should also keep an eye on your rolling 12-month turnover. If at any point this exceeds or is expected to exceed, £85,000 you will need to register for VAT with HMRC and submit VAT returns. If your turnover is not as high as £85,000 and your client(s) is/are VAT-registered businesses, you might want to consider registering for VAT on a voluntary basis, as you would then be able to recover VAT on most goods and services incurred by the business.
When you stop freelancing...
Regarding your final query, when your self-employment ceases, you will need to notify the Revenue by completing this HMRC page entitled ‘Stopping Self-Employment.’ In addition, you would also complete a final Self-Assessment Tax Return once the tax year is complete. On this return, you will need to enter the date that your self-employment ceased.
The Revenue will then update your income tax record to reflect this and will remove you from Self-Assessment, providing that your circumstances mean that you are no longer required to complete a return. Then, HMRC will write to you to confirm that you have been removed from Self-Assessment.
Paperwork? Penalties? Get help
Finally, consider that current legislation requires you to keep your original business records including invoices, receipts and bank statements for at least six years, plus the current year.
If in doubt about your duties and obligations, it is worth looking at engaging the services of an accountant to assist your freelance business and yourself. You should want to ensure that all submissions to HMRC are made on time so as to avoid late-filing penalties, which can be hefty.
The expert was Elaine Cooper of chartered accountancy firm Jenner & Co.
22nd October 2019