Time and the Taxman waiteth for no freelancer

Any person considering starting out as a freelancer, either as their main employment or to top-up their income, has a great deal to think about. How much they hope to earn, and how much they expect to invest in their new venture; how to market and advertise their services; whether they will work from home or look for a separate premises; what the impact will be on their family and social life, and much more.

What can be pushed to the bottom of the priority pile is ensuring that you are fully compliant with the regulations on tax. Most people who have paid tax – and not many of us haven’t - assume that they understand the basics of the system. They will be aware, for example, of the Self-Assessment programme and its deadlines: the initial cut-off point at the end of September for those who want the taxman to do the maths; and the final deadline of 31 January to have filed and paid if you wish to avoid penalties and interest charges. The most organised of us will even have a reasonable idea of how much tax they expect to pay, and will conscientiously put funds aside to avoid the unpleasant surprise of a large bill.

The often-made mistake, however, is to assume that the taxman is only interested in our freelance activities once the money starts to come in. In fact, notifying your tax office that you will be undertaking freelance work should be among your very first priorities. You have just ninety days – a period during which the average start-up will have turned over nothing at all – from the date you commence self-employment to register, or you face a £100 fine.

True, some freelancers may find that they register for self-assessment never to use it: some ideas don’t work out; sometimes a plum employment opportunity arises and forces a change of plans. Don’t be fooled into thinking that by holding off registration until your freelance work starts to pay its way, the Revenue will thank you for saving them unnecessary work.

Do not assume, either, that because you have previously registered as self-employed or already completed a self-assessment you are exempt from registering. Starting up a new line of freelance work counts as a change of circumstances, and you are obliged to keep the tax office up to date. More than one consultant has found themselves with penalties to pay when returning to freelancing after a period of regular employment, due to their self-employment registration having lapsed.

Atypically, registration is reasonably straightforward; the best method is to download leaflet SE1 from the HMRC website, ensure you have all the information required to complete the enclosed form, then to call the Helpline – the number is on the document. Alternatively, the form can be 'snailmailed' to Newcastle upon Tyne. Whichever route you choose, though, the important thing is punctuality; don’t leave yourself open to penalties for the sake of a little compliance.

Doug Brett-Matthewson


5th September 2007

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