Freelancers' Questions: Must I register to start freelancing on the side?

Freelancer’s Question: I have a full-time job but occasionally have opportunities for freelance work on the side, once or twice a year, never exceeding £10,000 in total income.

Do I need to register as a freelancer with HM Revenue & Customs if I want to pursue this work, or can I declare this as 'other income’ on my tax return, without registering as self-employed? And can I ignore VAT if I'm not VAT registered, or why might it be beneficial to register? Hopefully I can do all of this retrospectively, after I've done the first job?

Expert’s Answer: The answer to this question depends on whether you are operating a business as a freelancer or are undertaking one of the jobs on an ad-hoc basis, which could be argued to be casual earnings.

HMRC do allow casual earnings to be reported on the tax return as other income. If this was a business, however, you would need to register as self-employed with HMRC. The difference is that if you were self-employed you would need to complete the self employment pages of your tax return, and also pay national insurance on the income (the amount of this would depend on the level of your employment income).

Factors to consider to help you in determining whether these are simply casual earnings or whether you are running a business, would include:

- Is there a motive to make a profit;

- Are you working on a repeat business basis with the same client,

- Do you intend to expand the frequency or the value of the freelance work; and

- Is it linked to or similar to the work you do as an employee?

In terms of VAT, as the income is well under the VAT registration threshold of £73,000, you are not required to register for VAT. If you did conclude that you were operating a business as a freelancer then you could consider voluntarily registering for VAT to give you access to the Flat Rate scheme. This may give you a financial benefit but you would need to consider the pros and cons of doing this (such as the increased administrative burden and whether your clients can reclaim VAT or not). 

The expert was Martin Hesketh, managing director of Brookson , an accountancy and tax firm specialising in services to freelancers.


14th October 2011

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