Freelancers’ Questions: What must I do now I’m freelance?

Freelancer’s Question: I currently have a 9-to-5 permanent job but recently began freelancing in the evenings. As an employee who freelances sometimes, I anticipate that my freelance income will not exceed £200 a month.

So do I need to register as self-employed? Will this activity as a freelancer impact my net salary as an employee? Plus, can I make and send an invoice now to my first customer, even though I’m currently unregistered as self-employed?

Expert’s Answer: Yes, you should register as self-employed with HM Revenue & Customs straight away even though your business is small; there's no minimum level for registering as self-employed.

Here's where you need to go to register with HMRC.But no, your self-employment won't affect how much tax you pay on your salary; that will continue to operate in exactly the same way, but you'll need to fill in a tax return every year to report your salary and your self-employed profits to HMRC.That's so HMRC have all the information about your income in one place.

You'll have to pay some extra tax and National Insurance on the profits of your business, in addition to the tax you've already paid on your salary.The National Insurance you'll pay on your profits is called Class 4 National Insurance.There is also another flat rate of National Insurance that self-employed individuals pay, which is called Class 2 National Insurance.

Fortunately though, if your business's profits are small (under £5,885 in the tax year to 5th April 2015) then you can apply to be exempt from Class 2 National Insurance. Such an exemption is known as the Small Earnings Exception. If your self-employment was your only income, then that might be an issue because not paying Class 2 National Insurance can affect your entitlement to State Pension later. However this shouldn't apply in your case, as you're having National Insurance deducted from your wages.

Lastly, you can indeed start invoicing your customers now. There are various tools you can use to help you do that, such as Invoicematic.Keep in mind -- it is a very good idea to keep on top of your bookkeeping as soon as you incur your first costs as a sole trader (self-employed individual), otherwise you could find yourself paying too much tax if you miss costs out.

The expert was Emily Coltman FCA, chief accountant at FreeAgent, an online accountancy solution tailored to freelancers and the self-employed.

Editor’s Note: Related Reading -
Combining freelancing with employment

Freelancers’ Questions: How to start freelancing on the side?

Freelancers’ Questions: How much tax to pay on freelance earnings?

Freelancers’ Questions: Will HMRC tell my employer I’m freelancing? 


25th February 2015

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