Freelancers' Questions: How to do a one-off freelance project as an employee?

Freelancer’s Question: I work full-time as a web design professional but I’ve been asked to do a project for an unrelated company as a freelancer, on top of my 9-to-5 day job.

How would I report the extra income and pay the tax? My annual salary is around £40,000 and I will work on the extra project for 4 months, a one-off job, earning me about £7,000.

Expert’s Answer: I assume that the whole of the project will be undertaken in the 2017/18 tax year. The simplest way to undertake this work is on a self-employed basis.

You will need to register as self-employed. You can do this online or by printing off a form to complete and sending it to HMRC.

You will be able to deduct business expenses from the income to arrive at your profit for tax and national insurance purposes, though from the nature of your work, I assume there won’t be much in expenses.

You will need to complete a self-assessment tax return for 2017/18, which needs to be filed by January 31st 2018 and the tax and national insurance will be due by that date, as well.

As your profit will be below £8,164, you will not need to pay Class 4 National Insurance, though you will need to pay Class 2 National Insurance if your profit exceeds £6,025. Class 2 National Insurance is a flat rate of £2.85 per week -- for those weeks that you are self-employed, paid as part of the self-assessment tax return (mentioned above).

Alternatively, you could undertake this work through your own limited company. Indeed, the company you are doing the work for may insist that it is done via a limited company.

On the figures you have provided, you will pay 40% on some of your profit if self-employed. Operating through a company would allow you to take some income from the company in 2017/18, so as not to go into the 40% band for that year and the balance the next year, again without higher rate tax. The saving is likely to be in the region of £800 and given the cost of setting up a company, having accounts prepared, and having to wait until after April 5th 2018 for some of the money, it is probably more sensible to stick with the self-employed route. Good luck!

The expert was Graham Jenner, co-founder of Jenner & Co chartered accountants.

Editor's Note: Related --

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

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

Freelancers' Questions: When to self-assess if I freelance and work full-time?


28th March 2017

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