Q: I’m thinking of going freelance but am unsure of how to account and save for any tax I might have to pay. Can you give any advice?
A: Going freelance can be rewarding, but it does come with risks and pitfalls you should make yourself aware of. Make sure you have a solid financial plan and are realistic about your expected level of income.
If you think you’ll earn at least £50,000 per year, you will need to be compliant with Making Tax Digital from next April (see earlier article in this newsletter). If you think your turnover will reach above £90,000 you will also have to register for VAT. Keeping up-to-date financial records using HMRC approved MTD software will help you calculate your VAT obligations.
Regarding your personal tax to be paid, as a rule of thumb you should aim to set aside 40% of the net value of your invoices received from customers. This will cover you for tax, national insurance and possibly a pension contribution.
Please get in touch with us if you would like to discuss your business plans in detail and get further tax planning advice.