Tax Tips for Freelancers
Tax Tips for Creative Freelancers
As a creative freelancer, tax filing can get extremely confusing and stressful due to multiple income streams and a lack of understanding of how these impact tax payable. It is common to feel the prevalence of anxiety whenever the tax season shows up due to a lack of time and understanding. To make it simple for you, our in-house tax accountants have curated a list of Tax Tips for creative Freelancers to help you cover the basic tax efficiencies.
“Tip: Working out income tax can be very time-consuming and tricky. It is advisable to speak to a tax accountant to help you file accurate annual tax returns.“
Who is a Creative Freelancer?
Before applying these tips to start saving tax, you need to identify if you are a creative freelancer such as an artist, designer, musician etc. or if you are even a freelancer for tax purposes. If you are not employed and cannot be considered as an employee under IR-35 nor do you operate through your own limited company, then you can be considered as a freelancer even if you are yet to register with HMRC as a sole-proprietor. If you freelance within the creative industry, as a designer, artist, musician etc, then you can be considered a creative freelancer.
Employing maximum creativity is only possible if an individual’s mental state is at peace. Submitting returns close to the deadline or without an understanding will only make things worse. Follow the tips provided by our expert accountants to save you enough time to focus on other things, say launching your art gallery or releasing your music label worldwide.
Related: Learn the critical differences between a contractor and a freelancer.
Begin by checking whether you qualify for taxes or not:
Don’t panic and rush to register as a sole trader with HMRC, begin by first determining whether you qualify to file taxes as a creative freelancer as we have shown above. As a creative freelancer, your tax duty starts as soon as you make your first income. Whether you get paid for a number of subscriptions on Youtube or for selling your piece of art in an exhibition, you are liable to declare that income on your annual tax return accordingly.
What expenses can I claim as a creative freelancer?
Once you have determined whether you qualify to file tax as a freelancer in the UK, you will need to identify every cost you incur to fulfil your daily business requirements. Creative freelancers, similar to self-employed individuals, can enjoy substantial tax breaks and reliefs but only if they are successfully able to identify and declare all of the deductible expenses in their tax return.
Our tax accountants have listed down all of the possible expenses you can claim as business expenses to help you reduce the amount of tax payable.
You can claim the majority of the incurred expenses if you run your business from home. Whether you pay for electricity, heating and rents, you can claim several home office expenses as business expenses along with other equipment that helps add value to your work. Home office expenses depend upon the percentage of space you occupy to do your work along with the number of hours you dedicate each day.
List of expenses you can claim as a freelance contractor to reduce tax:
Here is a list of expenses that are allowable and can be claimed to reduce tax:
- Any tool that you require to complete your job, for instance, art stationery like pens, pencils or canvas. If you are a photographer, you can claim for the high-tech lens you bought for your camera as an expense. Anything that adds an extra touch of creativity or value to your work has the potential to be claimed as an expense. We advise you to keep a thorough track of all the tools and equipment you regularly use to get the job done.
- Travel costs can also be claimed as expenses even if you don’t have a car but still pay for public transport or Uber for meetings or shopping. If you have an office space, the travel to and from the office is not allowable.
- Your subcontractor’s or employee’s charges.
- Accounting consultancy and service fees.
- Commissions you pay on the sale of your work.
- Memberships or subscriptions (for business purposes).
- Fees for IT-related services for portfolio design and web development.
The list of items you can claim as expenses are very long and industry-specific. So we advise you to speak to a personal tax accountant to help you categorize all the things that you can claim as business expenses and do your taxes correctly.
Storing receipts will keep your tax game up:
If you wish to stay calm during the tax season, the golden tip is to store and organize every qualifying receipt to file your annual tax returns error-free. Every single receipt can serve as a ticket to claim potential tax reliefs in the future, so it is advisable to keep track of even those receipts which might not also qualify as an expense later.
For receipts which you are unsure of, you can always speak to a specialist tax accountant or personal tax accountant to help you decide if these should be included in your tax return or not.
You should also pay attention to how you plan to keep these receipts safe. We advise you to save hard and soft copies of every receipt you come across. For a paper receipt, you can always write the transaction purpose at the back to quickly check what is it actually for, so that you know what these are for if investigated by HMRC.
Also, develop the habit of entering the receipt information into your accounting software (if you have any) regularly, and if not, then we advise you to talk to an accountant who can help you prepare an expense account for your freelancing business.
As a creative freelancer, you probably have an online portfolio to manage. We advise you to regularly check on your collection and see whether it needs any tax-related update. If it does, then you can file those receipts and try making it a part of your routine work to stay on top of your taxes.
Related: Are you working hard to plan your finances efficiently? Learn how you can effectively plan for personal financing by reading our step-by-step guide.
Let the accountants complete your tax obligations:
Annual tax filing is a complicated and time-consuming process that demands full attention; hence creative freelancers may find it very troublesome to allocate additional time for this tax process. Hiring a tax accountant can not only save you time but also money through increased tax efficiencies.
Though an accountant may cost you a fortune, you should remember that the benefits associated with hiring an accountant will outweigh the costs. For instance, an experienced accountant can help you identify those tax reliefs which you would have overlooked. Also, you can always claim your accountant’s fee as an expense in your tax return.
We advise you to stay organized and keep track of your finances like expenses and income throughout the tax year to make the year-end filing process simpler and easier.
Tips to protect yourself financially and legally when working as a freelancer:
- Research your clients: You don’t need to accept the first project offered to you blindly, but instead, it’s wise to research the client first and check whether the client is honest or not. If you feel that the client doesn’t look so promising, you have full freedom to reject the offer as a freelancer. Please do your homework and research everything you can about your potential clients before you sign any contract with them.
- Always have a contract in place: A contract is a type of document that guarantees an agreement between both parties to do work according to the terms and conditions mentioned. You should ensure that you have a specific contractual agreement with your client because the contract serves as a potential safeguard from financial and legal troubles.
- Keep proof of work: The client can blame you for an insufficient level of services, which might have a terrible impact on your portfolio due to a negative review. You can keep your proof of work by using monitoring software that enables the system to track your work progress, and automatically take screenshots of your work if you are writing an article (if you are a content writer).
- Set up a billing system: Setting up a billing system is one of the best ways you can protect yourself financially. A billing system allows an individual to track their due payments when working on multiple projects, and you also save yourself from the hassle of reminding every client individually. Moreover, you get more control over your cash flow and will be able to forecast whether you are going to run out of cash soon or not.
Related: Read more about how you can stay ahead of the game by reading the financial tips for freelancers provided by our in-house accountants.
Clear House Accountants are proficient Accountants in London that have been providing quality services to contractors and freelancers. Our in-house personal tax accountants ensure that their freelance utilises valuable tax reliefs. Our accountants help clients save enough money and time so that they can pay attention to other aspects of their business.