Taxes Demystified: What Every Freelancer Needs to Know
In this episode, we’re diving into a topic that many freelancers find overwhelming: taxes. How do you stay compliant, maximise your deductions, and avoid costly mistakes?
Joining Emilie Bellet is Emma Hardwick, Chartered Certified Accountant. With years of experience supporting freelancers and business owners, Emma is here to demystify tax and share practical tips to help you navigate self-assessments, VAT, expenses, and everything in between.
You can listen (24 min) and subscribe here:
Now available on: Apple Podcasts | Spotify | Podlink
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Here are some key takeaways from the discussion:
1. Register and Know Your Deadlines
As a freelancer, you must register as self-employed with HMRC and file a tax return annually. The tax year runs from 6 April to 5 April, with the self-assessment deadline on 31 January.
“Missing deadlines = penalties. Set calendar reminders and stay ahead of the game.”
2. Payments on Account Can Catch You Out
If your tax bill is over £1,000, HMRC will expect advance payments for the next year—50% in January and another 50% in July. Many freelancers don’t see this coming.
“Your first tax bill might feel manageable, but your second one could double. Plan ahead.”
3. Claim All Business Expenses, but Stay Within the Rules
Freelancers can deduct business-related costs, including:
Travel and mileage
Business software and subscriptions
Home office use (£6 per week as a standard claim or a detailed calculation)
Professional insurance
Equipment such as laptops and phones
Expenses that cannot be claimed:
Client entertainment
Personal clothing, even if worn for work
Gym memberships, unless necessary for your profession
Keeping receipts and proper records ensures you stay compliant and make full use of allowable deductions.
4. Separate Business and Personal Finances
Having a dedicated business bank account simplifies bookkeeping and tax filing. Ideally, freelancers should have:
A business current account for income and expenses.
A business savings account to set aside tax money.
Keeping business and personal finances separate reduces confusion and prevents tax complications.
5. Save for Tax Throughout the Year
Rather than scrambling to cover your tax bill at the last minute, set aside 20 to 30 percent of every payment in a separate account.
Treat tax savings as a non-negotiable expense to avoid financial stress when payments are due.
"The best way to avoid a tax nightmare? Save as you go, so tax season is just another day."
6. Make Use of Pension Contributions
Freelancers do not receive automatic pension contributions, but saving into a private pension offers tax relief and reduces taxable income.
A pension is one of the most tax-efficient ways to save for the future while lowering your tax bill.
"Freelancers often forget pensions exist—until they realise they have no retirement savings."
7. Consider a Limited Company for Greater Tax Efficiency
If you earn over £50,000, switching from sole trader to a limited company may be more tax-efficient. Limited companies pay 19 percent corporation tax, compared to sole traders who may pay up to 45 percent income tax
Business owners can pay themselves a mix of salary and dividends, reducing their tax liability. Sole traders have a simpler setup, but a limited company offers more financial flexibility as income grows.
"Being a sole trader is simpler, but a limited company can be more tax-efficient as you grow."
8. Be Aware of VAT Thresholds
If your turnover reaches £90,000 in a rolling 12-month period, you must register for VAT. This requires:
Charging 20 percent VAT on your services
Filing quarterly VAT returns
Tracking income monthly helps avoid unexpected VAT registration.
"Hitting the VAT threshold changes how you run your business—monitor your income so it doesn’t sneak up on you."
9. Plan for High Earnings Over £100,000
Once earnings exceed £100,000, the personal tax-free allowance (£12,570) is gradually reduced. To manage this:
Increase pension contributions to lower taxable income
Make charitable donations, which qualify for tax relief
Spread income across tax years where possible
"Earning more is great—but smart tax planning keeps more in your pocket."
10. If You Can’t Pay, Contact HMRC
If you are struggling to pay your tax bill, HMRC offers payment plans and the option to reduce advance payments if your income has dropped.
Ignoring the issue will only make it worse, so it is best to contact them early.
"Freelancers who bury their heads in the sand over tax bills only make things worse—speak to HMRC early if you need help."
PARTNER
Thank you to our partner PensionBee. With PensionBee you can combine, contribute and withdraw online. Take control of your pension, so that you can enjoy a happy retirement and join over 265,000 customers saving with PensionBee.
RESOURCES
Connect with Emma Hardwick at Plus Accounting
